12:14 PM, 10th January 2013, About 11 years ago
Genesis Housing Association is entering into an unprecedented and innovative financial agreement for its Stratford Halo development in East London with M&G Investments, the leading investment manager. The agreement will provide Genesis with greater capacity to invest in regenerating balanced communities and in good quality, affordable housing at a time when public subsidy for the development of new homes is expected to fall further.
With a value of £125 million, the initiative is the largest of its kind and the first in London. It is also the first institutional investment in residential real estate for M&G’s Secured Property Income Fund (SPIF).
The agreement is an early response to the Montague Report, published in August 2012, which identified the potential of financial institutions as providers of funds for ‘build to let’ to satisfy demand for new housing. It also anticipated the recommendations of the Future Homes Commission (FHC) that the shortage of quality housing could be solved by a ‘major overhaul’ of the way the UK funds, builds and markets new housing.
“This timely initiative is an innovative and far-sighted response to current circumstances in which government assistance is no longer available,” says Robert Kerse, Genesis’ Executive Director of Resources. “Genesis is recouping its investments and focusing on regenerating communities by building a diverse range of good quality rental housing in London at a time when young professionals and families on modest incomes are finding it harder than ever to secure homes. As a regulated and reputable landlord, we will retain the management of these properties so ensuring a professional service and avoiding the problems which can arise under multiple or absentee landlords.”
Ben Jones, fund manager of M&G Secured Property Income Fund, says: “This is a high quality investment with a 35 year RPI linked lease that will help us to deliver inflation-linked returns, with good security, to our pension fund clients for a generation. The innovative transaction also provides our investors with much sought after exposure to the long term capital growth potential of London residential real estate but within an institutional investment framework.
“There is significant demand from pension funds for investment into housing and social infrastructure provided it is delivered on a transparent basis and directly assists with their desire for long term inflation linked cash flows to match their liabilities. With the addition of Stratford Halo, the M&G Secured Property Income Fund will have a £1.35bn portfolio of 32 assets across the UK. Over the past three years, this portfolio has delivered an annualised return of 7% over inflation. We have significant additional capital to invest and remain interested in acquiring similar assets on both a completed and development funding basis for the right assets.”
The Stratford Halo development, due for completion in 2013, includes over 700 properties housing a mixture of tenants encompassing affordable rented and shared ownership as well as retail commercial and leisure space. The 43 floor residential tower is based at the main entrance to the Olympic Park and will create a new London landmark. M&G will acquire 401 of the market rented units in the development and Genesis will lease the properties from M&G for 35 years.
Jonathan Clarke, Genesis’ Director of Corporate Finance comments: “This transaction is a strategic response providing Genesis with greater investment capacity in the future when the level of public subsidy for new affordable housing in expected to fall further. Genesis has a history of innovation in terms of providing housing in appropriate tenures to meet the needs of communities and, unlike many housing associations, has extensive experience in managing market rent properties.”
Genesis is one of the country’s leading businesses focused on the regeneration of communities. It currently has around 33,000 homes under management in London and the South East of England. Over the next three years Genesis will deliver over 3,000 new homes which will include affordable housing for rent or shared ownership.
Over the past two years, the new executive team at Genesis has followed a clear financial strategy, which has succeeded in strengthening its current financial position. The organisation reported a surplus of £26m in its financial statements for the year ending 31 March 2012 and an increased operating margin of 22 per cent compared to an average of 16 per cent over the last three years.
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