Supporting Older
People Conference
B20: Carry on meeting the challenge of funding
new homes
Speakers: Richard Petty, Lead Director, Affordable Housing Jones Lang LaSalle
Mark Martin, Head of Stock Rationalisation, Riverside
James Hill, Director of Property Services, Riverside
Mark Allnutt, Development Director, Thames Valley
Housing Association Chair: Phil Newsam
Finance and IT Director, Hexagon Housing Association
Meeting the Challenge
of Funding New
NHF Finance Conference (Session B20)
Warwick University – 21 March 2013
Homes
Richard Petty
Lead Director - Affordable Housing
4 4
Two (quick) tasks
• Setting the scene
• Unlocking capacity
5
Housing supply - England housing completions
0
50,000
100,000
150,000
200,000
250,000
300,000
350,000
400,000
1949
1952
1955
1958
1961
1964
1967
1970
1973
1976
1979
1982
1985
1988
1991
1994
1997
2000
2003
2006
2009
2012
Num
ber
of h
ousi
ng u
nits
a y
ear
Private Enterprise Housing Associations Local Authorities
Source : JLL, CLG
Barker Review 2004
annual target
6
UK population growth
50
52
54
56
58
60
62
64
1990 1992 1994 1996 1998 2000 2002 2004 2006 2008 2010 2012 2014 2016 2018 2020 2022 2024 2026 2028 2030
Num
ber
of
people
(m
)
Source : JLL, Oxford Economics, ONS
6m increase since
1990
7
Council housing waiting lists
0.0
0.2
0.4
0.6
0.8
1.0
1.2
1.4
1.6
1.8
2.0
1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012
Num
ber
of h
ouse
hold
s on
hou
sing
wai
ting
list
Eng
land
(m
)
Source : JLL, CLG
4.5m people waiting for
social housing in England
8
UK population growth
50
52
54
56
58
60
62
64
66
68
1990 1992 1994 1996 1998 2000 2002 2004 2006 2008 2010 2012 2014 2016 2018 2020
Num
ber
of
people
(m
)
Source : JLL, Oxford Economics, ONS
6m increase since
1990
3m more people in
next 8 years….
Mortgage approvals N
umbe
r of
loan
s a
year
(00
0s)
Source: Jones Lang LaSalle, BoE (NSA)
Average deposit risen from
£6,000 to £30,000 since 2001
Average age of FTB
now 30 – higher for
unassisted buyers
10 10
Structural shift in housing market
EHS Year Owner-Occ. Social Rent Private Rent
1999 70% 20% 10%
2010 66% 18% 16%
Source: Survey of English Housing
11
If current trends continue….
0%
10%
20%
30%
40%
50%
60%
2000
2001
2002
2003
2004
2005
2006
2007
2008
2009
2010
2011
2012
2013
2014
2015
2016
2017
2018
2019
2020
Own outright Mortgaged Private renting
Source : JLL, ONS
12
58% 56% 55% 51% 52%43%
33%
17%17% 17%
17% 18%
16%
12%
25% 27% 28% 31% 31%41%
51%
47%
17%
36%
0%
10%
20%
30%
40%
50%
60%
70%
80%
90%
100%
2005 2006 2007 2008 2009 2010 2011 2020
% o
f a
ge
gro
up
in t
en
ure
Owner-occupier Social rented Private rented
Housing market restructuring – a nation of renters? 25-34 year olds, England
Source: JLL, Survey of English Housing
13 13
Summary
• Supply - not building enough new homes
• Demand – has grown, and will continue to grow
• Mortgages remain in short supply
• Tenure - structural shift from owning to renting
• Plenty of reasons why we should unlock greater capacity
• Who will meet this broad housing need?
14 14
Two (quick) tasks
• Setting the scene
• Unlocking capacity
15 15
Valuation of existing stock - transactions
• Substantial existing asset value - £71bn net book value
• Average about £36k per unit – but very misleading
• Growing stock rationalisation market – what does this tell us?
