CPP Investments, the investment arm of the Canada Pension Plan, has made an initial commitment of £500 million ($649 million; €600 million) to a joint venture with manager Kennedy Wilson to invest in single-family rental housing in the UK.
The venture, which has an investment target of approximately £1 billion including leverage, will be 90 percent owned by the Canadian pension fund, while Kennedy Wilson will own the remaining 10 percent. Beverly Hills, California-based Kennedy Wilson is contributing £56 million of balance sheet capital to the JV, and will act as asset manager and development manager.
Investments will be made in new-build housing stock through forward funding and forward purchase agreements with housebuilders. Assets will be held for the medium to long term, with a risk/return profile in the core-plus to value-add range, according to Tom Jackson, head of real estate Europe at CPP Investments, who declined to share specific return targets.
According to Jackson, the venture marks CPP’s first SFR investment in Europe. The investor has been monitoring the SFR sector in the UK for some time, he told PERE, having previously invested in other residential subsectors in the country including student housing.
“Having spent a lot of time around student and thinking about what’s the next natural space for us to go into and scale in the living sector, single-family rental was an obvious one,” he said, citing growing demand for such product in the UK driven by the rising age of first-time homeowners and growth in household formation, together with an undersupply of rental housing.
“We can really go at scale to deliver a meaningful portfolio of size in that SFR segment of the living market, which I think will perform very well. So we’re really excited about it,” he added.
The venture also represents CPP’s first partnership with Kennedy Wilson. Jackson said the deal was in the works for around nine months: “As you come together in these joint-venture partnerships, it really is a marriage, and so we’ve been testing each other to ensure our partnership is set up in the right way and that we’ve got a like-minded approach to doing business together in this sector.”
The partnership has been seeded with two housing developments: one under construction by Barratt Redrow in Norwich, where the first completed homes are currently being leased up by Kennedy Wilson; and another in Stevenage, with houses built by Miller Homes expected to be completed from the second quarter of next year. The seed investments were acquired by Kennedy Wilson’s balance sheet, according to Mike Pegler, president of the firm’s Europe business.
“We’ve seen a really attractive pipeline gathering that we’ve been able to evaluate in conjunction with the CPP team,” Pegler said. The current pipeline, which amounts to approximately £360 million in asset value and around 1,100 units, is skewed toward southern England, said Pegler, although opportunities across the UK will be considered.
“Mike [Pegler] and his team have thus far evidenced that the pipeline is there in scale both for this initial commitment, but also likely for an upsize to go deeper into the sector over time as we deploy the initial commitment that we’ve made,” Jackson said.
Within the region, CPP has a bias toward the UK, where two-thirds of its C$9 billion ($6.5 billion; €6 billion) European real estate equity portfolio is currently invested. However, Jackson said the investor would consider a similar joint venture partnership in continental Europe and will “absolutely be monitoring whether the strategy is replicable.”
‘Misunderstood’ by market
The venture with Kennedy Wilson comes two months after CPP announced in its first-quarter earnings release that it would commit €500 million to Blackstone Real Estate Partners Europe VII – something of a departure from the investor’s typical JV approach to real estate investment, as reported by PERE.
“I think we’ve perhaps in some ways been misunderstood by the market,” Jackson said of that perception.
“In reality, joint ventures are one of multiple routes to market that we use to pursue our real estate investing ambitions,” he added, along with selective fund investments, platform investments whereby CPP owns the operating company and underlying assets, and public real estate equities which together constitute four “tools in the box.”
For its maiden UK SFR investment, however, CPP sought a partnership with a group that had proven expertise in the sector and with operational expertise to “deliver both pipeline and then return on equity through the delivery of business plans at the asset level,” said Jackson.
Among CPP’s other notable JVs in European real estate are a purpose-built student accommodation venture with London-based manager Round Hill Capital, established in 2021. In April of this year, CPP acquired both Round Hill’s ownership stake in the partnership as well as European PBSA operator Nido Living.
CPP Investments ranked 16th on this year’s PERE Global Investor 100 list, with $31.3 billion allocated to real estate. In its annual report for 2024, the investor posted a 5 percent annual loss from its real estate portfolio, and reduced its exposure to the asset class for the third time in six years, PERE reported in May.
