UNITING INVESTMENT AND SOCIAL VALUES
Investing in UK aordable housing
AFFORDABLE
HOUSING
STRATEGY 2023
2UNITING INVESTMENT AND SOCIAL VALUES
1 Executive Summary
2 Senior Management and Investment Track Record
3 Market and Opportunity Overview
4 Acquisition and Market Opportunity
5 Investment Opportunities and Pipeline
6 Appendix
AGENDA
Aordable Housing Strategy
www.propertyinvestment.co.uk
3UNITING INVESTMENT AND SOCIAL VALUES
EXECUTIVE SUMMARY
Co- Investment in UK Aordable Housing Platform
Co-investment into UK ready-built, residential property to be leased to a qualifying housing
association for aordable housing. Minimum equity £25m
Capitalise on underutilised/underinvested property at discounted valuations with turnaround
capex opportunities and equity uplift from bulk buying discounts
Generating secure long term (20-30yr), CPI linked income • 100% ESG compliant investment
Potential to generate 15% unleveraged IRR*/1.5x MOIC
Opportunity for a capital partner to co-invest in UK aordable housing with potential to
deliver 15% IRR*, under the expertise of Pi Capital’s management platform.
* IRR based on use of leverage and average across multiple property types and locations
www.propertyinvestment.co.uk
4UNITING INVESTMENT AND SOCIAL VALUES
1 Executive Summary
2 Senior Management and Investment Track Record
3 Market and Opportunity Overview
4 Acquisition and Market Opportunity
5 Investment Opportunities and Pipeline
6 Appendix
AGENDA
Aordable Housing Strategy
www.propertyinvestment.co.uk
UNITING INVESTMENT AND SOCIAL VALUES 5
SENIOR MANAGEMENT TEAM
Senior management have combined real estate and asset management experience of 42 years
Ewan McGarrie and Anthony Day have worked together since 2006. Transacted on large-scale mixed-use UK and European
residential/commercial developments, with a particular focus within the UK aordable housing sector. Extensive experience
spans property development, management, acquisition and disposal.
Ewan McGarrie
• 22+ yrs of experience of real estate investment
• 9+ yrsfocus in aordable housing sector
• Worked with Worked with Close Brothers,
Unicredit, Santander, Taylor Wimpey, Savilles,
Knight Frank, Persimmon Homes, Anity Sutton
Housing Association
• Negotiation, acquisition, asset management and sale of large
scale UK/Continental residential/commercial portfolios
• Extensive network of UK residential developers and housing
associations
• Developed and refurbished UK residential property portfolios
• Property management and letting of residential property
portfolio (+ 1,500)
• Experienced housing association negotiator, detailed knowledge
of housing association legislation and lease agreements
Anthony Day
• 20+ yrs of experience in real estate investment
• 10+ yrs of experience in Aordable Housing Sector
inc finance, development and commercial income
partnerships
• Worked with Close Brothers, Heritable Bank,
Unicredit, Wandle Housing Association, Raven
Housing Trust, L&G, Barratt Homes, Taylor Wimpey
• Extensive experience with lease income modelling, negotiations
and entry/exit investment returns
• Direct experience of management of multi-asset UK wide income
portfolio/s
• Overseen multi-property portfolio acquisition and disposals in UK
and Europe
• Experience as main contractor for Aordable Housing
construction projects for both new build and retrofit assets
• Extensive network of developers, property introducers, finance
providers and housing associations
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6UNITING INVESTMENT AND SOCIAL VALUES
TRACK RECORD
Date City, Country Units Return Comments – Pi/Manager’s Value Add
2015
- Present
Advisory on
multi-property
retrofit portfolios
for sale and
leaseback
Multiple
Locations,
UK
C 400 • Y: 6-10%
• ROI: 20%
• IRR: 12%
• LTV 80%
• FCA Regulated Sale and Leaseback Sales arranged
• Acquired assets at prices after agreement between distress vendors and
senior debt holders
• Managed long term income return to ensure optimum balance of equity
return and income
• Manage disposal of assets to ensure maximum returns and end-to-
endmanagement
2013
- Present
Advisory on
Multidevelopment
Aordable Housing
Project and
Leaseback
Multiple
Locations,
UK
C 1200 • Y: 4%
• ROI: 18%
• IRR: 15%
• LTV: 75%
• Modelled 10-20-30yr investment lease returns
• Advised on acquisition and and capital disposal
• Matched requirements requirements for investor for mix use schemes
including commercial tenants
• Liaise with Local Authority and HA’s to ensure best tenant profile
• Managed development schedule for client for o-plan opportunities
within mixed portfolio
2012 - 2014
South East
and South London
Housing
Association
Development
Partnership
London, West
Sussex. UK
122 • Y: 4%
• ROI: 29%
• IRR 18%
• LTV: 70%
• Development of 3 schemes (2 acquired in liquidation)
• Management of construction schedule and main contractors
• Facilitated Access to Government Funding Equity
• Managed disposal of assets to HA and some Shared owners to match
investors returns profile
The team has a proven track record in investing, developing and managing UK and European residential property
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7UNITING INVESTMENT AND SOCIAL VALUES
TRACK RECORD
Date City, Country Units Return Comments – Pi/Manager’s Value Add
2010-2022
East London