• Values between £17k and £147k last year – average £43k
• Emergence of two-tier market for EUV-SH
• Lotting is critical to achieving value
• Valuers should reflect the market – but never make it
16 16
Valuation of existing stock - assumptions
• Is the sector generally undervalued on basis of EUV-SH?
- Against the market
- Relative to other assets
• Have we exaggerated some risks in assessing discount rates?
- Liquidity
- Obsolescence
• But under-estimated others?
- Income
- Regulatory change
• That aside, can the sector rely on MV-T?
17 17
Much depends on the regulator
• For Profit vs. Not For Profit – emergence of mixed market
• Blurring of boundaries between RPs and non-regulated organisations
• Will we see transactions at Market Value?
• Sale and leaseback deals
- Could revolutionise our view of liquidity in the market
• Strong regulation at heart of “bankable” reputation
• Cosmopolitan outcome will be key
18 18
Investors are watching closely
• Appeal of the sector rests on:
- Government-backed income stream
- Index-linked income
- Strong regulation
- Zero loss track record
• Bond market – c.£3.5bn 2012; falling pricing
• Moody’s – recent downgrades thin end of wedge?
- Knock-on effect of sovereign debt downgrade
- Concerns over Cosmopolitan / latent risk / regulation
• Welfare reform looming – omens from pilots not good
19 19
New sources of funding
• New lenders entering market – esp. L&G
• Local authorities emerging as lenders
• Private equity moving into shared equity – Apache Capital
• Ground rent investors – Freehold Corporation
- Geared investments rely on covenant strength and regulator
• RP providing development finance to JV
- Major regeneration project
- Facilitate planning
- Commercial return
- Long-term profit participation
20 20
Leveraging Affordable Rent
• New tenure was meant to bring two benefits – cashflow and asset value
• Additional borrowing capacity is not being realised
• Banks understandably wary
21 21
1. EUV-SH – social rent
0
1,000
2,000
3,000
4,000
5,000
6,000
7,000
0 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 29 30
Rent/
Costs
(pa)
Year
Rent (pa) Costs (pa)
EUV-SH £71,000
22 22
2. EUV-SH with future AR tenancies
0
1,000
2,000
3,000
4,000
5,000
6,000
7,000
8,000
9,000
10,000
11,000
12,000
13,000
14,000
15,000
0 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 29 30
Rent/
Costs
(pa)
Year
Rent (pa) Costs (pa)
EUV-SH £110,000
23 23
Leveraging Affordable Rent
• Is AR here to stay beyond 2015?
• HCA contract terms not transferable
• No longer a level playing field
• Who will move first?
24 24
Private Rented Sector
• Enormous demand for new stock – 1.7m units by 2016
• Won’t be met – rental pressure will continue
• No-one has properly embraced “Build to Rent” – yet
• Build on Montague Report – new residential asset class
• Emulate US, Canada and other countries with multi-family sector
• Viable in its own right – and to unlock other capacity
• £200m HCA fund
Meeting the Challenge
of Funding New
NHF Finance Conference (Session B20)
Warwick University – 21 March 2013
Homes
Making Best Use of Assets
James Hill & Mark Martin
The Riverside Group
Founded in 1926.
Riverside
owns/manages –
50,300 units.
Employs – 2450
staff.
Turnover £247m pa.
‘Providers should understand the return on their assets
and develop a strategy for maximising the future return
as measured against their own social objectives’.
Julian Ashby
Chair, HCA Regulation Committee
Botanic Rd, Lpool 7 – de-conversions
for sale via ‘Own Place’ scheme
Development v Disposals
Growth and Rationalisation – are they compatible ?
• Past 5 years – sold/transferred more properties than we’ve built.
• Driver – ECHG merger business plan. Emotions… assets aren’t for life.
• What have we rationalised ? Isolated stock/ poor quality/ loss- making.
• Significant income brought in – last year £8m (£5m surplus).
• Underpins other parts of the business – reinvestment + growth.
Nightingale House, Worcester – open market sale
What shape + size Riverside in 5 years time ?
Issues:-
• We need to understand how our assets perform – loss makers need
identifying and dealing with. Should we ‘churn’ stock ?
