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
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
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