Refurbishment
Project
London, UK 40 • Y: 6.5%
• ROI: 42%
• IRR: 16%
• LTV: 50%
• Acquired property from receivership at significant discount to market value
• Manage full refurbishment of exisiting properties, increased GDV by
32%
• Manage tenancy and freehold interest for client ensuring statutory
requirements are met and rental income optimised
• Arranged disposal for client to realise significant gains by managing
individual sales to maximise equity returns
• Secured better quality tenants & doubled average tenancy term lengths
• Increased rental income by 26%
2006-
2009
European City
centre investment
portfolio
Budapest,
Hungary
Warsaw,
Poland
480 • Y: 6-7%
• ROI: 3.5x
• IRR: 13%
• LTV: 60%
• Capital city Regeneration Schemes aimed at PRS
• Arranged debt facilities for investors from European banks at highly
favourable rates including currency hedging
• Managed mix use portfolio for investors securing high returns and
minimising void periods
• Arranged tax-ecient Vehicle for acquisition and disposal
7UNITING INVESTMENT AND SOCIAL VALUES
The team has a proven track record in investing, developing and managing UK and European residential property
www.propertyinvestment.co.uk
8UNITING INVESTMENT AND SOCIAL VALUES
1 Executive Summary
2 Senior Management and Investment Track Record
3 Market and Opportunity Overview
4 Acquisition and Market Opportunity
5 Investment Opportunities and Pipeline
6 Appendix
AGENDA
Aordable Housing Strategy
www.propertyinvestment.co.uk
9UNITING INVESTMENT AND SOCIAL VALUES
MARKET OVERVIEW
Pi’s Aordable Housing platform has identified the three main strategies in the aordable housing sector
Acquire-to-Rent and lease model: The purchase of existing new build property which is subsequently leased to
housing associations over a pre-determined lease period.
Build-to-rent and lease model: The acquisition of land without/with planning permission. The subsequent
development of the land to create housing, mandated by planning permissions, which is then leased to a housing
association over a pre-determined lease period.
Acquire/Build – to rent Shared Ownership model: Once an investor is in possession of a property these can be sold
as shared ownership. This is where buyers are able to take small equity stakes in the asset, as well as pay a rent towards
the outstanding equity. The resident, subject to market conditions and qualifying criteria, is able to but additional
equity stakes over time (stair casing). Shared Ownership income cannot be guaranteed under a lease term with a
housing association, nor can equity sales be enforced with a resident.
Lease Income, Two Options:
• Reversionary Lease – The investor receives income over the lifetime of the lease and then retains ownership
of the asset at the end of the period. The investor is able to renew the lease at this time if desired. The investor
retains the right to dispose of the asset at any point during the lease period/s.
• Non-Reversionary Lease – The investor receives income over the lifetime of the lease, however ownership of
the asset reverts to the housing association at the end of the lease. The investor has the right to dispose of their
interest in the lease income but not the asset themselves during the lease period.
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10UNITING INVESTMENT AND SOCIAL VALUES
OUR OPPORTUNITY
Pi’s Aordable Housing platform generates superior returns whilst minimising risk due to asset model selection
• Pi focuses on the acquire-to-rent acquisition strategy:
- Ready built stock to generate immediate returns with no planning or build cost risks
- Huge Retrofit property pool for equity uplift and income returns through the regeneration of existing housing stock to
new government mandated standards
- Low risk, long-term, index linked income from Pi’s bespoke lease agreements from entities within financial secure and
highly regulated sector
• Exclusivity of Housing Associations Relations:
- 19yrs direct experience working with Housing Associations enables unique opportunities for platform investors based
on our sector knowledge, previous financial partnerships and synergy in terms of social and sustainability goals
• Flexible Returns profile:
- Index linked income and equity uplift returns from bulk buying discount and/or retrofit regeneration to add value
- Non / Reversionary lease to provide choice of long term index linked income plus exposure to robust UK residential
real estate capital gains via ownership* of assets
• ESG compliance:
- Satisfying 7 of 17 UN SDG goals through use of asset for aordable housing
- Impact on Carbon Zero/Fuel Poverty with sustainable investment creating social value
*Reversionary lease only
www.propertyinvestment.co.uk
ESG COMPLIANT INVESTMENT
Pi’s Aordable Housing platform generates superior returns whilst minimising risk due to asset model selection
• Immediate provision of aordable housing to a local
community
• Reducing fuel poverty - providing modern energy
ecient homes designed around carbon zero initiatives
• Social value: Every £1 generated by the Housing
Association results in £11 of social return
• Social cohesion: Stable housing leads to employment
security and social mobility
• Governance: Highly regulated Housing Association
sector provides security of tenancy for its residents.