• How easy is it to identify where we should exit from ? LA’s with less
than 20 units ? Can we ‘let + forget’ good performing stock ?
•Need to align to growth strategy.
Parliament Hill, Hampstead –
high value asset
Housing Futures Assessment Tool (HFAT) A bespoke Riverside tool developed by Is4 that works
operationally for each region/division but can be collated
and analysed at Group level as well.
Enter HFAT
Version:
Riverside Mersey North
HFAT – traffic
light analysis
Measures
individual asset
performance
(where data
permits) and
comparative
performance.
Currently NPV’s:
>£15k = green
£5-15k = amber
<£5k = red
Rationalisation – key drivers
• Good practice – too many RP’s per LA = less co-ordinated.
• LIFE model – (Lead, Influence, Follow, Exit)
• Costs – isolated/distant stock more expensive to manage.
• Local management = better services/engagement with tenants.
• Sustainability issues – poor performing stock.
• Generating income – void sales – supporting development etc.
Lewes, Sussex – tenanted transfer to
Saxon Weald HA – 272 units
Option appraisals
• Applied to schemes – sheltered and supported
• Individual appraisals take account of:
• Demand, location, voids, configuration/layout, DDA, condition.
• Cost in use, SP risk, historic cost, SHG, planning, title, charges.
• Value current and potential, market demand, alternative uses.
• LA views, tenants views, RP interest.
Priestley Nook, Pendle – no RP
interest.
Some recent transfers: • Saxon Weald – competitive (272 units)
• Adactus HA – negotiated (112)
• Black Country/Walsall/Worcester HA’s – negotiated (151)
• Notting Hill/Inquilab/Thrive - competitive – (130)
• Catalyst/ Sovereign/ Oxford Citizens/Elim/Rooftop – competitive (498)
• Sanctuary – 180 – (competitive)
• Calico/ Community Gateway – competitive (92)
• Weaver Vale HT – negotiated – (105)
Droitwich scheme – transfer to West
Midlands consortium.
Transfer tenanted • What about stock swaps ? DIY or use consultants ?
• Consult with residents/advocates – follow good practice.
• Competitive tendering or single negotiation ?
• What’s an acceptable price ? Value less Historic costs = … ?
• What’s the best offer for tenants ? Not just about price.
• Do your prep well in advance – legal/SCS/asbestos/DDA/arrears.
• Inform HCA/LA of proposals (consult – preferred RP’s ?)
• Internal stakeholders – keep informed – any TUPE issues ?
• Business as usual until transfer – 1 year is the norm.
Newbury scheme – transfer
to Sovereign HA
Key lessons 1. Good communication is vital
2. Avoid disputes over repairs and maintenance
3. Understanding contractual obligations
4. Quality of data and information available
5. Data Protection
6. Timely consultation with LA, HCA, staff and tenants
7. TUPE obligations
8. Front load legal work
9. Follow-up consultation surgeries
Lloyd Court, West Gorton – transfer to
Guinness
Measuring impact of sales
Sales receipt £915,000
Historic cost £52,000
Less grant £0
Surplus £863,000
NPV £-745,000
Impact of sale £1,608,000
1 Park Avenue, Liverpool –
12 units – open market sale
via auction.
Riverside Real Estate Consultants Framework
• Valuation and Stock Rationalisation Services – real estate + treasury
• OJEU compliant
Open to other registered providers to join
• Delivers significant cost benefits
• Allows the removal of the potential conflict of interest
• Maximises value – competitive fee levels
Michaelmas Lodge, Cheltenham -
open market sale
Any questions ?
Commercial
options
Mark Allnutt
Group Development Director
Thames Valley Housing
Content
• Intro to TVHA
• Potential for market rent and open
market sale
• Case study - Fizzy Living
Who are TVH?
• Traditional Housing Association
• Formed in 1966
• 15,000 homes - All organic growth
• Stock in London & South East
Yes
But…
Why?
How?
Who?
Where?
When?
Risk?
Hmmmm…
Potential for sale
• How commercial are you (prepared to
be)
• How good are your development team?
