A recent trend we’re seeing in the European multifamily sector is operators and developers aligning themselves with investors in order to form Joint Ventures (JVs) and provide forward funding.
This has been driven by a significant shift in capital allocation into the alternatives sector with multifamily being the main beneficiary. There are a number of reasons why this makes sense for all parties involved.
Investors who are new to investing in multifamily in general, or to multifamily in a particular country, are turning to in-country specialist developers/operators given the current lack and difficulty of accessing income producing stock in many European markets.
These developers/operators have the necessary local knowledge to access a pipeline of opportunities, including those that can be repurposed, deliver scale and importantly manage the new assets in line with the specific market requirements.
For developers and operators this cooperation also enables the developers to move quickly on opportunities knowing there is capital committed, which is particularly important when there is certainty around planning.
However, why would investors take on the additional risks of forward funding and JVs? The reason is to have the long-term income security which this sector provides. As witnessed this year, the amount of capital targeting what was previously characterised as the ‘alternatives’ sector, continues to increase, with recent developments including NREP closing its latest Nordic real estate fund at €1.9 billion, considerably surpassing its funding target of €1.25 billion.
Another example is EQT exceeding a €750 million fundraising target for its second real estate fund by 33 per cent. Investments for the latter include those in Nest, a residential solutions platform in France, and in Saturn, a residential joint venture in London.
Furthermore, the housing crisis in much of Europe continues. For example, data analysed by Savills shows that there is a housing shortage of 640,000 homes in Sweden for the period 2018-2027, the equivalent of 64,000 new homes per year, with the current development pipeline insufficient to satisfy demand.
With many young people having been priced out of owning homes in Europe, the rental market, and thereby the multifamily market, is likely to increase further in volume in the future.
At the same time, the younger generation is more environmentally aware than previous generations and funds and investors are already taking note, with the interest in Environmental, Social and Governance (ESG) compliant assets increasing significantly as they try to future proof their investments.
Given these fundamentals and long-term shifts towards ESG-friendly housing, the European multifamily sector is likely to continue to see a flurry of activity in the years to come.
Source: Savills