Ensuring best legislated standards of property
management
• Investment satisfies 7 UN sustainable development goals
• Goal 1 No Poverty
• Goal 3 Good health and Wellbeing
• Goal 4 Quality Education
• Goal 7 Aordable and Clean Energy
• Goal 8 Decent Work and Economic Growth
• Goal 11 Sustainable cities and Communities
• Goal 13 Climate Action
Environmental
Climate change
Carbon emmisions
Pollution
Energy eciency
Biodiversity
Resource scarcity
Waste management
Social
Human rights
Community relations
Gender and diversity
Employee engagement
Labour standards
Customer satisfaction
Governance
Board composition
Executive compensation
Audit commitee structure
Bribery and corruption
Lobbyings
Whistle blower schemes
11UNITING INVESTMENT AND SOCIAL VALUES
www.propertyinvestment.co.uk
12UNITING INVESTMENT AND SOCIAL VALUES
1 Executive Summary
2 Senior Management and Investment Track Record
3 Market and Opportunity Overview
4 Acquisition and Market Opportunity
5 Investment Opportunities and Pipeline
6 Appendix
AGENDA
Aordable Housing Strategy
www.propertyinvestment.co.uk
13UNITING INVESTMENT AND SOCIAL VALUES
ACQUISITION STRATEGY AND MARKET OPPORTUNITY
Investment into Pi’s Aordable Housing Platform to benefit from Aordable Housing supply deficits and capex
shortfalls
There is a chronic shortage of aordable housing throughout the UK, with over 8 million people living in
unaordable, insecure or unsuitable homes. The position is even more acute regarding the lack of high quality, energy
ecient aordable housing for rent.
Housing association property which must be retrofitted/re-developed to meet 2030 net zero carbon and safety
legislation. There is in excess and £106bn of retrofitting works to be completed across 500,000 properties within the
aordable housing sector.
The scale of both issues is such that housing associations must seek external capital to fulfil its legislative
requirements giving investors exposure to a highly regulated and trusted market.
Supply imbalances in UK residential property has driven strong capital growth over the long term in conjunction
with strong rental income profiles.
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14UNITING INVESTMENT AND SOCIAL VALUES
ACQUISITION STRATEGY AND MARKET OPPORTUNITY CONT
New, ready built property: Retrofit property:
Market exposure to high quality, sustainable, energy
ecient assets
Access to a vast pool of circa 500,000 Housing Association
property in need of retrofitting
Immediate equity uplift from bulk purchase power
upon acquisition
Current Government estimates place retrofit works
in excess of £106bn providing long term platform for
investment partners
Secure long term CPI linked income
Immediate equity uplift from bulk purchase power upon
acquisition, with further uplift in value post retrofitting
Build Cost uncertainty negated Secure long term CPI linked income
Planning Permission risk negated
100% ESG compliant when used for Aordable Housing/
Keyworker Rental
100% ESG compliant when used for Aordable Housing/
Keyworker Rental
Significant impact on Carbon Reduction targets, energy
costs, and fuel poverty due to retrofitting works
Investment into Pi’s Aordable Housing Platform identifies two property asset classes to maximise returns and
provide long term, low risk, scalable investment returns
www.propertyinvestment.co.uk
15UNITING INVESTMENT AND SOCIAL VALUES
8%-10%
ANNUAL
RETURN
15%-20% EQUITY
UPLIFT UPON
PURCHASE
20-30YR CPI
LINKED INCOME
5%
INCOME P.A.
