Operating partners should think more like asset managers


20/10/2022
by: Mary-Anne Bowring

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Real Estate Allocations

Real estate allocations are holding steady, with continued high investment volumes for income-generating, inflation-hedging sectors such as Build to Rent. 

By Mary-Anne Bowring, Group Managing Director, Ringley Group

Investors from Europe and America, in particular, are still increasing their exposure to UK Build to Rent despite it still being a nascent market grappling with a dysfunctional planning system, evolving consumer attitudes towards renting, a shifting regulatory environment, and a supplier market adapting to this proposition. What it does mean, however, is that investors are finding their feet around how to best optimise investment value and harness the necessary expertise to do that. 

A vertically integrated model, where investors invest, develop and operate for the long term, is often the favoured path of choice. However building these models requires considerable upfront and ongoing investment, as well as time, resource, and energy expenditure. Build to Rent is an asset class that already operates on tight margins, so many take the view that an external but safe pair of hands, grounded in experience, local expertise, and tech, is a safer bet. 

Growing demand for this model has triggered a boom in the UK’s operating partner market. The irony is that this is also a market finding its feet, given the launch of the first UK Build to Rent product was only ten years ago – a short time window in the real estate universe. Operators are still on an educational journey in the same way that investors and developers are, with some perhaps not quite as proficient as they like to make out. 

Many of these companies naturally take refuge in doing what they know most about property and lettings management. They take inspiration from a long history in the traditional private rental sector and draw upon their experience in servicing private landlords. This one-dimensional and lettings-driven approach typically focuses on customer service offerings, with key considerations around front-of-house, amenities, digital connectivity, and staff support services. Car parking, rent collection, and repairs are also at the top of the priority list.

These are undoubtedly important features and intrinsic to the success of Build to Rent investment plays given good customer service and property management enables stable occupancy rates, reduces leakage, and ultimately realises income – but it overlooks other vital concerns from investors. The sophistication of strategies warrants an institutional-grade service from involved consultants and partners. That could be in areas of underwriting, reporting, asset tracking, financial management, controlling gross to net, operational vs embodied carbon, compliance, data collection, cap ex vs op-ex modelling, project monitoring; I could go on.

These are the sorts of topics large investors priorities and it’s why I say operating partners should think more like asset managers. Operating partners need to present a case to investors that illustrates their ability to unlock non-resident revenue streams across the whole asset lifecycle. This is where they can offer transformative long-term value. 

That means engaging at the earliest possible stage, from deal structuring to underwriting, development design, and management, leasing strategies, or ESG accreditations, all of which seek to maximise gross-to-net before the customer or property management stage. Partners like Ringley, who have decades of experience across investment, planning, development, and operations are uniquely positioned to deliver this.  It is beneficial to investors because it means they can adopt the vertically integrated model that so many seek, but strip out the additional cost and labour it requires.

It ensures cultural consistency across the capital stack. It omits the reliance on multiple partners and the risk of unwelcome tensions among them as a result of their competing commercial perspectives. It means far greater efficiency, with strong communication and an integrated tech offering at every stage of the chain. As decisions are made quicker with greater degrees of accuracy, reliability, and information, capital can ultimately be deployed at pace and scale. That means accelerating the path to stabilization and giving investment management teams time to focus on their pipeline of assets. 

BTR news Team: BTR operating partners should think more like asset managers

https://btrnews.co.uk


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