Build-to-rent is not a business in the UK, says Ryan Prince. There is no template, no equivalent to Whitbread spewing out thousands of hotel rooms. There is no strategy for scale. Instead, it is all about the deal.
Luckily for Canadian investor Realstar, vice chairman Prince has closed enough of those deals to grow a £1.5bn rental portfolio and establish the operational platform Uncle. But it hasn’t been easy.
“What makes it so difficult is that you can only really buy into the sector when there is uncertainty, whether that is Brexit uncertainty or an election,” says Prince. “That is what creates dislocation in the build-for-sale market and the ability to buy things for the build-to-rent market. That’s a real problem. That’s a policy shortcoming in the UK.”
It is almost two decades since Prince launched a UK business for Realstar, a property investor established in the mid-1970s by his father. Initially that UK business comprised Prince as a one-man-band targeting GP surgeries. Before long it had moved on to record-breaking deals in hotels and BTR.
“Every single thing we do is a story of a person or a company in a particular moment in time,” says Prince. Those moments have come alongside some of the country’s biggest economic crises: the collapse of Lehman Brothers, European political tensions and a global pandemic.
After the coronavirus outbreak, Prince opted to sell the UK portfolio to Quadreal, arming Realstar with the funds to target fresh opportunities. Now, he is looking to double Uncle’s UK portfolio and expand globally. EG met Prince at the developer’s 45-storey landmark Highpoint scheme in Elephant & Castle, London’s tallest BTR tower, to understand its deals and hear his story.
Cool Britannia
From my seat in a flat on the 43rd floor, I can see out over the balcony, past the South Bank, the Thames and beyond to the City. London glitters in the late April sunshine. It has been well over a year since I travelled into the city and my excitement for London is mirrored in Prince’s own account.
That account begins in the halcyon days of the late 1990s, when London was crawling out of recession and Cool Britannia was kicking off.
“I loved everything about the city – the culture, the experience, the buzz that was going on,” says Prince. Born and raised in Toronto, Prince came to London to study. At 21, he joined forces with rising star Charlie Muirhead and co-founded technology angel investor iGabriel. Prince focused on investment, securing finance from internet royalty Brent Hoberman of Lastminute.com and angel investor Esther Dyson, alongside others including Peter Gabriel and Paul Myners, now Lord Myners and city minister.
The company funded a scooter delivery service called Silver Solutions which reads a lot like Deliveroo and which Prince describes as “way ahead of the curve”. But these were long horizons and Prince wanted to have a greater say in the businesses. In 2003 he set about looking for his next venture.
“My dad said to me, ‘why don’t you think about the real estate sector, you’ve been coming to buildings with me since you were this high’,” says Prince. Jonas Prince and Wayne Squibb founded Realstar in 1974 and have since grown the business as one of Canada’s largest investors in rental housing, with 25,000 flats. The executive team gave Prince one year to find something to invest in as a debut for the UK business.
“Where was there a crack of daylight so I could find a niche that everybody would think was boring and ignore? If I could find something that I thought was smart and that everybody else would roll their eyes at, that was probably a good place to start,” says Prince. He picked GP surgeries and Realstar landed in the UK.
Roadtrips and war wounds
Prince cut his teeth in real estate buying doctor surgery developments. These were typically under 10,000 sq ft, let on a 30-year lease to GP partnerships and backed by government grants in a Blair-led drive to replace old converted houses that weren’t fit for purpose. His first acquisition was a portfolio of 20 properties from two partners that had fallen out. Then he hit the road and the auction houses.
“If you want to know anything about every city in the UK, I have been there,” he says. “We owned surgeries as far north as Southport and down to Deal in Kent, and I drove to all of them.” But the market grew more competitive, the few assets had already been bought and the buying spree ended. Prince held onto the portfolio and turned his attention to a new sector: hotels.
“There were all these really large asset-owning public companies run by city grandees and my observation was that that was going to change,” says Prince. In the US, restructuring following the distress of the 1990s had led to “a separation between bricks and brains”, the real estate and the brand and managers. This was coming in the UK and, on the tailend of the recession, Prince anticipated heavy discounts.
Realstar tried to buy two public companies, Thistle and Queensmode, but was unsuccessful. In 2005, it finally entered the market with the £1bn purchase of 73 Holiday Inns, which held around 13,000 beds in a joint venture with Lehman Brothers and GIC Real Estate. “We always talk about doing something in a test tube and then growing it,” says Prince. “This wasn’t that.” But the company had a track record in hospitality in Canada and brought on a team of experts in the UK.
