Resonance poised to grow homelessness fund to £1bn

News06 Feb 2020Gavriel Hollander

A social impact investment company is seeking to scale up its long-running homelessness property investment fund to between £500m and £1bn.

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Resonance poised to grow homelessness fund to £1bn #ukhousing #socialhousingfinance

Social impact investment company Resonance is seeking to scale up its long-running homelessness property investment fund to between £500m and £1bn #ukhousing #socialhousingfinance

Resonance launched the Real Lettings Property Fund in 2013 with homelessness charity St Mungo’s. It helped build a £60m portfolio of around 260 move-on accommodation homes in London.

That was followed by a second, circa £100m iteration of the London-based fund and a National Homelessness Property Fund to address need in the rest of the country. Between them, these have invested more than £200m in over 800 properties for more than 2,000 people, using a lease-based model.

The properties are leased to St Mungo’s on a five-year fully repairing and insuring term, with an option to extend. The charity then lets them to people at risk of homelessness.

Resonance is now looking to target institutional investors to grow the fund to “between half a billion and a billion pounds”, according to chief investment officer Simon Chisholm.

“There’s a need that’s in the billions,” he added. “There are 80,000 families in emergency accommodation. That’s a £20bn property need. It still needs further investment [so] we are looking for the pension fund investment sector to be the next wave of investors.”

Mr Chisholm said that the early waves of investors in the fund were primarily endowed foundations “investing endowment for return but aligned with impact agenda”, as well as local authorities.

“The next wave [of investment] is an order of magnitude that is appropriate for the institutional investment market”

Explaining why pension funds and other institutions could be attracted to the fund, Mr Chisholm said: “The next wave [of investment] is an order of magnitude that is appropriate for the institutional investment market. That will be the future for that scaled model to address the problem in the long term.

“The pension industry is looking at how it can move beyond ESG and into impact investment on the part of the spectrum of capital that still delivers a commercial risk-adjusted return. This kind of initiative is indicative of that.”

Separately, the fund management company has also launched two new funds to tackle specific areas of specialist housing need. The Resonance Supported Homes Fund will focus on registered providers and charities working with people with learning disabilities and/or mental health issues; and the Women in Safe Homes Fund (WISH) will be for women’s sector organisations and others that house women experiencing homelessness or domestic violence, or leaving prison.

The WISH fund has been developed with Big Society Capital and will be run in partnership with private equity real estate fund Patron Capital.

“We’ve found the lease-based model to be very effective because it allows the organisation to utilise property on the right time frame, the right terms for them to deliver the model that is successful”

Each fund will launch with around £15-20m of investment, with a target first close in the spring. They will continue to raise money throughout the year, with each hoping to scale to around £100m in their first incarnation, operating on a similar model and timescale to Resonance’s move-on accommodation funds.

“There’s often a need to evidence that the model is working and scale from there,” Mr Chisholm explained.

Resonance has targeted an internal rate of return of around six per cent on an ungeared basis for the supported housing fund, and around five per cent, also ungeared, for WISH.

Both funds – along with the existing homelessness fund – will be operated on a lease-based model, similar to those employed by social housing real estate investment trusts in the specialist supported housing sector.

The leases will be longer than those used in Resonance’s homelessness funds, and would be tailored to the needs of each tenant group, Mr Chisholm said.

He added: “We’ve found the lease-based model to be very effective because it allows the organisation to utilise property on the right time frame, the right terms for them to deliver the model that is successful. It also gives investors clarity because the income is determined on the lease structure.

“The homelessness move-on model is underpinned by LHA [Local Housing Allowance]. Even in that context we’ve always structured leases that are essentially a pass-through of LHA.”