‘Airspace’ developer targets 10,000 homes, with 50% affordable

News01 Jul 2019Sarah Williams

Modular developer Apex Airspace has agreed a further £3m investment from the British Growth Fund (BGF), as it works towards delivering a targeted 10,000 homes over 10 years.

Val Bagnall, managing director, Apex Housing Group

Sharelines

‘Airspace’ developer targets 10,000 homes, with 50% affordable #ukhousing #socialhousingfinance

Modular developer Apex Airspace has agreed a further £3m investment from the British Growth Fund #ukhousing #socialhousingfinance

Rather than requiring land for developing, the company uses modular construction methods to deliver units in the ‘airspace’ above existing buildings, which it leases from the freeholders.

BGF invested an initial £6.3m in 2018, adding to circa £4m of internal investment from Apex Housing Solutions, which provides short-term accommodation to 18 of London’s 33 councils.

This year, Apex Airspace has secured £10m of investment from the Greater London Authority (GLA) to deliver 500 homes, of which 250 will be affordable, as well as a £9m revolving facility from Homes England.

This Homes England funding will support a programme of 78 homes, mainly for the private market in London, but the potential for further funding to support affordable housing is being explored, according to Val Bagnall, managing director at Apex Housing Group.

“That conversation is developing to say, ‘Can it actually work alongside affordable housing grant as well?’ That would give us a funding model to really [grow] at pace. The concept started in London, but we’re now having conversations in Bristol and Birmingham, so it’s gathering momentum.”

To date, Apex Airspace has completed two projects, and five are due to go on site in the coming months, totalling 110 homes. But Mr Bagnall – whose background is in regeneration and affordable housing development – said many more are in the offing. “We’ve now got numbers across the piste, just short of 2,500 homes in various stages of discussion, both within social housing and the private sector.”

Mr Bagnall said that the company has been “knocking on the door of the social housing sector” for two and a half years. “We’ve now got through it, and so I think the numbers will roll in pretty quickly now.” He estimates that the firm is talking to around 25 councils and more than 30 housing associations inside and outside London.

Conversations are at an advanced stage with six councils and five HAs, ranging from G15 associations to small “asset-rich, cash-poor” HAs with a few hundred properties.

Key to Apex’s offering is the potential to ‘unlock’ previously unthought-of value without the need for capital investment from the property owner.

“We will fund it all; we’ll take a lease with [the HA] for the airspace for 130 years, and that allows us to give a basis for security to get private finance in. We’ll then deliver the scheme end to end, through consultation, planning, project delivery, and we’ll do any sales, so we’re de-risking the development for them as well.”

The deals are structured so that Apex Airspace would return a number of affordable units to the HA, proportionate to the development value of their roof, and sell other units on the market to make its returns. For example, at an upper level where units might be worth £250,000, it would return eight flats for a roof valued at £2m.

In other cases, where a provider wishes to acquire all the units for affordable housing, Apex discounts the value of the land (roof space) and sells the units back at net cost plus its margins. This was recently the case in Southwark, where Apex built 30 flats on top of a block of 32. This, Mr Bagnall estimates, allows HAs to acquire homes around 30 per cent cheaper than those they develop themselves.

On larger private sector schemes, where it uses roof space on property owned by large institutional investors, Apex will look for an HA to take on the affordable element of a scheme. “For institutional investors with lots of freehold, they’re now getting a huge windfall out of that portfolio because they’re now getting 30 per cent value raised from something which was never on their radar or asset register as having any value,” Mr Bagnall said.

These schemes, some with “hundreds” of units, will deliver 35 per cent affordable, contributing to an aim to reach around 50 per cent of its overall programme, he added.

“It’s new land. There’s an opportunity really to create something which provides an equal outcome in terms of affordable housing, as opposed to affordable housing being the afterthought.”

Apex also recognises opportunity in the new building regulations currently under consultation and the sector-wide need to raise fire safety standards post-Grenfell. It is prepared to undertake these works as part of its offer, from fitting new lifts to cladding remediation.

“We’ll put all of that into the equation and say, give us four or five roofs, [and] we can sell some [units] on the private market to produce the cash to cross-subsidise that element. But it takes a bit of a creative approach from local authorities to think about active asset management and how they sweat their assets to make those sorts of things happen.”

Mr Bagnall said that Apex is currently “constrained only by [its] own resource”. It is talking to several debt and equity funders for a programme of between £30m and £50m, to fund a mix of private and affordable housing.

Mr Bagnall said the company was already fielding enquiries from investors, and hinted that a private placement may be on the cards.

On the debt side, lenders have been traditionally wary of modular development. The entry of BGF, and then the GLA and Homes England, has helped open the door to bigger lenders, Mr Bagnall said.