A blockbuster deal involving a Scottish firm whose name is not well known outside financial circles has highlighted a development in the property world that may not be the boon some think.
Edinburgh-based Sigma Capital last month announced a recommended offer from a private equity firm that put a near £200 million price tag on the business.
The deal valued the shareholding of Sigma chief executive Graham Barnet at around £12.5m.
Fair reward some would say for a man who can claim to have played a pioneering role in the development of a new sector of the property market.
Sigma was formed in 1996 as a specialist in the technology sector and provided backing for a range of early stage firms.
Mr Barnet shifted its focus on to the bricks and mortar market and within that the emerging build-to-rent sector. He recognised that house price inflation combined with the growth in the number of households meant there would be strong demand for rented accommodation.
Supporters reckon the provision of more homes for rental could provide an ideal solution for people who are getting priced out of home ownership or don’t want to make the commitment involved.
On its website Sigma says there is a structural undersupply of new housing in the UK and demand for quality rental homes, especially for families, is high.
It notes: “The UK rental sector is fragmented and predominantly privately managed, with the standard of homes and the level of landlord care varying considerably. As a result of changes in taxation and costs of entry, in recent years many small private landlords have chosen to exit the market, further reducing housing supply.”
Sigma formed partnerships with local authorities and a range of other organisations who obviously decided that build to rent could make a valuable contribution to the market.
The company has delivered around 5,400 homes to date.
Sigma has played up the social benefits associated with an approach which champions reckon can help breathe new life into neglected areas. The company describes itself as a Private rental sector (“PRS”), residential and urban regeneration specialist.
What’s not to like?
The deal Sigma directors negotiated with the PineBridge Benson Elliot property investment business makes clear that deep-pocketed financiers think the build-to-rent market has very strong long term potential.
READ MORE: Build-to-rent specialists eye landmark Edinburgh development
Joseph De Leo, managing partner of PineBridge Benson Elliot noted the company spent months studying Sigma and the market before concluding a deal that reflects confidence in its growth ambitions.
“Sigma operates in an important part of the market that has shown remarkable resilience over the past year and, in partnership, we can further build on the successful UK housing platform the Sigma team have established,” he said.
The deal, which is subject to shareholder approval, was agreed with Pinebridge following a sale process that Sigma said attracted interest from multiple well-funded parties
The scale of the investor interest in the sector has been made abundantly clear in Scotland where a range of large scale build to rent projects are in the pipeline.
Developments that are already on the stocks are set to deliver around 2,000 homes in total in Glasgow alone.
These include the 433-unit scheme planned for the site of the former Strathclyde Police headquarters on Pitt Street.
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The Holland Park project planned for the site, comprising four apartment blocks, will be developed and operated for the long term by Moda Living.
The project is backed by the Apache Capital Partners and Harrison Street real-estate investment firms. These are based in London and Chicago respectively.
In Edinburgh Moda is set to operate the 476-unit Springside ‘urban village’ planned for the city’s Fountainbridge area, which it says will include shops, bars, restaurants, extensive parks and a public square.
Springside is also backed by Apache and Harrison Street.
Some people might regard investor enthusiasm for build-to-rent as a sign that the market can adapt to deliver what society needs.
READ MORE: Singapore investors buy in to £30m Edinburgh student housing development
Lloyds Banking Group, which owns Bank of Scotland, Scottish Widows and Halifax, this week provided an endorsement for BTR when it announced plans to buy developments of homes for rental.
Others, however, may have serious concerns about the prospect of many areas in Scotland’s towns and cities and a large share of the housing market being owned by investors based outside the country. These concerns will only be heightened by the scale of the developments that are being planned, the size of which will likely be dictated by the commercial imperatives of the investors and operators concerned.
Local authorities may be able to require developers to include amenities that will benefit a wide range of people in the area of developments.
However, there will be concerns that some of the developments that are under consideration could become primarily the preserve of the affluent.
On Moda’s website studios in the 466-unit Angel Gardens scheme the company operates in Manchester are advertised at a rental of £1,000 a month. Three beds start at £2,050 a month.
People are allowed to register interest in the developments planned for Glasgow and Edinburgh by Moda, which is also active in other centres that have big professional populations such as Liverpool, Leeds and Brighton.
READ MORE: Property developer recuits heavy hitter to lead expansion drive in Scotland
Those who are able to pay the rents concerned may be happy to live in the kind of communities that are under development. The apartments advertised in schemes such as Angel Gardens do look to be high specification and benefit from perks such as a 24-hour concierge service.
Given the size of the rents charged, tenants may not have much chance to save up enough money to take the difficult first step on the home ownership ladder.
Unlike those who are able to chip away at a mortgage the money they pay for their housing will not create anything of lasting financial value for them and their families.
This underlines the potential for what is billed as a solution to a housing market problem to reinforce the divide between those who own homes and those who rent.
In countries such as Germany in which rented property accounts for a much bigger share of the market people may be bemused by the British obsession with home ownership.
It may be time for people in Scotland and other parts of the UK to think again about renting.
But if there needs to be such a revolution why should the benefits go to the affluent and to investors based outside the communities in which build-to-rent developments are springing up?
READ MORE: Edinburgh-based housebuilding giant acquires huge landbank
With interest rates at historic lows there is an opportunity for the public sector to use cheap debt to invest in the development of rented housing on the scale required to meet demand for homes.
Strip out the profit margins that private sector operators would expect to achieve and the returns on investment that funders would look for and the costs concerned could be much lower than for the delivery of private sector build-to-rent projects of matching quality.
That would require some politicians to think again about the ideological opposition to council housing which has been rife since the days of Margaret Thatcher’s premiership, during which local authorities sold huge numbers of homes at discounts to their valuations.
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