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In part one of our social housing series, we looked at the role of green finance in securing funding for retrofit projects. Here, we will explore the opportunities available through partnerships to help RPs meet the growing list of challenges facing the sector.
RP’s need to do more to form strategic partnerships with Government organisations to access public funding. Rather than applying for grants on a scheme-by-scheme basis, strategic partners with Homes England can enter into a multi-year grant agreement. Not only does this provide an RP with the certainty of funding, it also benefits from access to Homes England’s wider expertise, insight and influence. In return the RP needs to demonstrate how it will support Homes England’s strategic objectives. Earlier this year, Homes England announced that for-profit RPs would also be able to apply to become strategic partners. RP‘s in London are able to benefit from strategic partnerships with the Greater London Authority.
With RPs and local authorities sharing the same common objective of delivering more affordable housing, both parties can achieve more by working together. Local authorities can access greater public funding now that the housing borrowing cap has been scrapped and for a local authority it means that homes can be delivered quickly and do not require a lengthy procurement and mobilisation process. Indeed, TLT has acted for registered providers in framework arrangements with local authorities where the local authority provides the land and the RP provides the skill and expertise to deliver the development.
Joint ventures (JVs) with private developers are already common, especially as grant funding has been declining over the last decade. Although there are several ways to structure a JV, the most commonly adopted is a limited liability partnership. In this JV structure, both the risks and profits are shared; an attractive proposition for RPs. Whichever structure is chosen, it is important for both parties to have considered all possible factors, including an exit strategy should things go wrong. A significant level of trust and understanding of each other’s aims and objectives will be key to a successful partnership. RPs’ increasing desire to build sustainable homes is seeing a growing trend for modular joint ventures in the sector with the likes of VIVID entering into a joint venture with BoKlok and Places for People with ilke Homes.
Strategic relationships between large RPs and internationals banks are growing. Wells Fargo (the world’s largest bank by market capitalisation) provided a £50m loan on a seven year revolving credit facility to Hyde last year and Clarion Housing Group entered into the first known sustainability-linked loan of £100m with Japanese bank Sumitomo Mitsui Banking Corporation. Clarion also signed a £100m loan with BNP Paribas which is structured as a loan linked to employment KPI’s which measure the number of residents Clarion supports into employment through jobs and training programmes. If Clarion meets the agreed targets it will receive a lower interest rate.
We expect the volume of sustainability linked loans such as this (also known as KPI linked loans) to continue to increase across the sector this year.
Equity investment in UK affordable housing is on the rise. From a private investor perspective, RPs are seen as a safe investment opportunity with a large asset base, good income stream from rents and a zero default record.
There are several high-profile examples of such investment. Blackrock recently agreed a £360m debt facility with the for-profit registered provider Heylo Housing, and Hyde has secured a strategic partnership with M&G Shared Ownership Fund to deliver 2000 sustainable new shared ownership homes. The homes will be owned by M&G’s for-profit RP and Hyde will manage and maintain the homes. The partnership will enable M&G to buy existing stock and fund much of Hyde’s development pipeline and Hyde will be able to recycle capital into the provision of new homes.
We have seen the number of for-profits grow as the sector recognises the increasing opportunities to engage with appropriate private sector capital providers to support key strategic projects such as building safety enhancements and supporting delivery of zero-carbon targets. Hyde set up the affordable housing sector’s first for-profit RP which was seen as a bold step by some. However, the expectation is that more RP’s are likely to follow in Hyde’s footsteps due to the enormous financial challenges faced by the sector.
Partnerships with banks and private equity investors are becoming increasingly prevalent in the social housing sector and the government is looking to increase the amount of private capital entering the sector. This is an opportunity for RP’s to tap into investment from funders who are seeking environmental, social and governance (ESG) related investment opportunities. Lenders are committed to playing their part in increasing the supply of affordable housing and further private sector support will key in achieving long-term investment in affordable homes.
This publication is intended for general guidance and represents our understanding of the relevant law and practice as at June 2021. Specific advice should be sought for specific cases. For more information see our terms & conditions.
15 June 2021