In fact, CREFC Europe says BTR's focus on long-term operational income makes it more comparable with sectors such as hotels or student housing. “Lenders are clearly getting more comfortable with build to rent, but issues around income valuation, the role of amenity spaces and complications thrown up by covenants and warranties all need ironing out,” says Carol Hopper, partner with Ropes & Gray.

LONDON—The Commercial Real Estate Finance Council Europe has assembled a working group to address barriers facing the UK's emerging build-to-rent sector. CREFC Europe will host an event this coming Wednesday at Ropes & Gray's offices in London that will bring high street banks, alternative lenders and institutions together to help broaden understanding of BTR income models, particularly for developments that rely on premium market rents.

“The overall goal for this working group is to facilitate effective and informed financing for a new but critically important part of the real estate landscape in the UK. Build-to-rent is an asset class that will only continue to grow,” says Peter Cosmetatos, CEO at CREFC Europe. “CREFC Europe has an important role to play in ensuring that informed private sector lenders are in a position to provide the finance this new sector will need.”

Most of the BTR sector's major investors have entered the UK market in the last five years. Build to rent featured extensively in the UK government's recent housing white paper, with ministers encouraging institutional investment in the private rented sector and hailing BTR as a cornerstone of their plan to build a million new homes by 2020.

However, there are hurdles to overcome, including the confusion surrounding valuations. The rents at BTR properties, which are influenced by the amenities and services provided within the projects, often are compared to traditional residential rents. This can result in lenders concluding that the BTR rents are unsupported.

In fact, CREFC Europe says BTR's focus on long-term operational income makes it more comparable with sectors such as hotels or student housing. “Lenders are clearly getting more comfortable with build to rent, but issues around income valuation, the role of amenity spaces and complications thrown up by covenants and warranties all need ironing out,” says Carol Hopper, partner with Ropes & Gray.