“Life was really the hotel world for the next five years, living through everything that the world experienced in the boom and the bust,” says Prince. “You definitely have the war wounds”. The investor clawed its way through a rebranding and various crises, including a nearby oil storage explosion, a building hit by lightning and constant economic uncertainty. Then, the day before Lehman Brothers went bankrupt, Realstar closed a €150m opportunistic fund, and everything changed again.
The Holy Grail of investment
“We actually managed to raise capital on literally the last day you could for the next year or two. Then the world fell off a cliff. From an investing point of view, that’s the Holy Grail,” says Prince. “What came out of that was our entry into the resi space in the UK.”
Pre-crash, the fund had already had a beds strategy, but Prince says this would likely have been focused on expanding hotels, student accommodation and serviced apartments. But for-sale developer stalls and collapses provided the perfect opportunity for BTR.
“There were buildings that were actually designed and built for sale, where there was no for-sale market. Administrators just wanted a holistic solution to their problem, which is somebody to buy the whole thing,” says Prince. “Our business plan was that at that price we could afford to rent it out and generate some income, which historically wouldn’t be the case. Maybe over time we’ll either be able to sell the building as an income stream, or sell the individual flats.”
When the banks finally unfroze, Realstar began hoovering up blocks in Wandsworth, Hackney Wick and Battersea. These were complicated assets, with contractors that had gone broke, often with no warranties and plenty of planning and construction problems. Realstar unpicked those problems, and then evolved that to purpose-built products, starting with Elephant & Castle’s Highpoint.
The Richard Rogers designed building is the tallest BTR building in London. It towers over Elephant & Castle’s regeneration area around the station, with an iconic crown atop the Sky Lounge and yellow terraces for every flat. “This building was really the first new build-to-rent project that was seeded essentially by the mayor of London,” says Prince. “That’s all part of the idea of creating a showpiece for what rental living could be like.”
It gave Prince the opportunity to be hands on, selecting everything from the hardwood floors throughout the flat to shower screens. There are Cowshed toiletries, BoConcept furniture and Peloton bikes. “This really became the launchpad for creating the equivalent of a hotel chain for living. That’s really the intention behind Uncle.”
Flexible capital
When Prince created Uncle, he wanted to conjure a picture of a familiar face. “I was trying to create something that was different and a little more tongue-in-cheek. For a consumer brand you have to remember it,” he says.
That brand aims to support tenants in the mire of amateur landlords. “People are used to service in all facets of their lives and then you walk into the place that is your single largest personal outgoing and it is the opposite of that,” says Prince. “If you run these like hotels you have economies of scale and can offer customers something they otherwise wouldn’t have access to.”
Uncle now has 14 assets valued at CA$2.5bn (£1.5bn). Following on from the completion of the CA$1bn portfolio sale of BTR and student schemes to Quadreal, the investor has also taken a stake in Uncle. “It was important for them and for us to be that alignment of interest between the ownership of the properties and the bricks and mortar, that bricks and brain,” says Prince. “That partnership becomes the vehicle through which we want to grow the business in the UK.”
Over the next five years, the joint venture will grow BTR and student in London, selected regional cities and through new hotel acquisitions. “There’s no question that there’s lots of blood in the streets in terms of owners who have assets that are closed. That’s difficult and there has to be sales or recapitalisations that come out of it.”
Prince is also looking for opportunities to expand to the US, specifically New York, and Canada, building on Realstar’s footprint of 200 buildings, either through investment acquisitions, refurbs or forward funding development. “The nature of our capital is we can price the capital accordingly, so we can go develop or buy existing assets,” says Prince. That flexible capital gives a wider spectrum of deals for this next wave of investment.
When quizzed on his next steps, given that he has cash to spend, Prince is non-committal. International? Sure. UK cities? Yes, some. An affordable RP? Never say never. Yes, it could be single assets, but also he could take a similar hotels portfolio deal. He doesn’t seem to be avoiding the question, more showing how much is on the table right now.
“Going back to my point about a deal and not a business, every single opportunity comes to us with its own configuration,” he says. “We have to work around what we’re presented with.”
Portraits by Tom Campbell, development landscapes courtesy of Uncle
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