HOW Pi GENERATE SUPERIOR RETURNS
Pi’s Management team have a very tailored approach to assessing the returns profile of each asset opportunity
1. Network strength: enables platform access to o market opportunities from property developers, housing
associations and other institutions resulting in the opportunity to benefit from greater equity uplift upon execution
2. Risk Mitigation: insight into location demographics, specific property demand, local authority criteria and partner
housing association governance, provides greater confidence in long term income and asset security during lease
duration period
3. Real Estate Expertise: Experience in construction, retrofit, carbon reduction technology and retrofit ensures equity
uplift built in upon acquisition and any subsequent works
4. Asset Management: Experience in long term income vehicles within the aordable housing sector ensures superior
income returns and flexibility to match client needs. Experience with Tier 1 and 2 contractors plus supporting
frameworks underpins quality and financial discipline
5. Value Add: Experience in core plus with development additions, disposals, income uplifts to ensure assets continually
perform to highest level
6. Investment Committee Expertise: Experienced team able to assess the viability and financial robustness of all
investment opportunities
www.propertyinvestment.co.uk
16UNITING INVESTMENT AND SOCIAL VALUES
1 Executive Summary
2 Senior Management and Investment Track Record
3 Market and Opportunity Overview
4 Acquisition and Market Opportunity
5 Investment Opportunities and Pipeline
6 Appendix
AGENDA
Aordable Housing Strategy
www.propertyinvestment.co.uk
17
Jan 23 Jan 24 Jan 25 Jan 26 Jan 27 Jan 28 Jan 32 Jan 37 Jan 42
Market Value £11,590,000 £12,169,500 £12,777,975 £13,416,874 £14,087,717 £14,792,103 £18,878,889 £24,094,778 £30,751,720
Internal Rate of Return (IRR) 5.5% 9.6% 10.7% 11.0% 11.2% 10.7% 10.1% -
Return on Equity 11.1% 13.8% 14.5% 15.1% 15.9% 20.0% 25.1% 31.4%
Net Rental Yield 2.8% 3.8% 3.9% 4.0% 4.1% 4.7% 5.3% 6.0%
Equity/Market Value 42.9% 45.6% 48.2% 50.6% 53.0% 63.2% 71.1% 77.4%
Cumulative Profit /
Property Purchase Price
2.3% 8.5% 15.1% 21.9% 29.0% 70.1% 121.7% 186.4%
INVESTMENT OPPORTUNITY
Crawley
Investment Summary
• 11.1% Return on Equity in year one
• South East location providing strong capital growth
• 20yr lease with CPI increasing rents
• Strong return on equity and IRR
• High specifiation apartments originally constructed for private market
UNITING INVESTMENT AND SOCIAL VALUES
www.propertyinvestment.co.uk
UNITING INVESTMENT AND SOCIAL VALUES
INVESTMENT OPPORTUNITY
Hebburn
Jan 23 Jan 24 Jan 25 Jan 26 Jan 27 Jan 28 Jan 32 Jan 37 Jan 42
Market Value £6,750,000 £7,087,500 £7,441,875 £7,813,969 £8,204,667 £8,614,901 £10,995,039 £14,032,765 £17,909,760
Internal Rate of Return (IRR) 3.4% 10.6% 12.7% 13.5% 13.8% 13.6% 12.9% -
Return on Equity 14.5% 18.5% 19.3% 20.1% 21.0% 25.8% 31.7% 38.9%
Net Rental Yield 4.3% 5.9% 6.0% 6.2% 6.3% 7.2% 8.1% 9.2%
Equity 42.9% 45.6% 48.2% 50.6% 53.0% 63.2% 71.1% 77.4%
Cumulative Profit /
Property Purchase Price
1.5% 9.6% 18.1% 27.0% 36.2% 88.4% 152.6% 231.5%
18
Target Investment Summary
• 5.9% yield after year one
• Strong yield due to competitive purchase prices in location
• 20yr lease with CPI increasing rents
• Strong return on equity and IRR
www.propertyinvestment.co.uk
19UNITING INVESTMENT AND SOCIAL VALUES
INVESTMENT OPPORTUNITY
The Grand Heights, Slough, SL1 1QE
• Equity Investment of c £19.2 million for entire asset including the
development component
• Return of c 1.74x over 5 years or long-term hold at c 4% yield with inflation
protection (index-linked)
• Purchase price of £36.0 million for recently completed and ready to
occupy 153-unit residential development
• Value-add development of a further 52 apartments at an additional
fixed cost of £8.0 million over 18 months
• Bank finance at 65% LTV available (quote, stc) for purchase plus £3m
toward development cost
2023 2024 2025 2026 2027
Termination value (GDV) £37,800,000 £60,000,000 £63,000,000 £66,150,000 £69,457,500
Max Termination Value (NR Lease) n/a £64,864,800 £68,108,040. £71,513,442 £75,089,114
Return on Equity (GDV disposal) n/a 125.0% 140.0% 157.0% 174.0%
Exit Yield on Cost n/a 9.6% 9.4% 9.2% 9.0%
Annual Passing Rent £1,422,000 £1,965,600 £2,063,880 £2,167,074 £2,275,427
IRR n/a 38.1% 27.4% 22.4% 19.6%
Notes: *Post development of additional units
65% LTV lending at 5.99% + £3m towards development cost of £8m
