ReSI launches second for-profit RP as part of £2bn equity drive into new build social housing

News21 Apr 2020Luke Cross

A new for-profit provider launched by the people behind real estate investment trust Residential Secure Income (ReSI) is looking to raise up to £2bn of equity from the private markets over the next three years to invest in new build social housing.

ReSI is looking to raise up to £2bn from the private markets for new build housing (picture: Getty)

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Team behind ReSI REIT reveal plans to deploy up to £2bn equity from private markets into new build social housing #ukhousing #socialhousingfinance

New equity vehicle launched by team behind ReSI REIT looks to bring together investor #ESG appetite with social housing sector’s credentials #socialhousingfinance

The provider – set up by TradeRisks and ReSI Capital Management, which are both now part of asset manager Gresham House – will focus “almost exclusively” on new build, forward-funding developments in partnership with house builders and housing associations, with particular attention to shared ownership.

ReSI Homes, designed to attract long-dated investment from corporate and local government pension funds, will complement the existing publicly listed ReSI REIT, which raises capital predominantly from wealth managers.

ReSI Homes was registered with the Regulator of Social Housing (RSH) at the end of March, a week before two other for-profit providers completed the process. One of those – AAIM Housing – is sponsored by treasury advisor Centrus and is seeking to raise £1bn of equity to invest primarily in the acquisition of shared ownership and general needs homes.

ReSI REIT has built up a £320m portfolio through the acquisition of shared ownership and retirement housing, operating in the sector via ReSI Housing, which as a registered provider (RP) holds regulated assets and accesses grant funding from Homes England and the Greater London Authority.

The two RPs – ReSI Homes and ReSI Housing – will operate as “sister organisations”, sharing the same board chaired by David Orr while looking to bring in different types of investors with a range of risk appetites for new and existing social housing.

Alex Pilato, managing director, housing and capital markets at Gresham House, told Social Housing that accessing investment via the private markets has been a long-standing part of the strategy and enables the group to “capture the other half of the investor universe”.

Mr Pilato – who revealed plans for new investment vehicles to Social Housing last month – said the different funds managed by Gresham House facilitate investment “across the development cycle and at different return levels”.

He added: “This includes taking development risk, acquiring developed open market stock and utilising grants to deliver as shared ownership, as well as acquiring retained equity in shared ownership to free up housing association balance sheets to invest in much-needed new homes.”

Mr Pilato added that the funds are well-placed to assist investors looking to meet environmental, social and governance (ESG) criteria.

Fund structure

ReSI Homes is targeting £400m with the first close, of which about £100m has been raised to date with some of the money already committed. It is then looking to raise between £1.5bn to £2bn over three years.

Investments will go into Gresham House Residential Secure Income LP (GH ReSI LP) and other Gresham House funds and then flow down to ReSI Homes.

While ReSI REIT draws on SIPPs and ISAs through wealth managers, the unlisted fund structure is suited to pension fund investors and those that want to avoid share price volatility, such as that seen in recent months amid the COVID-19 pandemic.

While ReSI REIT continues to be open to raising fresh equity, Mr Pilato said it needs to see its share price rise above NAV, during which time the team can also focus on the private markets.

The ReSI Homes structure will offer inflation-linked returns for the investors, complementary to the Retail Price Index-linked shared ownership rental stream.

It will have pension fund investment so does not use as much leverage as ReSI REIT, which sees returns in the region of three per cent before being leveraged to around five per cent, according to Ben Fry, managing director at ReSI Capital Management.

Mr Fry said the new vehicle will also be able to take more risk than its listed counterpart because it is unleveraged, while fee levels are also typically lower for private funds versus listed funds.

“We have funds in place already, so we are actually ready to invest today,” he told Social Housing.

“If the scheme contains general needs, we have the flexibility to take it, if the numbers work, so we can be the sole point of contact for the developer.”

Mr Fry added that the COVID-19 crisis is unlikely to impact their fundraising ambitions.

“This is actually increasing the demand for affordable and social housing,” he added.

Asked about the level of competition in the for-profit space, including shared ownership, Mr Pilato added: “We have been the first and only fund in this space for quite some time and it is good to have some competition.

“Obviously a lot of competition is undesirable – some is very desirable.”

He added that registration with the RSH was “much easier” this time around, compared with registering ReSI Housing.

“They were very fast in understanding exactly what we were doing, so it was very straightforward – [registration] just takes a long time.”

All eyes on ESG

Mr Pilato said that the fund is well placed to assist investors with their ESG assessments, thanks to TradeRisks’ work around social economic value dating back to the time of the Housing Corporation.

“We have been involved in this quantifying and maximising of social enterprise value for housing associations for a very long time,” he said.

That includes assessing “social dividend”, which is a precise and quantifiable dividend calculated using the difference between market rent and subsidised rented housing provision.

The second element is assessing “social returns”, which Mr Pilato said is more challenging to quantify as it looks at the benefit to the economy of creating homes for key workers, for example.

“The whole world is talking about ESG and on multiple levels.

“Investors are under a lot of pressure to not just confirm an investment is socially responsible but under pressure to look at it in some detail and to look at the return being provided, so there’s a huge amount of focus in the investment community in this area.”