In a sign that the UK’s elder living market is starting to attract serious investor attention, BlackRock has agreed a GBP500m joint venture development deal with Audley Group.
The funds will allow Audley to accelerate growth of a second brand of retirement developments in the UK, named Mayfield. The brand, which will feature denser, larger scale projects on more urban sites, will provide a less expensive market offering than the company’s eponymous Audley brand.
Nick Sanderson, CEO of Audley Group commented: “This is a landmark event, not just for Audley Group but for the whole retirement living sector in the UK. Partnering with a leading global investment team is a major endorsement of our model and the potential for value creation in social and financial terms that exists within the sector.”
Sanderson reckons Audley’s offer – focusing on living better for longer – meets the mood of the moment: “An ageing population coupled with a pandemic has made people question their living choices and means they are rightly demanding access to active communities, greater security and a place where they can thrive in rude health within their own homes for as long as possible.”
The pair’s first site, in Watford, will feature 225 apartments. Ahead of a summer 2022 completion, the project is already agreeing pre-sales.
Audley will directly manage common parts of the sites, including all the extensive health, wellbeing, care, dining and leisure facilities included in each project. And in common with other areas of operational real estate, the senior team features many with hotel sector experience. Operations MD was previously at Hilton, Regal and Bespoke, development MD Kevin Shaw hails from the holiday park sector, while CFO Gary Burton was previously in charge of finance at easyHotel.
For now, Audley is sticking with a build for sale model, just as the debate in the UK market warms up, over the extent to which seniors want to purchase or rent retirement homes. This comes after private equity investor Lone Star took UK listed senior living developer McCarthy & Stone private, with its CEO determined to move from build for sale, to a build to rent model. After a rebranding that has dropped the “&” from the name, the group is now giving rentals equal prominence to homes for sale.
Meanwhile Benjamin Davis, CEO of investor Octopus Real Estate, speaking at a recent REFI Global elder living webinar, predicted the UK would follow the route of the far more mature Australian market, where there has been little appetite for rental: “If you’re buying property in a well managed development, it should increase in value.”
CFO Burton told Hotel Analyst that hospitality continues to be a strong theme within the business: “In hospitality, you’re centred on providing guests with a great experience – the approach is the same. Our happy residents are our greatest ambassadors.”
Burton said that the model is one the Audley team is keeping a close eye on. “For us, it’s very much about what our residents want. We haven’t seen that to be a need, but the opportunity that rental provides, is freeing up cash” and that allows families to have other options regarding passing down capital from one generation to another. “I think there’s an element of the market moving generally into renting.”
While the Audley brand is a high end product with smaller scale sites and more generously sized apartments, Burton said the Mayfield product had more flexibility: “It’s delivering the same, but at a more mid-market price point – that could provide a future rental opportunity for us.”
He said isolation during pandemic lockdowns had led many people to reflect on what they wanted from their later years, that could see a cultural shift away from living out retirement in the family home: “We’ve seen a surge in demand.”
Frederic Dib, managing partner at Mosaiic AM, speaking at the REFI seminar, said there are currently contrasts between the more mature mainland European markets, and the UK – and that impacts on the IRR that current investors have. In France and Germany, developers take the risk but then sell to investors on completion: “That investor comes in with a lower expectation of return, but he can have an intelligent assessment of that risk by signing up with the right operator.”
Looking at the UK, he noted: “The market would benefit from more transparency for the end user – maybe you will have some development of the rental model in the UK.”
And Julia Momotiuk, head of rented residential at consultant Bonard, predicted: “The UK market will continue to gain traction.”
Back at Audley, BlackRock portfolio manager Thomas Mueller summed up the appeal for his company: “Retirement living is a sector that we had identified early on as offering strong long-term fundamentals in which attractive risk-adjusted returns are achievable. We believe this is an important strategy that provides retirement housing in a structurally undersupplied market. Our goal is to enable the senior population to retire in dignity by transitioning to more comfortable and innovative living, whilst also freeing housing to new occupants, such as families.”
At Audley, Burton said the group is happy to partner with a variety of investors, and he has seen an uptick in interest across the sector. “You’ve got the structural position – and also, for investors, the more traditional real estate options no longer provide the returns they did.”
HA Perspective [by Chris Bown]: Elder living is another operational real estate where covid may have proved a useful accelerant – both from older folks who realise they can’t rely on visits from relatives, and from investors fed up with bombed out retail and office assets.
The UK market provides an interesting set of opportunities, and whether we’ll take to renting in old age, or will still insist on buying, is an interesting one. Right now, the UK housing market at large is blowing up on a massive price inflationary bubble, encouraged by ill-timed government tax breaks that – seriously – need to be stopped. Rising prices encourage speculation by amateurs – and make a home more expensive for all. But, on the flip side, that lower affordability pushes more into long term renting.
For developers such as Audley, the issue will always be around maturing sites, as residents age, and around resales. Buyers of new retirement apartments will often reckon the capital and ongoing servicing costs against the creaking family home they are selling out of – and so moving into an attractive, low maintenance and shiny new apartment looks a financially easy deal. But – just like selling a hotel with a large ground rent lease attached – the next buyer will need to be happy spending out both capital as well as shouldering a significant monthly service charge commitment too.