Thursday, 05 March 2015

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.

Readers' comments (18)

  • Tony Cook

    "Once built, the properties will be owned by the new REIT and leased back to the individual providers, which will take on management responsibilities" ... generating an investor return of around 5%.

    With the need to reduce costs wouldn't it have been smarter to cut out the middleman? Instead of pumping vast amounts of equity into the financial services industry, why aren't we investing public funds directly. With the return actually returning for future investment as opposed to being a further drain on public finances?

    I obviously don't know what I'm talking about ... which is why I'm asking.

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  • Isn't it time for someone down there at Canary Wharf to get on the phone and ask some questions about Mr Phil Shanks and Saf Housing Solutions.

    In particular, judging by his messianic imaginings in the Huffington Post, exactly who is the man and the company.

    Never mind the bollocks, Phil's "solutions" - there's a word, just 30 years after it became a cliche - appear to be that old mangy dog, sale and leaseback, with some fancy tax footwork and some mind-numbing guff, filling out Phil's solutions riff.

    Simple question: is the end user rent going to be more or less than the current average?

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  • I know of no reason why REIT shares can't be held in an ISA, so why is it described as an opportunity for institutional investors? Its something retail investors could invest in, and arguably its a better way than direct investment in buy-to-let, which drives up prices for first time buyers.
    My main worry is how much will the usual suspects in the city cream off by way of fees getting this thing lested, naturally with a suitably qualified board of non-executive directors, Sir Bufton Tufton et al?
    Tony cook has a point, if long term gilt yields are below 4% and this returns 5% on the money invested then it would look sensible for government to borrow in the Gilt market to fund housing. but this would add to the PSBR under the "Ryrie rules" and might therefore frighten the markets old Chap don'cha know? Fact is, if someone in the private sector is relying on this working to pay their mortgage , then there is a better chance of reasonable housing being produced at a sensible cost. That is more than can be said for chucking the proceeds of a stonking great Gilt issue inot the humungous begging bowl wielded by the Housing Association movement. Like it or not , making a profit does motivate folks, as long as the rents are affordable I see nothing wrong with that.

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  • Jimmy Cricket

    A couple of points here :
    - it's sale and lease back, and as their web-site states the funds can be used to provide new homes, or raised against existing to raise additional funding. Now, if you secure against existing then this is a disposal which will require HCA consent.
    - secondly, reading the article, the funds haven't been raised yet, so this could just be the start of another false dawn!!
    - stating the bleedin' obvious there will always be demand for funding for additional housing, so ethical investment now includes Santander and Barclays!!
    - why only funding for supported housing and extra care

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  • Good to see Gary McAllister has a new career in housing.

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  • Ernie Gray

    I tried to develop a form of a REIT to purchase city centre propoerties in Leeds. One of the big issues was that investors wanted the RP to fund a 100% ful block so the void costs would have to be caried by the RP. There were also issues with regard to the sinking fund. It will be interesting to know how this REIT has overcome such issues...................................

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  • thanks for the comments so far. In answer to the very approriate question will this lead to rents more or less than the current average, tha answer is less and substantially so.

    Obviously it could be said that for the government to directly provide the funds for housing would represent the best value and this may be true but the fact is they dont to the scale required and this is being developed in response to that shortfall.

    We are focusing on the extra care and supported housing arenas because we know ther demand for this and it offers the best opportunity to reduce costs. This type of provision can be very expensive to develop and is needed in substantial numbers. The fact that tenants in supported housing, particularly have a higher dependance on housing benefit means that the savings will be realised by the public purse.

    more later

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  • Ernie Gray

    Phil, are you in a postion to comment on the issues I raised. They were key issues during the discussions with the investors agent..........

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  • Joe Halewood

    Phil, have you factored in the risk to HB in exempt accommodation which, as yet, does not exempt current exempt accommodation from the massive reduction in eligibility of HB to pay for service charges which are so prevalent and necessary in supported and sheltered housing?

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  • What about the fact that Phil appears to actually by Gary McAllister, formally of Leeds Utd?

    Surely this is far more important and requires an answer?

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