• How good are your Board/Exec?
• Understanding the pitfalls
• Cashflow
Private sector skills
• Private sector know the traps
• Bring skills in house or outsource
• Potential for Joint Ventures
• Who will source the best opportunities?
The TVH way
Opal Land LLP TVH sale
Potential for rent
• Why are you doing it?
• What is your business model?
• How long will you hold?
• Where will the profit come from?
• Where in the structure does it fit?
Management costs
• Professional management costs are a
burden
• How will you cut costs and provide good
quality services?
• How to compete with BTL landlords?
Finding the money
• Investment requires scale
• Needs to be a sizeable business
• Chicken and egg scenario on
funding/equity
• Are interests aligned?
RENTYSOMETHING
RESIDENTS
Fizzy has been established
to provide rental
accommodation for the
young professionals who
have been excluded from
buying a home through
limited affordable
opportunities, a lack of
savings to cover the
Purchase deposit, and the
high cost of mortgages.
Fizzy is a subsidiary of
Thames Valley Housing
Association
TVHA has invested £30M
into Fizzy, which has
funded the development of
the structure, systems and
first two buildings.
Fizzy has recently
completed a major funding
arrangement with
Macquarie Capital which
will enable it to achieve the
initial goal of procuring a
500 unit portfolio
The Fizzy service offer sets
the Fizzy Living experience
apart:
Each FIZZY building will be
managed by a full time staff
member, who we call ‘Bob’.
Bob’s primary role is to
manage the smooth running
of the building, as well as
reacting to unplanned
maintenance or other issues.
Fizzy has developed bespoke
management software,
covering everything from rent
collection to fault reporting
and fixing.
Fizzy has written 34 Standard
Operating Procedures to
ensure that all aspects of the
management process have
minimum recorded standards
which form the basis of our
quality control.
The Fizzy systems are
designed to be easily
scalable.
THE FIZZY
SERVICE OFFER
As well as purchasing
buildings we are to embark on
building our own projects.
TVHA has been delivering its
own product for over 40 years,
so is well qualified to assist
Fizzy.
Fizzy has engaged with HTA
Architects, and EC Harris to
design attractive and cost
effective buildings which will
particularly suit renters and
sharers.
The typical FIZZY development
will consist of around 100
apartments, so it will be of a
scale to make an impact
in the local market.
The main Fizzy criteria are to
be within 5 minutes walk to a
station, to be in a safe, buzzy
environment, to be good value
and to be well managed.
A TYPICAL FIZZY
DEVELOPMENT
FIZZY
2 BEDROOM
FLAT
It’s always been fun
to share; Fizzy makes
it easy
BEDROOM
Enough space for a big
bed, a table to work at,
fitted storage, and an
exercise mat on the
floor.
LIVING SPACE
Separate dining,
cooking and
seating zones.
BATHROOM
Every bedroom has a
bathroom, for rest and
recuperation
TERRACE
A terrace, to
catch the sun
and enjoy the
sound of the
city on an
early summer
morning
LIVING ROOM
Sliding walls pull back to open up
the front of the flat to the city view, and
to make a great flat for socialising.
BUILDING
THE
FIZZY
BUILDING
1 BED
FLAT
2 BED
FLAT
3 BED
FLAT
LOW RISE
MEDIUM
RISE
HIGH RISE
the story so far…
FIZZY
EPSOM
• 63 1 & 2 beds units
• Completion Q1 2013
• Adjacent to Epsom
Station
• Strong local demand
FIZZY
CANNING
TOWN
• 75 1, 2 & 3 bed units
• Launched Sept 2012
• 92% let
• Target Market
- Rentysomethings
future gazing…
Supporting Older
People Conference
B20: Carry on meeting the challenge of funding
new homes
Speakers: Richard Petty, Lead Director, Affordable Housing Jones Lang LaSalle
Mark Martin, Head of Stock Rationalisation, Riverside
James Hill, Director of Property Services, Riverside
Mark Allnutt, Development Director, Thames Valley
Housing Association Chair: Phil Newsam
Finance and IT Director, Hexagon Housing Association
