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What social landlords need to consider when consolidating their assets

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From L to R: John Forde, Trowers and Hamlins; Simon Quantrell-Evans, Monarch Partnership; Doug Stein
From L to R: John Forde, Trowers and Hamlins; Simon Quantrell-Evans, Monarch Partnership; Doug Stein

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From L to R: John Forde, Trowers and Hamlins; Simon Quantrell-Evans, Monarch Partnership; Doug Stein, DCH

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With the efficiency agenda receiving ever more scrutiny, social landlords are exploring solutions that involve joint working or even mergers and acquisitions.

 

Clearly it’s vital that housing providers looking to join forces make sure that they get implementation of their plans right, otherwise they could risk derailing some of the much sought-after efficiency gains that can be achieved through partnership working.

 

Choosing to merge

To help provide some answers and useful pointers, Inside Housing, in partnership with Monarch Partnership, gathered together experts from the sector for a breakfast briefing at Homes 2016 in London.

 

Stonewater was formed in January 2015 through the merger of Raglan and Jephson housing associations. Panel member Scott Baxendale, executive director - assets at the 31,000-home association Stonewater, explains why merger was selected as the right approach.

 

“The drivers were increasing the financial strength of the business, increasing the development of new homes for our customers, and delivering an improved customer offer,” he says.

 

Although there were numerous reasons why a merger seemed to be the obvious solution - both organisations were similar in terms of stock type, age profile and service standards - there were also some significant barriers.

 

Raglan delivered services more centrally, whereas Jephson was regionally based and all services were dealt with by local regional offices with a local focus. This naturally presented a challenge for the merger process.

 

“[When] bringing together a large organisation, structure is an issue. You cannot upscale what Raglan did or what Jephson did and just make it work in a new environment,” Mr Baxendale explains.

 

“We had to have a completely different model to deliver our services.”

Scott Baxendale, Stonewater
Scott Baxendale, Stonewater

Scott Baxendale, Stonewater

DCH Group, which has 22,000 homes and is based in the South West, initially took a different approach to Stonewater when it came to delivering efficiencies through partnership working.

 

In 2012, DCH and West Devon Homes identified an opportunity to work together in a strategic alliance. They developed a cost-sharing vehicle through which staff, repairs and maintenance teams and IT systems were shared.

 

Doug Stein, group director of asset management at DCH, says the first step in delivering the cost-sharing agreement was to bring together a joint management team from both organisations.

 

“That was essential to encourage teams to work together, to collaborate, and to understand and break down barriers which would naturally otherwise have occurred,” he says.

 

The partnership opened up a lot of opportunities for both organisations. Joint procurement offered the chance to leverage greater savings, while value for money could be achieved through the VAT cost-sharing exemption partnership.

 

“One of the key things it gave us the opportunity to do was to extend our repairs self-delivery service into an area which otherwise wouldn’t be economically viable,” adds Mr Stein.

 

Once the alliance had run its initial three-year course, the decision was made to amalgamate in 2015.

 

“We’ve amalgamated the organisations very effectively, but we’ve now got the opportunity for future investment and ongoing delivery of services with our communities,” he concludes.

 

Simon Quantrell-Evans, executive relationship manager at Monarch Partnership, outlines the importance of a vital but often overlooked element of a social landlord’s portfolio.

 

He asks the audience whether they consider utilities to be part of their asset management function. Not a single hand goes up. “Excellent, I’m at the right seminar,” he quips.

Doug Stein, DCH
Doug Stein, DCH

Doug Stein, DCH

As far as Monarch is concerned, the smart approach to asset management involves social landlords understanding their internal utilities portfolio of electricity, gas and water. If they don’t, they can run up significant costs
unnecessarily.

 

Mr Quantrell-Evans highlights a case where customer ‘A’ was charged a penalty fee of £55,000 by energy supplier ‘Y’ relating to a portfolio which contained a number of sites they were no longer responsible for.

 

“By completely data cleansing your original portfolio and by creating a smart asset register, you will be able to provide clarity and transparency within your business,” he says.

 

“You may have numerous energy suppliers, with varying contract end dates and historical overcharges being impacted onto your business.”

 

Joint venture option

John Forde, senior associate at law firm Trowers & Hamlins, gives an overview of some of the alternative methods that social landlords can use to work with other organisations.

 

Joint ventures (JVs) are one such vehicle which are being increasingly used across the sector.

 

However, there are a number of considerations for housing providers to deliberate.

 

JVs, if set up correctly, can allow landlords to draw on the expertise and resources of a joint venture partner, enabling the more effective use of limited financial resources and/or property assets while accessing essential expertise without upfront costs.

A member of the audience asks a question
A member of the audience asks a question

A member of the audience asks a question

However, Mr Forde admits joint ventures can be restrictive and difficult to disentangle from. “They are often very hard to unwind - contractually they’re complex,” he says. “In terms of commercial negotiation, there tends to be some form of guarantee of work, so that perhaps lessens your commercial flexibility when it comes to procurement.”

Another option is a shared services exemption, which came into force last year under the Public Contracts Regulations 2015. This allows contracting authorities and social housing organisations to enter into an arrangement to share services between each other without having to go through a formal EU exercise.

 

Mr Forde says that although it hasn’t been taken up as much as they had been expecting, some of their clients have used it “to share legal services and to share procurement services”.

 

“It’s a relatively inexpensive and uncomplicated way to think about working together with partner organisations and making some cost savings,” he concludes.

 

Event chair Martin Hilditch, deputy editor of Inside Housing, rounds off the discussion by quizzing the panel about some of the “unknown unknowns” they have encountered and what they have done to overcome them.

 

“I was involved with a strategic alliance between a larger organisation and smaller organisation which resulted in amalgamation,” says Mr Stein of DCH.

 

“The surprise to me was the level of resistance initially because people were worried about what that disparity of size might mean. My pleasant surprise was that once people understood the opportunity they worked through that.”

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