ReSI Capital Management Limited

21-26 Garlick Hill,

London EC4V 2AU

0207 3820900

resi@resicm.com

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+44 (0) 20 3727 1000
resi@fticonsulting.com

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Housing Association Partners

ReSI provides an alternative equity-like financing source in an environment of reduced government grant and increasing pressure to develop more homes... 

​As a long term capital partner, ReSI can support Housing Associations in realising their development ambitions by re-cycling capital locked up in existing assets whilst continuing to manage, maintain and rent out the homes. ReSI has the ability to invest in the range of residential assets owned by Housing Associations on either a joint venture or full acquisition basis, and sign a flexible management agreement, with each transaction tailored to the specific circumstances of the Registered Provider.

Shared Ownership Opportunity

Shared ownership properties are the optimum assets for Housing Associations to recycle since they are profitable to develop and beneficial to tenants, but cannot be considered as long-term assets for the Housing Association because ownership can be staircased away at a time of the tenant’s choosing.

 

Furthermore staircasing makes it difficult to use shared ownership as security for raising debt, so the asset is underutilised in this respect.  In contrast, recycling the properties with ReSI allows tomorrow’s staircasing receipts (from the partial sale proceeds to the tenant) to fund development today - generating further development profits without stretching the balance sheet.

By entering into a series of such transactions with ReSI over time, Housing Associations can repeatedly recycle their capital to support and enhance long term development ambitions and continue to benefit from a development margin on each tranche of sales. 

Cumulative development base case

Cumulative development with recycling

Initial development with recycling

Value of recycling Shared Ownership stock

A transaction of this sort would release capacity for the Housing Association to develop new shared ownership homes.  Since this development activity is profitable and has a rate of return (typically 10% - 12%) well above ReSI’s purchase IRR (typically 6% - 7%) , recycling capital into this new activity is value-accretive. ReSI would target the highest yielding schemes containing more than 5 properties in order to maximise the purchase price for the Housing Associations.

Hence, this recycling of capital would deliver a significant economic benefit to the Housing Association without reducing the number of properties under management, and in addition deliver a social dividend from the subsidised rent and the increased delivery of housing.

Tailoring Shared Ownership Transactions

Transfer of capital grant

If the Housing Association is unable to recycle the capital grant associated with the shared ownership portfolio and would otherwise have to repay the grant, it would be more efficient for the transaction for ReSI Housing Ltd, a wholly owned subsidiary of ReSI intending to become a for-profit Housing Association, to take over the grant.  ReSI Housing would have to repay the grant only when staircasing happens over time (i.e. as and when the tenant buys additional equity), and this timing effect discounts the value of the grant liability in the hands of ReSI.  ReSI can tailor proposals so as to share the value of this benefit with the Housing Association, based on the level at which ReSI accounts for the grant liability.

Participation in future staircasing profits

If the Housing Association wished to retain exposure to future staircasing , ReSI could offer participation to a proportion of the future staircasing profits (adjusted for the projected inflation) in return for a reduction in purchase price. In this way the Housing Association would participate in any house price appreciation in excess of RPI + 0.5%.

A summary of Shared Ownership transactions

Features

  • No ongoing balance sheet liability (this is not a sale and leaseback transaction)

  • Management agreement for Housing Association to maintain continuity of relationship with residents

  • There can also be options for the RP to:

    • transfer capital grant along with the properties, and/or

    • structure the transaction to retain a share of staircasing profits

  • Ongoing management retained by the HA, in return for agreed management fees

Benefits

  • Reduces gearing - brings forward future cash flows, more certainty in business plan

  • Enables development growth – recycling capacity into further development profits

  • Further development ensures greater access to affordable housing, enhancing social mission

  • No balance sheet obligation for pre-existing landlord

  • Typical transactions structured so that there is an accounting gain on disposal

To find out more how ReSI can help Housing Associations contact

Jon Slater

Chief Executive

ReSI Capital Management Limited

+44 (0) 20 7382 0957

jonslater@resicm.com

Alex Pilato

Chairman & Chief Executive

TradeRisks Limited

+44 (0) 20 7382 0910

alexpilato@traderisks.com

Ben Fry

Managing Director, Investment

ReSI Capital Management Limited

+44 (0) 20 7382 0918

BenjaminFry@resicm.com

Mark Rogers

Chief Executive

ReSI Housing Limited

+44 (0) 20 7382 0900

markrogers@resicm.com

Pete Redman

Managing Director

ReSI Capital Management Limited

+44 (0) 20 7382 0916

peteredman@resicm.com