BME build scheme opened to small HAs

Funding partners

Through the Build London scheme, L&Q has introduced partner organisations to funders who could potentially back them in acquiring the sites.

“Those funders are not funding L&Q, there is no underwrite from us, no guarantees, but they’re really keen to give long-term finance to those associations for these assets because they know that L&Q has done most of the due diligence on the schemes,” Mr Ahmed says.

Aziz Rahim, chief executive of North London Muslims Housing Association (NLMHA) – whose 10-unit Church Road scheme in Waltham Forest is currently in line to become the first in the initiative
to complete in June 2020 – says that the L&Q connection means better lending terms for smaller housing associations.

“Without this partnership, they don’t offer us the same sort of interest rate… when they see that L&Q is handling the scheme, their confidence increases.”

Church Road is a Section 106 project, in which L&Q is not directly developing the units but is acting as the development association in appraising and evaluating its delivery in collaboration with NLMHA.

Mr Rahim says: “[L&Q] carry out their appraisal, go through the risk maps, [they say] we will be the developing housing association and we will deliver to you on completion. So they’re taking that huge responsibility and all the risk in dealing with the developer – so it’s a very easy transaction for us.”

L&Q will also help to sell the four shared ownership properties on the site, as it is doing on another site in development with NLMHA, Leven Wharf, which pre-dates the Build London programme.

Mr Rahim says: “[L&Q] are ideal partners because they don’t touch under 50 units – mainly they go for over 100 – whereas smaller housing associations always look for smaller schemes.”

This, he says, means that unlike some collaborative partnerships between housing associations – such as the North River Alliance led by Islington & Shoreditch Housing Association, in which NLMHA is also involved – there is no chance of the two associations competing for the same site.

And while, as at Church Road, Section 106 will make up some of the projects, Ms Jacobs emphasises that L&Q is concentrating on smaller development opportunities such as infill sites – “sites that people just don’t think would be any use, but actually we could do something great with”.

This is part of an overarching aim by L&Q to deliver “genuine additionality” – which applies as much in its work with small housing associations in London as it does in its efforts to continue to expand regionally.

Mr Ahmed says: “We are not in competition with anyone – if you can build without L&Q then build without L&Q.”

Apart from an overhead for the cost of the team, and interest on the funding at L&Q’s internal borrowing rates, providers purchase the schemes at cost.

The £100m pot comes from a £250m gift that L&Q put into its community investment arm: the L&Q Foundation, set up in January last year. The foundation has also invested £10m into St Mungo’s Real Lettings Property Fund to help secure accommodation opportunities for homeless people in London.

As with all of L&Q’s development projects, schemes within the Build London Partnership incur interest on peak debt, calculated monthly, using a low interest rate based on the average group borrowing cost. The foundation benefits from being credited this interest, but channelling money through the foundation does come at a cost.

Referring to the £250m placed into the foundation, Mr Ahmed says: “If that [money] was invested, the returns that we would expect that investment to generate is about four per cent per annum – the equivalent of spending about £10m a year.”

Asked about incentives, he adds: “There is no tax perspective here as there is no profit being made.”

Economy of scale

For Clare Norton, head of the G320 group of London housing associations, the Build London programme’s aim to create 1,000 affordable new home starts by 2022 is “very ambitious, but definitely possible”.

The G320 is not involved in an official capacity in the scheme, but L&Q has “been careful to work with the G320, and engage with our members and listen to what we’re looking for, and then to develop their programme as they get that feedback”, she says.

Ms Norton’s own organisation, Peter Bedford Housing Association, is signed up as a partner, although she expects the scheme to take place towards the end of that target period, with Peter Bedford first prioritising opportunities to extend and augment its existing properties.

Alongside the bespoke team L&Q has assembled, Ms Norton sees the scheme’s efforts to establish a “small contractors framework” as advantageous. Currently 27 small and medium-sized contractors are engaged in an £8m framework to deliver the programme.

“[One of the issues] for small housing associations is that you can’t get contractors, large contractors, to work for the same standards and levels and be interested in the framework.”

This is particularly important on small sites, which are “inherently more difficult to develop”, Ms Norton says. “Quite often there are going to be difficulties around utilities or transport being very close, or you might have difficulties as it’s a site that’s encroached upon by other buildings.”

It’s a challenge and opportunity recognised and reflected in the preferential grant rates offered by the GLA, which has currently committed £80m to the programme to 2022.

“Because small associations have become increasingly active around our potential to develop and explaining what the barriers are, I think the GLA has been listening to us and one of the key parts of the London strategy is around developing small sites so in order to make that happen the GLA know it needs to invest in small builders – because the larger ones are not going to be so interested in the sites,” says Ms Norton.

She sees the Build London initiative as one of a number of pathways available to G320 members – who are keen to work with other partners, too.

“It’s a great opportunity, and one element of what we may be able to do to develop housing, but it’s one tool hopefully within a suite of other tools as well.”

This includes schemes such as the North River Alliance, but also – Ms Norton hopes – partnerships with other larger housing associations in time, as well as more collaborative ways of working with smaller HAs on development strategy.