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20UNITING INVESTMENT AND SOCIAL VALUES
INVESTMENT OPPORTUNITY
Retrofit Portfolio - Surrey
• Return of c 58% over 5 years or long-term hold at c 4% yield with
inflation protection (index-linked)
• Average Purchase price of £250,000 per property within £100m portfolio
• Value-add from bulk discount plus retrofit activity within 12-18 months
from acquisitions
• Bank finance at 65% LTV available
• Lease to Housing Association negotiated (20-30year, index-linked
income) to be put in place post retrofit works
• Exit: Full sale of project within 2-5 yrs / or sale of 20+ Year Income within
18 months, to UK Pension Institution
2023 2024 2025 2026 2027
Termination value (GDV) £250,000 £345,000 £362,250 £380,362 £399,380
Av Termination Value (NR Lease) n/a £380,318 £ 399,334 £419,301 £440,266
Return on Equity (GDV disposal) n/a 21.0% 33.0% 45.0% 58.0%
ROIE n/a 85.0% 20.3% 21.8% 23.4%
Annual Passing Rent n/a £13,582 £14,261 £14,975 £15,723
FINANCIAL RETURNS:
(SINGLE ASSET WITHIN PORTFOLIO – DISPOSAL AND RETURN OF EQUITY
TO INVESTOR)
Metric Current Post Retrofit Impact
CO2 usage per annum 2.48 tons 1.43 tons 42.0% reduction in CO2
SAP Rating/EPC Band 67/D 83/B 24.0% improvement
Energy KWh/m2 Usage 176.39 124.11 29.6% reduction
Annual Heating Costs £1,592 £1,003 37.0% reduction
IMPACT OF TYPICAL RETROFIT: ESG, CARBON ZERO
AND MONETARY IMPACT PER PROPERTY:
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21UNITING INVESTMENT AND SOCIAL VALUES
INVESTMENT OPPORTUNITY – RETROFIT
Surrey
Jan 23 Jan 24 Jan 25 Jan 26 Jan 27 Jan 28
Internal Rate of Return (IRR) 30.6% 25.2% 25.7% 33.8% 27.8% -
Return on Equity 0.00% 21.5% 12.9% 18.6% 47.2% -
Rental Income £1,750,000 £2,127,038 £2,401,875 £2,849,000 £1,503,338 -
Equity Increase Accumulation £0 £21,545,000 £37,250,000 £62,800,000 £79,981,000 -
Property Disposal Numbers 0 80 90 150 200 207
Investment Summary
• 30.6% IRR in 1st year of 5yr program
• Retrofit program to increase capital values and then lease to a Housing Association on 20yr lease
• 5yr investment cycle with equity re-invested to acquire further properties for retrofit/development
• Simple exit with waiting institutional investors who want to purchase refurbished leased properties
• Target equity return of 1.8 over 5yr program
* All returns are prior to the deduction of agreed performance fees and/or taxation
The value of investments and the income from them may fall as well as rise and is not guaranteed.
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22UNITING INVESTMENT AND SOCIAL VALUES
INDICATIVE PROPERTY PIPELINE
The following property developments have been identified as potential acquisition targets for fund investors in the short,
medium to long term.
No guarantee can be given as to property availability, all sales are subject to contract. Acqusition would be on either a full,
or partial development basis, dependent on financial KPI’s being met. Due to build timeframes some images are compuer
generated/indicative of finish.
CAMBERLEY
SURREY HEATH
GOOLE
EAST YORKSHIRE
GORING BY SEA
WEST SUSSEX
BIRMINGHAM
CITY CENTRE
• Mixed scheme development
• Over 1900 hundred properties
• Total site, GDV cicra £500m
• Partner Housing Association already identified
• Southern location with strong capital growth
• 15 year property supply
• Sec-106 and private development stock
under consideration
• 2, 3, & 4 bedroom houses
• 600 hundred properties
• Total site GDV cicra £150m
• Partner Housing Association already identified
• Excellent yield with aordable rents
• 2022/23 completion program
• Sec-106 and private development stock
under consideration
• Mixed scheme development
• 475 Properties
• Total site GDV circa £100m
• Strong yield circa 4.5%
• Southern location with strong capital growth
• Available from 2023
• Sec-106 and private development stock
• under consideration
• City centre Scheme
• 101 Apartments
• Total site GDV circa £35m
• Strong yield circa 4%
• Commercial space to augement yield
• Available from 2023/24
• Sec-106 and private development stock
• under consideration
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23UNITING INVESTMENT AND SOCIAL VALUES
OPPORTUNITY OVERVIEW:
Investment into Pi’s Aordable Housing Platform to benefit from Aordable Housing supply deficits and
capex shortfalls
Experienced senior team:
collective 42 years experience of senior management in the real estate/ asset
management sector.
