May 4, 2019
As Greater Manchester faces a looming housing crisis one company is challenging the perception of the long-term rental market.
The approach by Sigma to get families into new build, managed estates could be part of the solution as home ownership becomes increasingly unattainable.
Founder Graham Barnet has strived to create a new model in which institutions and wealthy individuals invest in residential developments – a first for the UK property market.
Working alongside house builders the Scotsman has pieced together millions of pounds of investment to bring his vision to life.
This includes £100m from the Kuwaiti Investment Authority, a further £46m from high net worth individuals and a £64m debt facility from Barclays Bank.
Joking that he must be ‘a sucker for punishment’ he agrees that the financial approach was jigsaw-like but worth the hard work.
“I’m a financier by background who has done property all my life” he explains.
“Understanding the capital markets is absolutely key and then unlocking them is never an easy task.”
So far the business has completed around 2,800 homes in Greater Manchester and has another 3,000 under construction on 30 different sites.
And by creating new family homes in places like Middleton, Walkden and Wigan it could offer a viable alternative for many, as council house stock ceases to be replenished.
But his plans are bigger than Greater Manchester, his ambitions are national.
Sat in the operational headquarters, just off St Ann’s Square, the CEO puts it into context: “I grew up in a generation where you got your house, you owned your house and it was absolutely fundamental.
“But the world has changed, demographics have changed and it’s a new generation with a different outlook.
“There shouldn’t be a stigma attached to renting. I think having a nice place to live and contributing to the local community should be key whether you own the house or not.”
With mixed tenure sites and up to four bedroom homes being constructed under the Simple Life Homes brand he aims to reinvigorate housing stock.
“Ours is a time critical model” continues the 55-year-old.
“We can get through 15 units a month while to sell is around five. It means the local councils get 20 houses coming off a site and that is good for everyone.”
So who are they aimed at?
“Our houses are taken to market through our private rental brand, Simple Life. They are standard family houses and our target market is Mr and Mrs Average with an average household income of between £30,000 – £35,000.
“We’re not building houses for wealthy people we’re building them for 98% of the working population in the UK.
“The quality of housing generally in the UK is not good, especially in big inner cities like Manchester.
“That’s just on the back of the growth and scale of those cities being post-industrial.
“What it does bring however is a lot of opportunity because there is a lot of brownfield land that needs re-generation and needs to be built on.”
To rent a Simple Life property costs, on average, £744 per month in Greater Manchester.
Turning to how this all started, the man from Dunfermline has led an interesting life.
After growing up in a poor neighbourhood alongside three brothers he won a place at Fettes College, an elite school frequented by former Prime Ministers.
“I wasn’t stupid but I was definitely an alien when I arrived” he jokes. “I don’t think anyone understood a word I said for the first three years.”
He credits his father for his motivation and like him trained to be a lawyer at Edinburgh University before joining a merchant bank in Scotland.
Asked what it’s like to now deal with billionaire investors he answers humbly: “You just adapt. Good people are good people and I try to gravitate towards them in business.”
Barnet set up parent company Sigma in 1996 to advise large family-owned businesses in his native Scotland with outside institutional investors.
As the business kicked off he rapidly became involved in getting Scottish companies listed on the London Stock Exchange before floating his own company in 2000.
They had £300m of funds under management and he had set up the largest single residential development in Scotland for 5,000 houses near Edinburgh.
“It was all going reasonably well until the crash came in 2008 and then frankly all bets were off.”
Remembering how it felt the day Lehman Brothers went bust he set off from Geneva Airport not knowing if a £500m deal he had just closed would fall through.
“It felt like the world had been turned upside down” he admits.
But all was not lost as the crash re-focused his mind to a new idea for the private rental market after purchasing a regeneration business called Inpartnership.
It had already forged relationships with councils across Liverpool, Salford and Birmingham but capital had dried up and the portfolio was too diverse delivering shopping centres and schools.
Having been very personally successful Graham decided he ‘wanted to do something substantial that made a difference’ and approached shareholders in 2010 with his big idea.
“The UK didn’t have a proper way for large scale institutions to invest in residential developments as an asset class.
“This would generate revenue for pension fund obligations, but it didn’t exist.
“It was bizarre because it existed in virtually all other developed investment countries around the world like America, Japan, France and Germany.”
The pension funds liked the idea but needed infrastructure to be in place before they could invest – so he teamed up with Countryside Properties to put a portfolio of sites together.
This gave him a much-needed platform to launch the investment vehicle, known as the PRS REIT, to build and own family homes across the UK.
With backing from Homes England the first £900m raised has been put towards developing 70 UK sites across 25 city regions.
“Convincing the institutional market to do something that has never been done before is some task I can tell you but it’s been incredibly successful” he says with a smile.
“The impact and footprint of what we are doing is getting bigger all the time.”
This is backed by a strong financial performance as revenue rocketed to £12.5m in 2018, up from £4.4m the previous year.
However, it’s not all about the numbers for the father-of-two. Barnet’s real passion is for building communities.
Speaking at the Manchester city centre office he said: “Our priority is to look after our tenants and to make sure they feel engaged on our housing estates.
“We aim to be close to schools so families stay there for longer and we can build some sort of community, instead of people feeling like they’re just renting somewhere.”
Although they aren’t the only players in Greater Manchester’s bustling rental market with new apartments shooting up across the city in the likes of Ancoats and Castlefield, they are the only build to rent provider focused on family houses (as opposed to city centre apartments), building at this sort of scale.
But, he argues, these aren’t always appropriate adding complexity and risk to investors.
“Personally I don’t think families should live in high rise flats, I don’t think it is socially acceptable.
“It may work for a younger demographic and other people but there is usually a greater churn.
“There is also less ability to have a community impact and create a social footprint when there are 600 apartments on one site.”
Commenting on the number of cranes looming over Manchester’s skyline Barnet pulls no punches when it comes to what is wrong with the other spectrum of the rental market.
“Renting with Simple Life is not part of that idea where you have a concierge or a swimming pool on the roof, personally I think that is all b******s.
“What you want is a good place to live, you want to be treated well and to be well connected to critical infrastructure.”
Of course there will always be critics of this model who say paying rent is an added barrier to buying.
“From my perspective I don’t advocate one or the other as the best route” he answers openly.
“It is a personal choice whether to rent and it does come with a lot of flexibility.
“For a lot of people buying will still be the primary option but we have found that renting is becoming more popular.”
The renting experience makes all the difference, according to Barnet, and with community events and leisure groups popping up on their Simple Life sites it becomes a more attractive proposition.
“If people feel like they are being treated well then they will look after our property better, that is our asset so it’s good business.
“It is a bit of a virtuous circle I think and we are playing into the matrix of the local authority because they are judged on these criteria.”
The family man sees Simple Life Homes as doing something worthwhile for society but also remains level-headed.
“We will never always get it right when you are dealing with thousands of the public but hopefully living on one of our sites will feel like a different experience.
“It might not be life-changing but there will be some positivity attached to it and a different perception from just renting a flat somewhere.”
Written by Lucy Roue, Manchester Evening News