New for-profit RP gears up to build £0.5bn affordable extra care portfolio
A real estate private equity team has launched a new for-profit registered provider that will seek to become a “significant provider” of extra care accommodation at affordable rents, using Homes England grant.
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New for-profit registered provider gears up to build £0.5bn affordable extra care portfolio #ukhousing #socialhousingfinance #extracarehousing A real estate private equity team has launched a new for-profit registered provider that will seek to become a “significant provider” of extra care accommodation at affordable rents, using Homes England grant #ukhousing #socialhousingfinancePreferred Homes Limited (PHL) will act as developer, investor, owner and manager of the properties, which will be let to tenants directly via local authority nomination agreements.
After initially launching with private equity, an agreement with a major corporate funding partner is set to drive development towards the 4,000 unit mark.
Findlay MacAlpine, PHL’s chief executive and a director and founder of financial backers Ashbourne Capital Partners, said that PHL will harness Homes England grant to deliver “the right quality of product but at a highly affordable level of rent to those occupying”.
He said that the team envisages “that tone of rent being substantially underpinned by housing benefit levels”.
Real estate specialist Ashbourne, which owns PHL, will use its investors’ private equity, as well as capital from an undisclosed international corporate funding partner, to fuel its ambitions in the space.
In the shorter term, PHL’s existing private capital over the next six to 18 months will see it move forward with its first five to 10 projects, but the backing of its corporate investor will increase this capacity five-fold.
Mr MacAlpine said: “With our larger corporate partner, we have an agreement and acknowledgement that we can deliver those early projects [and] then the additional capital that’s available would allow us to be developing 50 [sites], rather than 10. So we have an aspiration and the capital backing to become a significant provider in this particular sector.”
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Mr MacAlpine said that in the initial phase of delivery PHL would engage “some £50m-plus of capital”, but that its longer-term ambition is to develop a portfolio of around “£500m-plus of predominantly extra care social housing”.
Asked what investment returns the company would seek, Mr MacAlpine said that these are expected to be “acceptable for a social project”.
The provider’s registration with the Regulator of Social Housing was confirmed on 2 April – meaning that the new RP emerged to find itself in the midst of the COVID-19 pandemic and a government lockdown with major implications across the housing, construction and financial sectors.
Mr MacAlpine said PHL recognises that current events would undoubtedly impact its programme. “We’re reviewing our strategies, how they’re achieved and just looking at timescales and milestones we’d set for the company. [We’re] acknowledging we’re going to have to be tolerant and respectful of the challenges that other stakeholders – local authorities and other key parties – are engaged with.”
To date, a number of high-profile investors have entered the growing UK retirement living and extra care space. These include institutional investors Legal & General and AXA IM, who have backed Inspired Villages and Retirement Villages Group respectively; investment managers Schroders Real Estate and Octopus Real Estate (Audley Group); Goldman Sachs (Riverstone Living); and impact investor Bridges Fund Management (Birchgrove).
These ventures have tended to focus on a luxury product, with some also beginning to explore mid-market self-pay offerings.
Mr MacAlpine said that after exploring the space, Ashbourne identified that, although considerable demand remains at the equity-release, self-funded end of the consumer base, “the real requirement and need in the sector was far more at the social end of the spectrum”.
He added: “We are focusing quite considerably on extra care, with perhaps some aligned NHS step-down capability within our buildings as well.”
He said: “There are others doing it. Obviously Places for People, Anchor Hanover and others have been involved in investing and developing particularly in extra care, mixed-tenure style developments, so we know there are others out there making an impact.
“But having come at it from the ‘elderly living’ end of the spectrum, rather than more general social housing, at PHL our objectives are really to major on the extra care end of social housing.”
In common with an increasing number of later living developments, the focus will be on urban and suburban settings with good access to transport to enable the required staffing as well as proximity to amenities such as healthcare facilities.
Mr MacAlpine said: “There are a lot of commercial sites in suburban locations and towns and major cities today that were once quite viable retail which are no longer retail today. So we see our business model as being quite well suited to the regeneration of brownfield sites in major towns and cities, and part of [the] changeover and the contraction of retail space in these locations with conversion back to various forms of residential, of which we are part.”
From a geographic perspective, PHL’s focus will be limited to England, where it has identified “more than enough” demand, but with a nationwide approach.
Mr MacAlpine said: “We’ve spent quite a lot of time in the urban areas, so metropolitan authorities, Birmingham, Manchester and the rest, but the reality is we think it’s England-wide. [We] believe that this product is just as viable in the North East and North West of England as it could be in the South West and parts of middle central England.”
Mr MacAlpine said that PHL had identified a development “sweet spot” of sites of around 80 apartments, with a single-tenure approach. “Some might be a little bit smaller, some might be a little bit bigger, but that’s the general space.”
This could see the provider develop up to 4,000 homes, as funding from its corporate partner kicks in.
PHL will build rather than acquire sites, Mr MacAlpine said, adding that its blend of long-term private capital and corporate funding would support it to do this.
He added: “Our business plan is quite simple – we are going to be developer, investor, owner, manager of the real estate product we are going to be building for local authorities.”
PHL’s launch came as Social Housing reported the emergence of two other for-profit providers backed by major players in the sector in the past week.
One, AAIM Housing, sponsored by treasury advisor Centrus, is seeking to raise £1bn of equity to invest primarily in the acquisition of shared ownership and general needs homes.
The other, ReSI Homes, which was launched by the people behind real estate investment trust Residential Secure Income (ReSI), is looking to raise up to £2bn of equity from the private markets over the next three years to invest in new build social housing.
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