Pi as an Asset Manager have a strong track record of real estate investment: average 14% IRR over last 5
years.
Superior strategy: minimise investment risk with acquisition of only ready-built property with location sensitive
focus, socially linked, sustainable impact investment to ensure best outcome for investors and local communities.
Scalable platform: full asset management from acquisition, development, management, exit. Significant synergy
potential - bulk purchase discount, already pursuing strategy of single asset and portfolio acquisitions.
Ability to capitalise on market opportunity: flexibility to target both private developers and housing association
property at scale with diversification of asset mix and geography.
ESG compliant: Fulfils 7 of the 17 UN Sustainable Development Goals whilst providing investor, environmental and
societal benefits.
CONTACT US:
Ewan McGarrie
ewan@propertyinvestment.co.uk
+
44 (0) 7538 461430
Anthony Day
anthony@propertyinvestment.co.uk
+
44 (0) 7817 431619
www.propertyinvestment.co.uk
24UNITING INVESTMENT AND SOCIAL VALUES
1 Executive Summary
2 Senior Management and Investment Track Record
3 Market and Opportunity Overview
4 Acquisition and Market Opportunity
5 Investment Opportunities and Pipeline
6 Appendix
AGENDA
Aordable Housing Strategy
www.propertyinvestment.co.uk
25UNITING INVESTMENT AND SOCIAL VALUES
APPENDIX
1 Glossary
2 Housing Association Governance
3 Risk Analysis
4 Risk Register
5 UK Residential House Price Analysis
6. Disclaimer
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26UNITING INVESTMENT AND SOCIAL VALUES
APPENDIX
What is Aordable housing?
Aordable housing is housing, for sale
or rent, for those whose needs are not
met by the market (including housing
that provides a subsidised route to
home ownership and/or is for essential
local workers); and which complies with
one or more of the following definitions:
Aordable housing for rent:
meets all of the following
conditions:
(a) the rent is set in accordance with
the Government’s rent policy for
Social Rent or Aordable Rent, or is
at least 20% below local market rents
(including service charges where
applicable);
(b) the landlord is a registered provider,
except where it is included as part of
a Build to Rent scheme (in which case
the landlord need not be a registered
provider); and
(c) it includes provisions to remain at
an aordable price for future eligible
households, or for the subsidy to be
recycled for alternative aordable
housing provision. For Build-to-Rent
schemes, aordable housing for rent
is expected to be the normal form of
aordable housing provision (and, in
this context, is known as Aordable
Private Rent).
Property acquisition type:
AHF will acquire property that has been
legislated by Section 106 planning
requirements, referred to as ‘Aordable
Housing’ or by private treaty.
Legislated by Section 106/
Aordable Housing:
Property developers are legislated by
Section 106 planning requirements to
apportion approximately 20% - 35% of
any development for sale as ‘Aordable
homes’, dependent upon local planning
requirements. The Aordable Home
properties must always be sold at 70%
of the market value.
On average approximately 40,000 new
section 106 mandated properties are
completed each year. This does not
include the provision of housing stock
owned by HA’s/funds. The benefit
of which provides a ready supply of
suitable property for acquisition.
Private treaty housing:
AHF may also seek to negotiate bulk-
purchase discounts on property for
sale by private treaty. Whilst discounts
will be specific to each property, a
benchmark minimum of 15% - 20%
from the market value will be sought.
Full repairing multi-year
rental leases:
The property will be leased on the
basis of a Multi-year Full Repairing
and Insuring (FRI) lease. The Housing
Association will be responsible for
the tenancy during the lease period,
i.e. there will be no void periods.
The Housing Association will be
responsible for the maintenance of the
property throughout the lease (with
the exception of works covered by
insurance/warranties), and the property
returned to its original condition at the
end of the term.
The first three-months of the lease will be
rent-free to allow the Housing Association
to accept qualified nominations for
tenancy. The Housing Association is
responsible from day one of the lease for
maintenance and utility costs.
The lease term will typically range
from 20 - 30 years with the option for
renewal. Shorter or longer leases can
be arranged by mutual agreement.
