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Berkshire considers direct investment in residential real estate

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The Royal County of Berkshire Pension Fund may directly invest in residential property and has permission to launch a wholly owned property subsidiary.

Nick Greenwood, manager of the £1.6bn (€1.9bn) fund, told IPE the private rented sector (PRS) was an interesting area for investment, but that the pension fund had yet to acquire any assets.

He added that Berkshire, the local authority scheme for the Royal Borough of Windsor and Maidenhead, was currently looking at a portfolio of local properties coming out of receivership and was likely to bid on it in the near future.

“We are primarily trying to focus on Berkshire in the first place because it’s a huge market and also a market our councillors know,” he said. 

Greenwood said it was “early days” but that the fund was likely to invest directly, at least in the first instance, with assessment of the portfolio being conducted internally.

In early January, the fund received permission from the council to launch a property company, Blue Swan Residential, in which it would be the sole limited partner once it began investing directly in PRS.

The Scottish Limited Partnership would be the most transparent of the four options considered by Berkshire, according to minutes from a meeting in late January that recommended the launch.

The fund has no firm investment target, and Greenwood said the amount allocated to PRS would depend on the returns garnered by the initial investment.

“If we can get our target return, then residential property is a relatively low-volatility income stream,” he said. “It makes a great matching asset, so we should put a reasonable amount into it.”

He added that the investment would initially complement the scheme’s nearly £150m exposure to real estate funds.

Greenwood said the fund was unlikely to consider investing in social housing, as the returns were unattractive due to a housing association’s ability to access the capital markets directly.

However, he also noted the complications that could arise from a social housing tenant in receipt of benefits defaulting on rental payments, requiring the council to eventually pay the property owner directly – which, if Berkshire invested directly, could be a council-controlled entity.

The decision to launch a wholly owned subsidiary came after Berkshire considered a number of options for growing its real estate holdings, including acting as an equity partner to an unnamed housing association, asking a developer to construct a local PRS portfolio or developing its own housing stock through a subsidiary.

Greater Manchester Pension Fund, England’s largest local authority fund, has previously committed £25m to the construction of several hundred social and affordable homes in Manchester.

The pension scheme for the London Borough of Islington, meanwhile, invested in a residential property fund in 2012. 

However, residential property is still a fairly new asset class for UK pension schemes, despite its popularity with many Continental pension schemes. 

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