BMO REP launches UK Housing Fund with partner Home Group

BMO Real Estate Partners (BMO REP), the pan-European property investment and asset management specialist that is part of Canada’s BMO Financial Group’s £216 billion1 Global Asset Management business, announces the first close for its newly developed UK housing strategy. The BMO UK Housing Fund (the Fund) will target a circa 6% return and 4.5% annual distribution yield through the provision of high quality, purpose-built mid-market rental homes for local key workers. The Fund, which is launching in order to take advantage of immediate opportunities within its circa £250 million investment pipeline, is targeting around £500 million of equity to deliver a core, inflation linked income-focused portfolio, which will be underpinned by an innovative ESG Impact Policy overseen by an independent advisory group.

The aim of the new Fund is to address a distinct gap in the UK housing market by offering high quality, sustainable, community based rental property, targeted at low to middle income households whose needs are not currently being met and where a real growth opportunity exists, given the UK housing market fundamentals. Investment will be governed by a robust social agenda, aligning with rigorous ESG and impact investment objectives which have already attracted highly regarded and discerning impact investors, including Big Society Capital. The Fund’s ESG Impact Policy creates a strong governance structure to guarantee a product that satisfies occupier needs today and in the future, while also prioritising environmental considerations and promoting sustainable living, ultimately creating thriving communities for the long term.

BMO REP will work alongside its development and operating partner, Home Group, to invest in purpose built, quality housing stock that improves the options to rent for working households and complements existing market participants (operators launching premium rental accommodation and social housing provided by Registered Providers and Local Authorities). Home Group, which has been in existence for more than 80 years, is one of the UK’s largest providers of high-quality integrated housing, health and social care. BMO REP will act as Investment Advisor to the Fund, responsible for capital raising and governance, as well as the underwriting and purchase of appropriate sites and assets, forward funding any construction; Home Group will be responsible for sourcing sites with the appropriate planning consents, as well as forming part of the platform for the ongoing property management and leasing operations.

1 as at 30.09.2019 and includes both discretionary and non-discretionary assets Angus Henderson, Head of Business Development at BMO REP said: “This Fund enables us to provide a much-needed housing solution to low and middle income earners while generating sustainable, inflation-linked long term income returns for investors. To achieve this, Home Group was very carefully selected as BMO REP’s development and operating partner thanks to its long term track record and deep seated experience in building and managing large scale housing solutions, with an emphasis on improving the private rented sector with a management responsible approach. We have identified a significant pipeline of short to medium term opportunities which we are hoping to imminently take advantage of.”

Mark Henderson, CEO, Home Group said: “As a country, we aren’t going to be able to build the homes we need without innovative approaches. A larger, professionally managed private rented sector will have a positive impact in driving up standards. Making private renting better is crucial to ensuring everyone has a safe and affordable home to live in. Expanding Home Group’s housing delivery model into the private rented sector through the relationship with the BMO UK Housing Fund and the utilisation of the ‘Flexible Rent’ leasing mechanism we are able to offer the sector the potential to provide more of the homes we need at an affordable level with funding coming from the private sector. It does not need government grant – yet can operate at scale.”

Anna Shiel, Head of Origination at Big Society Capital commented: “There is a significant shortage of high quality, secure and affordable homes available in the private rented sector (PRS) in the UK, particularly for individuals and families on low to middle incomes. At Big Society Capital, we look for housing ideas to improve lives and help address the root causes of the UK’s housing crisis. An essential part of the solution is tackling the problems experienced by tenants and improving the quality and number of housing options truly affordable to people living in the PRS. “We believe the innovative Flexible Rent model will help support this by delivering new and professionally managed affordable rental homes and enabling build to rent to serve a wider market.”

BMO REP has been investing in and managing UK property for over 50 years and currently manages £6.2 billion of property across Europe, including £850 million of residential property in the mature German rental market. It has a strong track record in creating and managing real estate portfolios that deliver long term sustainable income and are built from quality, long term investments underpinned by strong fundamentals.