Britain's biggest pension fund teams with PPP specialist in £100m supported housing jv

Universities Superannuation Scheme (USS) and Morgan Sindall Investments Limited (MSIL) have launched a new joint venture, which will be known as the ‘Supported Housing Investment Limited Partnership’ (SHIP). 

The jv is now in ‘advanced discussions’ with a number of housing association boards about potential projects.

USS, which is the pension scheme for lecturers and other staff in higher education, has assets under management of £56bn, according to its latest valuation. MSIL is the investment division of contractor Morgan Sindall.

The partners have committed £100m of equity to SHIP, 95 per cent of which has been supplied by USS with MSIL taking a 5 per cent stake.

‘This is a huge boost to the credibility of this asset class’ - Richard Dixon, MSIL

MSIL will act as asset, property and portfolio manager for the jv, sourcing properties for the vehicle and collecting rents from the housing associations that manage the properties.

Richard Dixon, a director of MSIL, said that the size of his company’s stake may increase when the jv is refinanced.

SHIP’s initial plan is to deliver more than 500 new purpose-built supported independent living apartments across the UK, catering for vulnerable adults with physical and learning disabilities.

The jv partners intend to double the value of the SHIP portfolio to £200m subject to identifying suitable investment opportunities.  

The homes will be delivered by HB Villages Limited, a specialist developer of purpose built supported independent living apartments in which MSIL took a 50 per cent stake four years ago.

Since then, HB Villages has delivered around £70m worth of apartments in 30 towns across England, and it has a £100m pipeline of flats in development.

Mr Dixon told Social Housing that the USS tie-up was a breakthrough in terms of the perception of supported housing as an asset class in its own right.

‘This is a huge boost to the credibility of this asset class, because it (USS) is a major UK institution,’ he said.

Mr Dixon added that as investors had become more comfortable with the risk profile of supported housing projects, the yields on such investments had fallen from eight to nine per cent five years ago to six per cent now.

‘As more of these schemes are developed, the market will be familiar with them and we hope to see yields come down, which will add value to the development.’

Graham Burnett, head of property at USS Investment Management said: ‘We are delighted to be partnering with MSIL to launch SHIP, which continues our strategy to grow a significant portfolio of properties producing long term, stable returns for our participating employers and members.

‘With supported living an emerging asset class  we fully expect our investment to grow given the strong fundamentals and significant lack of supply within the sector.’

A significant proportion of HB Villages are built by MSIL’s sister companies Lovell Partnerships Limited and Morgan Sindall Construction & Infrastructure Limited.

The units are then leased to housing associations on 25 to 35-year commercial FRI leases.

Mr Dixon said that the jv was in ‘advanced discussions’ with a number of housing association boards about potential projects.

MSIL has previously worked with registered providers such as Inclusion and Plexus, owned by Mears.

He added that MSIL sources development opportunities by engaging with care commissioners to identify requirements.

In November 2016, the first social housing real estate investment (REIT) trust, Civitas Social Housing, issued £350m of shares as it launched on the London Stock Exchange. It had originally aimed to raise £250m through the share offer but decided to raise that to £350m after it was oversubscribed.

Its prospectus said that the portfolio would be weighted in favour of supported and extra care housing, although it will acquire some general needs homes. As such, it expects that 85 per cent of its income will come from local or central government.

A local authority pension fund has since invested in the REIT.