Octopus raises £50m to deliver more than 500 affordable homes

Plans for fundraises were revealed when Octopus announced its affordable housing strategy for institutional investors in January. Within this it said it was targeting initial commitments of £200m to £300m across multiple closes in 2023. 

Jack Burnham, head of affordable housing at Octopus Real Estate, told Social Housing that the investment manager still has “ambitious targets” in place and the fund will consider leveraging when “financially prudent to do so”.

“We still have ambitious targets in place in terms of the amount we fundraise within the first 12 months following first close and we are in the due diligence process on the fund with several other investors,” he said. “The fund will consider introducing leverage when it is financially prudent to do so.”

Mr Burnham said that the new homes will be delivered by working with housing associations and that the fund was created with input from the sector.

He said that there is potential for partnerships between housing associations and alternative finance routes to have a “seismic impact” on the delivery of affordable housing across the country.

At the end of August, Octopus released a report entitled ‘Closing the gap: Unlocking investment to address the UK’s affordable housing challenge’.

Within this, Octopus said that equity partnerships represent the “next wave of innovation” for affordable housing after its research suggested a 22 per cent fall in providers’ development pipelines.

“We are excited that this initial capital raise will enable us to start working with housing associations to deliver and manage new affordable homes across the country,” Mr Burnham said.

“In creating the fund, we have listened carefully to the needs of the affordable housing sector. We know that housing associations are increasingly comfortable using alternative finance routes to build and operate more homes, with half of CFOs in the sector now more likely to work with equity partners compared with just 12 months ago.

“We think that there is potential for these partnerships to have a seismic impact on the delivery of affordable housing across the country.”

Mr Burnham said that having its own registered provider, NewArch Homes, helped when creating the fund.

“Having our own registered provider, NewArch, allows us to speak a common language with housing associations and holds us to the same regulatory standards, meaning we’re in a better position to understand what is important to them in developing fair and long-term partnerships,” he said.

“NewArch also allows us to operate a scalable, direct let model to ensure a fair sharing of risk with our partners – we’ll be heavily involved with them in ensuring the high quality of accommodation and management of the properties. This shows our sustainability goals go beyond asset-level ESG, as we’re focusing on the sustainability of our model itself.”

Ed Clough, managing director at Octopus Real Estate, said: “We’re delighted to be working with London CIV whose values align with ours in delivering quality sustainable housing for all stages of a person’s life.

“Strong social outcomes are critical to the fund’s success: from the energy-efficient homes we are looking to build, to our focus on true affordability of the fund’s homes.

“This is an evergreen fund that we will continue to scale for years to come. This means we can support our housing association partners in providing affordable homes for the long term, creating stability for both residents and investors.”

Since Octopus’ affordable housing strategy was announced in January, NewArch has adopted the Sustainability Reporting Standard for Social Housing.

In June last year, Octopus told Social Housing that it aimed to grow its investment in the sector “well beyond” £1bn in time.