LREF Insights panel glimpse future of funding
IPSX Managing Director and Head of Capital Markets, Roger Clarke, joined an LREF Insights Think Tank to talk through the many challenges and opportunities thrown up by uncertainty in development financing over Brexit, planning and other key issues, but also that a ‘wall of investment’ is ready and waiting for London housing.
How can innovative financing models support the investment into housing and infrastructure London needs during the ‘rollercoaster’ environment caused in part by COVID?
That was one of the main questions grappled with by a high-profile group of built environment professionals at a special LREF Insights Think Tank this week, and as a prelude to the show being planned for next February.
The session, chaired by Giles Barrie of FTI, included welcome news around a ‘wall of investment’ chasing housing opportunities, it also suggested that uncertainty over Brexit, planning and other issues was still hampering development and there were still barriers to entry for new players in the residential arena.
The other key challenges and points raised included:
– Delivering homes and investing in stock and fire safety issues is a key challenge, particularly for housing associations, and especially over cladding issues, with the background of a cross-subsidy method that ‘no longer works’.
– Attending to carbon reduction in new and existing homes regarding EPC ratings etc is another major – and expensive – concern.
– There are key ‘structural issues’ around supporting development, such as getting finance for infrastructure beyond grants or relying on government intervention.
– Persuading Treasury of the difficulty of getting large-scale private investment to unlock major schemes is another major challenge.
– There is a ‘wall of capital’ looking at residential development opportunities, especially in build to rent.
– This is broadly because we live in a ‘zero interest environment’ – ‘the government bonds used to give you risk-free returns; they now give you returns free risk. Fixed income doesn’t work’.
– But finding investment for smaller schemes of around 50 homes for rent and keeping high quality standards throughout is proving difficult, especially for new players in the market.
– Putting together sensible business plans to deliver housing is being hampered by uncertainty over issues including Brexit, planning, climate change and funding.
– ‘You will not find an institutional investor today who doesn’t have ESG [Environmental, social and governance] very high on their agenda’.
– ‘There’s no shortage of underlying demand for good cheap, affordable, quality residential space’. But it requires intensive management and expertise to look after such real estate assets.
– An as yet unanswered question for investors is the extent to which people will move out of cities to live in more suburban areas and whether that is sustainable in the context of the Planning White Paper.
– Connected to that is the question about the future of the city and to what extent they will become places for networking and connectivity, again giving rise to questions about what to invest in. A broad spread of investment in ‘beds’ across the board of housing is being seen as a safe bet.
– Providing housing for an ageing population and thereby freeing up family dwellings will be another goal for housing providers.
– Modern Methods of Construction could be an area that can really help deliver housing in terms of speed, quality and repetition, perhaps especially in a post-COVID world. But while a mortgage is easily available for a unit, you can’t necessarily securitise it as a housing association. