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Homes England supports private equity lease deal
The government’s housing delivery agency will provide grant funding to a housing association carrying out a lease-based deal and claiming to have learned from recent troubles with similar deals.
Homes England has given £2.1m in grant to the housing association Partners Foundation, which has struck a deal with the investment fund Funding Affordable Homes (FAH).
This will be used for a deal similar in some respects to those struck under controversial financial leases but with clauses built in to manage risk.
Supported housing association Partners Foundation has signed a 20-year management lease with FAH, which previously owned stock leased to troubled association First Priority.
FAH funded the development of the homes, which are designed for extra care housing in Rochdale. The scheme is part of a wider set of deals worth £96m but Homes England only confirmed its involvement in these homes.
FAH transferred its homes away from First Priority after the association almost went insolvent due to unsustainable lease deals it had signed with other investors and an extremely high proportion of homes lying empty and therefore not providing rent.
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In contrast to the deals signed by First Priority and other similar lease-based housing associations, this deal includes a payment of one year’s rent up front from Partners Foundation to FAH.
FAH will hold this money on behalf of Partners Foundation in case it defaults on any of its lease obligations.
For example, if any of the homes become empty and Partners Foundation is unable to fill them, it can use that money to ensure it continues to make its lease payments.
Once that money is gone, Partners Foundation will not have any liability on voids, Phil Shanks, chief executive of the association, told Inside Housing. That risk, he said, will fall to FAH.
Mr Shanks added: “It had to happen. If there’s one thing I have had a major problem with – and I’ve been looking for the answer for a long time – I find the transfer of risk from funds to individual registered providers absolutely repellent.”
He admitted that this kind of deal, where the fund takes on more risk than the housing association, will therefore be less attractive to some of the investment funds which have spent huge amounts of money buying homes with leases where the void risk falls on the housing association.
But Mr Shanks said: “Now the regulator’s looking much more closely – quite rightly – at the nature of these leases, it’s harder for the investment funds to find partners with whom to work.
“The partners with whom they will work, I think, will get to dictate the terms. I have regularly said to our colleagues, as the regulated sector, we should be dictating the terms of business. Yes, some investment funds won’t like it but there are plenty out there that will.”
Update: at 10.49 on 3.1.19 This story was updated to correct inaccuracies. It previously reported that grant was awarded to Funding Affordable Homes’ subsidiary, when in fact it was awarded to Partners Foundation. It also characterised the one year’s rent fund as intended for void management, when in fact it has a broader purpose to insure against Partners Foundation defaulting on its lease payments.