Due to geographical variances within
the portfolio rental yield and capital
growth will vary across individual
investments within the fund. Rental
income will be targeted at an average
minimum of 5% per year across the
portfolio. The rent will be CPI-linked,
paid quarterly in arrears.
AHF will only enter into leases
with Housing Associations which
provide property for Aordable
and Intermediate/Key-worker Rent
nominations in order to fulfill the
minimum rental yield required by the
AHF model. Social rent agreements
will not be sought.
Notes:
[1]- Average yield based upon expected rental income
yield across the portfolio. Assets held within a single
fund may generate dierent rental levels and yields . CPI
rental income increases dependent on Government rent
cap allowances.
[2]- Internal Rate of Return includes assumptions around
use of leverage, capital growth and rental yield including
anticipated CPI projection over the lifetime of the
investment.
[3]- Housing supply requirements across Great Britain
for low-income households and homeless people:
Research for Crisis and the National Housing Federation;
Main Technical Report. April 2019
[4] - Delivering a Step Change in Aordable Housing
Supply’ - Legal & General (L&G) and the British Property
Federation (BPF). March 2022
[5]- Social Return on Investment (SROI) aims to increase
social equality, environmental sustainability, and
wellbeing by changing how we determine value. The
impact (i.e. the total value of each change) is calculated
by multiplying the financial proxy by the quantity of
outcome minus any deadweight, displacement or
attribution
[6] - Suited to medium and long-term investment to
maximize returns. Typical lease agreed with a Housing
Association will be 20 years with an option for renewal
thereafter. Investors, subject to market conditions and/
or investor demand, will have the option to release
capital at 5 year intervals throughout the life of the fund
by either refinancing or liquidation of the assets held
within the fund.
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27UNITING INVESTMENT AND SOCIAL VALUES
QUALIFYING CRITERIA FOR HOUSING ASSOCIATION PARTNERS
• Register and de-register providers of social housing subject to
them meeting eligibility requirements and registration criteria
• Gather intelligence to inform an assessment of a registered
provider by reviewing their submitted quarterly survey returns;
carrying out annual stability checks of an Housing Association’s
business plan and annual accounts; and undertaking periodic
In Depth Assessments using a risk-based approach to assess
providers’ financial strength, risk profile, approach to value for
money and their quality of governance
• Assess and grade, through published Regulatory judgements,
how well Regulated Providers are managing their risks
• Investigate cases where a provider is susceptible to issues
crystallising, and carry out enforcement to secure solutions
• Identify and communicate emerging trends and risks at
a sector and sub-sector level and maintain confidence of
stakeholders, such as lenders.
The Regulator of Social Housing also sets consumer standards
and may take action if these standards are breached and there
is a significant risk of serious detriment to tenants or potential
tenants.
Housing Associations are graded with a “G’ in reference to
Governance; and ‘V’ in reference to their financial viability. The
grades for ‘G’ and ‘V’ have four ratings, with G/V1 being the
highest.
The Aordable Housing Fund will only select and partner with
Housing Associations that have a rating of G2/V2 or higher.
The high level of regulation and governance enables investors to
have confidence in Housing Associations that meet The Aord
Housing Fund criteria and are selected as partners.
Housing Association’s internal default rate from their tenants
is typically very low at less than 2%. Approximately 79% of a
tenant’s rent is paid from Universal Credit (a UK government
benefit). Further risk management of potential tenant default
can be gained by Housing Associations electing to take selected
tenant nominations from Local Authorities.
G
V
GOVERNANCE
VIABILITY
UK Government legislation requires Housing Associations that manage 1,000 properties
or more to be a Regulated Provider and governed by The Regulator of Social Housing
The Role of the regulator of Social Housing
www.propertyinvestment.co.uk
28UNITING INVESTMENT AND SOCIAL VALUES
RISK ANALYSIS
The proposed lease agreement
for each qualifying Housing
Association is on a fully repairing
and insuring (FRI) basis. The
Housing Association will be
responsible for the management
of the property, all tenancy
matters, estate management
(where appropriate) as well
as component replacement
(as agreed over the specific
lease term). The Housing
Association will also be required
to carry out all statutory testing
requirements as appropriate.
Where the client is the
beneficiary of any warranty or
guarantee around construction,
components or building
materials then the lease will
make the Housing Association
a joint beneficiary of such
guarantees/warranties to enable
them to swiftly resolve any
matters without delay.
The payment terms of the lease
require the Housing Association
to pay 95% of the full occupancy
rental figure, regardless of
their own occupancy levels,
less an agreed management
fee per property. Aordable
rents can be increased, unless
under government rental cap
restrictions, up to CPI + 1%.
