C4H press coverage 01-02/13
Spike in housing opportunities for funds
By David Rowley and Joe Smith 16 January 2013
A flurry of fund manager initiatives have launched, offering pension funds long-term, inflation-beating returns from residential housing in order to fill a funding gap left by the reduction in government contributions and bank loans.
Schemes have targeted residential housing to provide a relatively low-risk, interest rate-linked return on their investment. The high cost of index-linked gilts has forced many to look elsewhere for assets that will match their liabilities.
New boutique provider Catalyst for Homes (C4H) has launched a £1.3bn trust that will invest a mixture of private and social housing, and the company is already in talks with several local authority funds. It offers a mixture of secured (4 per cent) and profit-related returns.
Following socially responsible investor guidelines, it will invest its own profits back into the property trust and local neighbourhoods, and is estimating annualised returns exceeding 10 per cent.
Adam Sampson, the trust’s non-executive chair, is a former chief executive of the homeless charity Shelter.
“C4H reinvests its profits as they are repaid, subject to investor yields into the local neighbourhoods, addressing long-term support for jobs, facilities, local charities and social enterprise, with an anticipated 30-year spend in conjunction with local authorities of £380m,” according to the fund documents.
Live discussion: how to attract institutional investment
With public funding cuts, it could be up to pension houses and other investors to finance new development. Join our expert panel from 12pm on Monday 4 February
Thanks all. To round up, could our panellists provide a handful of tips for how housing providers can attract institutional investment?
There needs to be more pooling of both supply (joint investments to spread risk) and demand (to provide the scale needed for joint investment) though this can be at the sub-regional level as the GMPF example demonstrates.
We also need to extend investment beyond market housing into social and intermediate housing so that the social impact of the investment is maximised. Delivering returns will be more challenging, but not impossible and there are a number of interesting examples out there such as the Aviva Realm fund or the model being promoted by C4H www.c4hcic.org.uk
Community interest company Catalyst for Homes has launched a new property fund for pension schemes to invest in social and private housing.
C4H said the fund can deliver potential returns of over 10% through blending Registered Provider bonds, long-term market sales and rental income plus C4H’s development profit.
The company creates a property trust (C4H-PT) designed for pension fund investment to purchase sites.
The initial investment comes via the trust’s RP social bond, which makes up roughly 50% of the fund investment and provides a low risk, guaranteed but relatively low return income.
The remainder is financed through short-term debt from banks and partner investor companies.
Once each site is completed, the RP takes control of the social homes financed via the bond while C4H-PT takes ownership of the private homes.
C4H non-executive chairman Adam Sampson said: “The 50% C4H-PT investment, secured against the value of the newly built private stock will yield a far higher return, with the risk of exposure to the private market being mitigated by a cautious approach to sales and rentals, plus the spread of risk across many locations.
“Returns are underwritten to circa 4% but commercial returns derived from typical sales and rental of the private homes exceeds 10%. The C4H-PT only repays the C4H profit if on-going returns hit agreed minimums.”
Sampson called the outline of the solution simple and the firm has worked with a number of RPs and local authorities identifying sites for social and private development.
He added: “Up to now, proposals to stimulate pension fund investment in housing have largely foundered on the rocks of viability, scalability, high risks and low returns. The C4H solution addresses these problems.
“As a community interest company, C4H is not seeking to extract profit from its work but to reinvest any surplus which it creates into community investment and social enterprise.”
The not-for-profit company has spent three years testing the fund and said it is a first of its kind solution that channels profit focus towards investor yields and does not rely on government subsidies.
Last year, pension schemes flooded £250m into long-dated affordable housing bonds
(PP Online, 28 Feb 12).