First social housing REIT open for bids
The first company to launch a social housing real estate investment trust has begun to accept bids from landlords for up to £700 million of funding.
The REIT will provide funding for more than 6,000 extra-care and supported homes. SAF Housing Solutions plans to list the company – Houses4Homes – on the Alternative Investment Market in the next two months.
The company will ascertain demand for funding before approaching institutions – life and pension funds – for equity investment.
Phil Shanks, co-founder of SAF, said several councils and at least two charities were in the process of completing due diligence ahead of applying for funding. He added that he could ‘easily identify’ at least £200 million of demand already, mainly from local authorities.
An initial £60 million of equity has already been raised as ‘seed capital’ for projects that need funding urgently to get off the ground. A further £500 million to £700 million will be brought in once landlords give an indication of how much investment they are likely to need over the next three years.
‘We want to show [investors] that there is sufficient demand to warrant the size of investment we are asking for,’ said Mr Shanks.
Once built, the properties will be owned by the new REIT and leased back to the individual providers, which will take on management responsibilities.
REITs are listed tax-efficient property investment companies that attract institutional equity investors.
However, no residential REIT has launched since enabling legislation was passed in 2006.
Ion Fletcher, senior policy advisor at the British Property Federation, said the sale and leasehold model could be used for ‘more mainstream social housing REITs’, but warned that some investors could view the model as a debt, rather than an equity investment, which could deter those looking for higher returns.
Mr Shanks said Housing4Homes would generate investor returns of around 5 per cent, having initially put together a model offering around 4.3 per cent. ‘We have done what the market wanted,’ he said. ‘I think there’s an increasing demand for ethical investments.’
To increase potential returns, SAF has targeted debt financing in addition to equity investment. Barclays and Santander are among the banks looking to provide up to £200 million of debt for the company.