Why Greykite Thinks The Time Is Right For £750M Push Into SFR

When Greykite European Real Estate Fund I and Gatehouse Investment Management formed a joint venture to invest in purpose-built single-family rental homes in early November, they didn't do things by halves, pledging to invest £750M and acquiring an initial seed portfolio across 11 sites from housebuilder Persimmon Homes. 

The JV said it wanted to partner with a range of housebuilders to create a portfolio of around 2,500 newly built SFR homes and was targeting purchase commitments of more than £200M by the end of the year.

The sector is on a roll in the UK. The news came a week after the Canada Pension Plan and Kennedy Wilson announced their own SFR partnership. 

Bisnow sat down with Greykite founder and CEO Michael Abel and senior partner Dan Valenzano to hear exactly where the company will be buying and why it is so bullish on the sector. 

“We have a very thematic approach, based on research and data analysis, identifying themes that really have strong fundamentals, and SFR is one of our high-conviction themes,” Abel said. “We like that sense that the UK is not a regulated market like many European countries which have rent caps. So there's real potential to capture some of that rental growth in a very undersupplied market. 

“That's typically key when we identify themes that are interesting to us and, combined with the fact that you have significant large homebuilders in the UK that are producing a lot of that stock, SFR provides a really interesting opportunity.” 

While the market is clearly heating up, to fully exploit opportunities, investors will need experience in a nuanced sector, Valenzano said. This is not the pair’s first foray into the UK single-family sector, as they invested in SFR while they were at TPG.

He said that Greykite had been looking for investment opportunities that had either a “dramatic, chronic undersupply” profile or some “very healthy, predictable” demand.

“In a handful of cases, you actually have both,” he said. “And we think that UK rental market is characterised by both effects, which is very positive from a real estate investor perspective.”

With housing supply continuing to lag demand, Valenzano said the combination of SFR investors and housebuilders provided a “symbiotic way” to help deliver stock. 

“Homebuilders are willing to sell off at a moderate discount to people like us in bulk to get the wheels turning on their large sites, to get the infrastructure started, the homes starting to be built, and enabling them to put up sale banners for Phases 2 and 3,” he said. “This gives some confidence to the owner-occupier market, encouraging them to look at subsequent phases for which they will receive full price.”

Greykite is looking for sites that combine good employment prospects, transport infrastructure and educational drivers, while it also ranks cities based on criteria like GDP growth, demographics and affordability.

Abel said Greykite likes the dynamic of being able to partner with large companies that have long-term experience in delivering homes, targeting “high-quality homes that rent extremely well,” while having a familiar partner in Gatehouse has provided the company with the opportunity to “attack this theme.”

“In general, most of what we're going to do is three-bed houses of approximately 1K SF to 1,100 SF per home within larger communities where there's a vibrancy, where there's local transport links, employment drivers, good schools that are Ofsted-rated nearby,” Valenzano said. “And we want to diversify. So we don't want to just take concentrated risk in one city.”

The north-east is a new area as part of its seed investment, Valenzano said, but the Midlands, Yorkshire, Greater Manchester and Liverpool are all areas in which the pair have invested in the past. The farther south you go in the country, housing costs more, and so the affordability picture and the yield picture dramatically changes, he said.

The initial tranche of locations is also in proximity to Gatehouse’s property management division, Ascend, which is based in Manchester and has regional offices near the other sites, though Greykite does have its eye on cities such as Bristol and Milton Keynes farther south that match its investment criteria.

“One of the attractions for us is that we think this is a deep market and a strategy that we can scale further,” Abel said. “We have a high bar in certain criteria that we want to fulfil to achieve our profile.

“Our sense is there are not that many people doing this, although there are obviously a few more that have started. But we have been active in this space for many years, and that's not something you can just figure out overnight. So I think we're well positioned to scale this further.”