Hyde partners with major investor to fuel £500m shared ownership pipeline through new fund

New sources of finance

 

Mr Denton, who has previously set out (unrelated) plans for Hyde to launch its own for-profit registered provider, as first revealed by Social Housing, said that finding new sources of funding was “imperative” in order to ensure urgently needed new homes can continue to be delivered.

 

This is in light of the financial pressures posed by expenditure on building safety works and the net zero carbon agenda, he said.

 

Social Housing last week reported that some housing associations have approached their lenders over potential carve-outs to loan covenants in relation both to expected decarbonisation spend and separately to fire safety spend.

 

Mr Denton said: “Hyde, like all housing associations, faces multiple funding challenges to ensure our homes are safe, decent and sustainable. But we also believe developing new homes is an integral part of our core purpose.

 

"If we don’t find new sources of funding, we simply won’t have the resources to keep developing at the same rate. This is one of the main reasons we want to work in partnership with others and look at new ways of doing things – including whether we own some homes or manage them on behalf of others.

 

“It’s imperative we find new sources of funding and the partners that share our commitment in areas like environmental, social and governance (ESG) outcomes, to ensure we can continue to build the new homes that are so desperately needed.”

 

The new fund is being managed by M&G real estate fund manager Alex Greaves – who also heads up the firm’s £1bn build-to-rent fund – and Chris Jeffs.

 

Mr Greaves said: “We are determined to play our part in addressing the UK’s housing crisis by providing a mix of housing tenures through our residential capability. Well managed shared ownership is a brilliant first step onto the housing ladder for aspirational homeowners and as trusted investors with access to deep pools of client capital, we are fully committed to innovating and improving standards – adding scale and efficiency to the fund.”

 

He added that the partnership with Hyde was a “perfect blueprint for how the private and public sectors can combine forces to make a positive impact on this under-served sector”.

 

Mr Greaves told Social Housing shared ownership offers an attractive investment opportunity in providing house price exposure along with the long-term, index-linked income stream that institutional investors commonly seek, while also representing an affordable tenure.

 

While some for-profit registered providers are already delivering shared ownership tenures through investor-backed structures, Mr Greaves sees M&G’s model as heralding a novel approach.

 

“We haven’t really seen someone creating a vehicle by which pension funds or insurance companies or local authority pension schemes could come into a vehicle and invest into affordable housing via a for-profit vehicle; knitting those two entities together has been a challenge and has not been done before.

 

“And then working specifically with a [not for profit] registered provider very much alongside us, that also is breaking new ground,” he said.

 

The fund will seek to raise further capital in time, but Mr Greaves did not share a timetable for doing so. Asked about the length of the fund, which is set up as an English limited partnership that invests into a real estate investment trust (REIT), Mr Greaves described it as an evergreen, “semi open-ended fund” that will “continue in perpetuity”.

Double impact

 

Although not specifically badged as an ‘impact’ fund, the potential “two for one” social impact the partnership could achieve – in delivering affordable housing assets as well as freeing up capital for Hyde to reinvest – is seen as an additional attraction for investors, Mr Greaves said.

 

“We know Hyde will take that capital and go and do something responsible with it, and that is a really important point that is not wasted on the investor base at all,” he said.

 

Mr Denton added that the new partnership would support a route for a “broader range of compassionate institutional pension fund money to invest in the sector – you don’t have to have the scale of an L&G”.

 

He also revealed that the partners would likely seek to access Homes England’s grant regime in time. Hyde is itself a strategic partner with the agency.

 

Last month (February), Homes England announced that for-profit registered providers, as well as developers and councils, would be able to apply to become strategic partners with the agency for the first time.

 

Partnership approach

 

Hyde’s 30-year strategic plan, published last year, sets out the group’s desire to work with a variety of partners such as local authorities, fellow housing associations and investors with shared goals, to deliver new homes.

 

In its partnership with M&G, the group will play three distinct roles. Alongside managing and maintaining the properties owned by the fund, Hyde will also bring forward sites as development partner to M&G. Finally, it is an investor into the fund itself.

 

Mr Denton said that the provider had chosen to invest into the fund in part to show “alignment of interest” and partly because Hyde’s board had assessed the investment to be a “good risk-adjusted return”. However Hyde is unlikely to increase its investment as the fund grows.

 

The association’s last narrative judgement from the Regulator of Social Housing in April 2020 referred to the group’s adoption of “new and innovative” partnerships and vehicles as part of a large development programme, which it said “exposes Hyde to material financial risks, some of which may be outside its control”. The group is graded G1/V2.

 

From a governance perspective, Mr Denton said Hyde had been careful to ensure there was no “conflict of interest” in terms of the group’s involvement in the fund.

 

Meanwhile, M&G’s for-profit registered provider has its own separate board in place.

 

In time, M&G may also seek to work with further partners alongside Hyde.

 

Mr Greaves said: “We relish the opportunity to work with Hyde – and to hopefully grow partnerships with other organisations in time – which will help to make a more speedy, positive impact on the delivery of much-needed housing stock.”

 

Commenting on the new partnership and Homes England’s £10m investment into the fund, Gordon More, interim chief executive at the agency, said: “Securing new institutional capital to increase the delivery of new affordable homes is a priority for Homes England.

 

“Today’s investment is a signal to both domestic and international institutional capital that the government supports sustainable long-term investment in affordable housing to meet the needs of communities across the country.”

 

Paul Tysoe, investment manager for both the Cambridgeshire and Northamptonshire Local Government Pension Funds, added: “For income-seeking investors such as pension funds, shared ownership offers another means of diversification due to the sector’s low correlation with other asset classes and long-term, inflation-linked income with exposure to house price growth.

 

"Having invested in the M&G UK Residential Property Fund since 2017, we have the comfort of its track record, expertise and ESG credentials, and we welcome the positive social impact that this new fund represents.”

 

On the initial transaction of 422 homes, M&G received legal advice jointly from Devonshires and Osborne Clarke, while Hyde was advised by Trowers & Hamlins and Savills.