The lease stipulates that the
CPI% increase is passed on to
the client whilst the Housing
Association can retain the 1%
increase, across the duration
of the lease agreement, for
themselves.
Note: In April 2022, Housing
Associations raised rental levels at
a rate of 4.1%. This was reflective
of current CPI levels + 1%.
Pre-pandemic the overall
rental arrears of UK Housing
Associations stood at 2.9%
with considerable variation
between regions and size of the
organisation with many large
Housing Association’s default
rates below 2%. The ‘void loss’,
a metric based on the rental
loss between the change of
tenancies, was 0.94%. Post covid
these values have increased to
3.29% and 2.17% respectively.
Since the lifting of Covid
restrictions these figures have
begun to fall back towards
historic levels.
For contrast, the Government’s
Household Resilience Study,
Wave 2 (April 2021) showed over
9% of tenants in the Private
Rental Sector (PRS) were in
rental arrears during the Covid
Pandemic (December 2020). A
further study by Paragon Bank of
PRS landlords showed that over
36% had experienced tenant
arrears in Q4 2021.
Housing Association debt
ratings, whilst not as easy to
quantify as other investments,
has historically been excellent
with £86bn of mortgages leant
without default.
According to a Housing.org
report in July 2021, 79% of
Housing Association tenants
had claimed Universal Credit
(UC) within the last six months.
Whilst it is recognised that
the UC claiming process
requires improvement around
clarity and speed, Housing
Association assistance to their
residents around the UC claims
contributes to the lower rental
default rates compared to the
PRS.
*All figures taken from
Housemark 2022
Notes on Housing Association
lease agreement:
Arrears and Void loss
risk analysis*:
Housing Association
Income:
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29UNITING INVESTMENT AND SOCIAL VALUES
RISK REGISTER
Risk Risk Mitigation
1. Lack of appropriate property to acquire to fulfil
mandate
Whilst sec-106 properties can be bought the model allows for non-mandated
new and existing properties to be used for aordable housing. Property can also
be acquired from Housing Associations and re-purposed/developed to provide
additional properties. Forward funding o plan acquisition also allows a pipeline
of stock to be fulfilled over the medium to long term
2. Non-payment of rent by Housing Association
tenant
The lease requires a 95% full occupancy payment, less a management charge.
Coupled with low default rates amongst Housing Association tenants (supported
by UC and tax credits) means risk of non-payment is very low. Ensuring
partnership with only the highest rated Housing Association (G1/G2/V1/V2)
further reduces this risk.
3. Increase in cost of land, materials and labour to
construct properties driving up property prices
Land and build cost inflation will lead to higher property costs in the short to long
term. This inflation will benefit asset owners and be reflected in the equity return
from investors
4. Fall in demand for Aordable Rental Property Over 8 million people are in need of aordable housing. The combination of the
current low supply of aordable housing, high inflation coupled with fuel poverty,
increases further pressure for the provision of aordable rental property.
5. Changes to planning law or statutory building
requirements pose short term or long term
investment risks
Special attention will be made of all prospective acquisitions to ensure that risks
around fire safety(cladding) as well as carbon zero and energy eciency are
mitigated. Should any such risk be identified, indemnity insurance or other such
risk reduction measures (including sale withdrawal) will be considered/actioned.
The below five risks represent potential issues and how they have been mitigated.
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30UNITING INVESTMENT AND SOCIAL VALUES
AVERAGE HOUSE PRICE BY COUNTRY
ACROSS THE UNITED KINGDOM
Average house price by country, UK,
January 2005 to December 2021
The average house price in England has
increased by 5.3% per year from 2005 -
2021. With average prices in January 2005
at £158,572 and as of December 2021,
£293,339.
UK house building will continue to be
subject to strong inflationary pressure,
over and above that of the wider UK
economy. In particular a systemic
shortage of tradesmen due to Brexit
and a more general reduction in
apprenticeships and people wishing to
enter the building trade; a shortage of
building materials; a challenging planning
permission environment; low number
of completed properties in contrast to a
constantly increasing national demand.
300,000
275,000
250,000
225,000
200,000
175,000
150,000
125,000
100,000
2006 FEB
ENGLAND WALES SCOTLAND NORTHERN IRELAND
2007 SEP 2009 APR 2010 NOV 2012 JUN 2014 JAN 2015 AUG 2017 MAR 2018 OCT 2020 MAY 2021 DEC
HOUSE PRICES IN ENGLAND ARE THE HIGHEST IN THE UK WITH AN AVERAGE
INCREASE OF 5.3% PER YEAR FROM 2005 - 2021.
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31UNITING INVESTMENT AND SOCIAL VALUES
DISCLAIMER
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