London & Stamford adds to residential portfolio

London & Stamford, the property company, has bought more than 100 homes being developed in central London in a strategy to build a large rental portfolio to tap into the growth of the capital’s residential market.

The deal to buy the residential scheme near the City of London, which is expected to be announced on Wednesday, will be the next stage in a long-term plan by London & Stamford to seed the UK’s first real estate investment trust purely focused on rented residential property.

It follows a similar acquisition by British Land in the City last month, and comes amid intense interest from developers in key London sites. Property companies are keen to exploit the booming market in the capital, as most regional markets struggle in the face of downbeat economic conditions. London has seen prices for both residential and commercial property spike to near or above their pre-boom levels, as overseas money has flooded the capital looking for secure assets.

Great Portland Estates is in advanced talks to acquire a site owned by the Royal Mail on Rathbone Place near Oxford Street that can house as many as 90 homes as well as offices and retail outlets. Meanwhile, a joint venture between Canary Wharf and Qatar has emerged as favourite to be picked as the developer of a mixed use scheme around the Shell Centre on London’s South Bank, after rivals Development Securities and Carlyle on Tuesday withdrew from the final round of bidding.

The residential rental market has been buoyed by a lack of sites as well as demand from first time buyers unable to secure mortgages. Rents hit a record high in June in London, climbing above £1,000 a month for the first time, according to LSL Property Services.

One person with knowledge of the strategy at London & Stamford, which is run by property entrepreneurs Raymond Mould and Patrick Vaughan, said its aim was to build a large portfolio of rented London homes that could eventually be separated into a standalone investment vehicle such as a real estate investment trust.

The company has exchanged contracts with Seward Street Developments – a joint venture between Mount Anvil and Notting Hill Housing Group – to buy 107 homes in a development at Seward Street in Islington for close to £50m.

The scheme, which is expected to be finished by 2013, will be financed through the company’s existing cash, although London & Stamford is in advanced talks to bring in new debt behind its growing residential portfolio. It has previously bought residential schemes in Highbury and Battersea, which are fully let.