Investment manager Apache Capital has already “gone on a journey” as it has built out its build-to-rent and single-family housing portfolios. Now, the developer and operator, which has more than 3,000 BTR beds, is taking the next step, branching out into acquiring operational assets.
Chief executive John Dunkerley (cover image, right) told Estates Gazette the development market has become “a lot more competitive” than when Apache was founded in 2008, and is made even more challenging due to rising inflation and construction costs, as well as the Building Safety Act. But he and the team see “lots of great opportunities in other areas of the market”.
Dunkerley wants to set Apache apart from other operators. “The high-amenity Moda product is not what we want to do,” he said, referring to the company’s joint venture partner from its multi-family investment platform. “The demographic and kind of product we will target will be very good quality but something that’s not as serviced and, therefore, slightly cheaper.”
Apache will buy developments built in the past five years, targeting forced sellers and investors needing to recycle capital.
“As a business, we’re always looking for the most value for our investors,” he said. “And right now, there are more returns to be made in investing in standing stock than development. That will change in the coming years, there will be a cycle and then development will be more attractive again.”
Obsolescence of offices
Apache is also open to acquiring permitted development sites, taking advantage of what Dunkerley called “obsolescence in the office market”.
“We may know how to create more value than somebody else in a particular scheme,” he said. “That’s a great thing about real estate. It’s an imperfect market where people see opportunities others don’t. Particularly in this market, where a lot of the value is going to be created by how you operate a building.”
Apache will not take planning risk, Dunkerley said. Instead, it is looking to acquire assets where “people have to sell, or people want to take a bit of a profit but they bought something really cheaply”.
He added: “There’s obsolescence in the office market where the value is gone so you have motivated sellers.”
Investment director Ashley Perry (left) said the business’s top priority in acquisitions is the quality of product it can deliver. Updated planning rules for PDR that include sizing and space standards lend themselves to quality, he added.
“We’re quite reassured that you can get the right price going, the right quality and accelerate delivery,” Perry said. “From a policy perspective, Labour needs to lean more into PDR because it’s still sporadic, with some councils wanting to retain office space.
“The big thing for us is timelines from an acquisition point. In terms of PDR schemes, from buying something to having people move in, it is a maximum of 18 months. For a normal ground-up development, from acquiring a site through to planning and gateways and development, you are looking at four years. We’re very focused on PDR because it helps meet investor requirements and expectations.”
Learning from Moda
Apache expanded into the multi-family BTR market with delivery partner Moda Living. In addition to its role as investment manager, Apache co-founded Moda Life Management, the operating platform for its prime BTR schemes. Dunkerley said Apache has learnt that in order to make substantial value for investors, BTR operations have to be done in-house.
“It’s not about creating profits for yourself,” he said. “Doing operations in-house is very important for us, it makes us vertically integrated. You have to operate everything you build or buy.”
Perry described Apache as among the “pioneering market positioners”, one of the earliest movers into the multi-family BTR sector in the UK.
He said: “In 2015-2016, trying to pitch anything near £30 per sq ft for rent was unheard of. Now that’s pretty much the norm for any kind of mid-market product because things have marched on.
“Once you get the first scheme, then it’s much easier to show this is what the future looks like. So once Angel Gardens [in Manchester] was out of the ground then it was about raising capital for Glasgow, Edinburgh and Liverpool. We pushed the market and the bounds of service and amenity. It was the was the strategy from the start and that’s been delivered.”
Switch to SFH
Apache launched Present Made, its single-family housing platform, in 2018. The company aims to leverage its multi-family BTR portfolio and serve a parallel market.
Dunkerley said the idea for a SFH platform originated during one of the company’s trips to the US. “Somebody made the throwaway comment on how in multi-family we get nine-to-12-month leases, but in single family you get three to five years. We said, ‘Oh, OK, that’s a hell of a difference’. And then we went about researching that.”
He said the company has “gone on a journey” with its SFH platform and has landed on the need for a delivery partner to control risk.
He said: “We don’t necessarily want to do the development ourselves. And the best delivery partners in SFH are housebuilders because they have scale. They can deliver assets more economically than we can on our own.”
Duncan Williams, acquisition director at Present Made, added that the company is looking to partner with housebuilders, acquiring and managing sites that range from 80 to 350 homes. He said: “We are targeting the kind of locations that attract first-time homeowners but are difficult for entry. Places people aspire to live but the barriers of homeownership are stopping them. Good local employment with good local schools, the connectivity to London or another major city.”
With that in mind, Present Made is prioritising the south of England and the Midlands. Williams said there is huge scope for the SFH sector as the supply and demand imbalance has never been further apart than it is now because of change in policy around mortgages, and the fact “it doesn’t make sense for people to have second homes”.
“This market is very undersupplied,” Williams added. “We are looking at mixed-tenure schemes, with for-sale, affordable and BTR. BTR provides opportunity for housebuilders to move their total capital. Some will fall away once that sales market improves, but we are looking to partner with the people that see BTR as a long-term business strategy which will help grow their business.”
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