Blackstone looks for 8% returns on Sage investment

News16 May 2018Kane Mumford

Blackstone made its investment in for-profit provider Sage from its €7.8bn Real Estate Partners Europe V fund, which must return eight per cent to investors before the firm can begin to generate expected returns.

Social Housing understands that Blackstone’s initial investment in Sage was small – only covering the running cost of Sage’s management team – and that it will be drawing down on the firm’s investor commitments as it purchases property.

In order for Blackstone to receive a bonus from its investors, known in private equity as ‘carried interest’, the fund must first reach a hurdle rate of eight per cent – far higher than average returns on investments in the sector.

Blackstone’s entry into the affordable housing sector through Sage Housing was first reported in January this year. Sage is understood to have purchased around 2,000 units of affordable housing built by developers to satisfy Section 106 planning legislation in the past six months.

The Financial Times reported at the weekend that there have been some concerns about non-profit associations being outbid by Sage, and that it is bidding substantially more than other housing associations for Section 106 units.

Sage, now 90 per cent owned by Blackstone, removed the terms ‘social housing’ and ‘housing association’ from its branding earlier this week after legal representatives working for the National Housing Federation said it was in breach of the Regulator of Social Housing’s definition of the term.

A source close to the New York investment giant told Social Housing this week that Blackstone is targeting a few thousand units a year and is being outbid more than it is outbidding.

A spokesperson for the firm said Blackstone is helping to solve the affordability crisis in the UK and that it has no plans to squeeze tenants on rates.

They said: “We are proud to help mitigate the affordability crisis in the UK. Tenant rents are regulated by the government and will not change with our involvement. We will also use established housing associations for management.

“Our investment simply brings incremental capital to the space, spurring much-needed social housing development.”