Friday, 28 November 2014

Serious business

All posts from: January 2013

Capital gains

Fri, 25 Jan 2013

You know those institutional investors everyone has been talking about for time immemorial? Well, to misquote that little girl at the start of Poltergeist, it looks as if they’re finally here.

And just like Claudius’ famous sorrows, when they come, they come not single spies but in battalions.

First up, we had M&G taking a £125 million stake in the throbbing splendour of Genesis’ Stratford Halo. And the ink on that deal was barely dry before Thames Valley secured a £60 million injection from Aussie lender Macquarie for its Fizzy Living subsidiary. Strictly speaking, Macquarie is not an institutional investor, but the money came alongside a promise to find an extra £300 million from an institution.

Now, Grainger has tempted the very first investment from a European pension fund after persuading Dutch outfit APG to help it launch a £350 million fund for private rented investments.

The two defining features of all these deals, very different in most ways, are that they are all exclusively PRS investments and they are all very much London-centric.

From an investor’s point of view, this is entirely understandable given the more or less guaranteed returns available from decent quality private rented stock, especially in the capital. And with housing associations increasingly reliant on cross subsidy, there’s nothing wrong with them attracting money into the juicier part of the business on order to spread it round to the harder-to-fund stuff – ie social housing.

But the obsession with London is a problem.

At the Westminster launch of the Northern Housing Consortium’s report into the impact of the sector on the northern economy, former housing minister John Healey was one of a number of figures who voiced their concern that the M25 was acting like a black hole for investment. The greater divide there is between returns available in the north and south, and the more the former gets neglected.

It almost doesn’t matter that the report being presented showed the value of investment in the sector to the wider economy, if there is no government money and the commercially minded institutions can get better returns elsewhere, housing in the north might have to start looking behind the sofa for pennies.

There is a glimpse of light on the horizon however. Next month, bids for the HCA’s £200 million private rented equity fund will be submitted. This money, combined with the quasi-equity that could come from councils releasing some of their own land, would allow northern cities to develop schemes before refinancing with institutional cash.

This means investors can invest without taking development risk, meaning they are likely to demand less painful returns.

Projects more or less mirroring this model are well underway in Sheffield and Leeds, to name but two, while Manchester’s pilot PRS scheme is even further down the road.

If these small-scale projects can be shown to work then there’s a chance the City boys might rediscover their friends in the north.

Raising the stakes

Fri, 18 Jan 2013

The vultures have started circling over Cosmopolitan Housing Group.

As revealed in Inside Housing today, Cosmo has until the end of March before its next set of payments to the owners of its student housing leases are due. The quarterly payments are by no means huge – sources value them at around £1 million – but such is the precarious state of the Liverpool landlord’s balance sheet, they could be the final straw.

All of which puts added pressure on the merger negotiations with Riverside. Relative optimism over a deal last November has turned more guarded as the mercury has dropped in recent weeks and there is no guarantee that the white knight will save the day. I understand that the housing regulator, besides putting in train plans for a moratorium if things go pear-shaped, has also started leaning ever-so gently on Riverside over the time it has taken to get a deal on the table.

Looming over the talks are these leases – described on more than one occasion as ‘toxic’ and the source of Cosmo’s many troubles. Although the parties involved are not prepared to put it so starkly, it seems that there will be no takeover unless those leases are sold off. And therein lies a problem.

The owners of the leases – which include in their number one or two notoriously tough negotiators – are under no obligation to accept an offer that will see them ultimately out of pocket. Furthermore, they are likely to be aware of the looming deadline, which makes Cosmo’s bargaining position increasingly weak as the days and months tick by.

A bit like the wheeling and dealing of the last few days of football’s January transfer window, what we have on our hands is a high stakes game of chicken. But in this case, there’s more on the line than the future destination of a Uruguayan holding midfielder with dodgy knees.

Anecdotal reports have already reached me that some Cosmo tenants are being told to wait a bit longer for repair work to be done, with the financial squeeze hitting every part of the business.

It just goes to show: if the money men (and women) don’t get this deal moving in the right direction pretty soon, it’s the tenants who could suffer most.

Promised land?

Fri, 11 Jan 2013

T.S. Eliot was wrong. January is actually the cruellest month; breeding empty promises out of the dry mouths of hungover wretches, mixing steadfast resolve with crushing disappointment.

The shells of broken resolutions litter the dog days of the year’s first month. A flotsam derived from unused gym membership cards and discarded pizza boxes. Your own shame-faced correspondent lasted until the 2nd before breaking his own junk food embargo in spectacular fashion.

Our coalition overlords have also caught the national mood (how do they manage that, time and time again?) by doing their ‘reverse resolution’ audit this week, outlining all the wonderful things they said they’d do and – kind of, sort of, if you squint your eyes a little bit – have done in their two-and-a-half years of government.

Missing from the almost entirely meaningless mid-term review document was anything specifically on housing. Indeed, one of the only mentions is an odd passage chiding landlords for not doing enough to promote the newly discounted right to buy, suggesting that the policy isn’t universally popular among the councils that are being asked to flog their stock at Delboy-style prices.

Going against the spirit of this unforgiving season, I will cut the government a bit of slack. Their affordable house building targets can only be judged in 2015 – the new programme’s drop dead date.

Away from Whitehall, however, one group of people has finally made good on a promise. Institutional investors have for a long time been the Kraken of the housing world. Everyone knows what they look like and some have seen things that resemble them, but none has yet emerged from the murky depths.

Until this week.

M&G’s £125 million purchase of the market rent units in Genesis’ monolithic Halo Tower on the edge of the Olympic park is a big deal in every sense. It is the first time an institution has made a major play in the build-to-let sector and could be a sign that the urgings of the Montague Review are having an effect.

Now comes the interesting part: for months, analysts have said that this was the type of deal that everyone wanted to do but no one wanted to do first.

With M&G taking the plunge, this is the test of whether these vague promises had any substance or are as empty as most of our own New Year commitments.

‘Hypocrite lecteur – mon semblable – mon frère!’

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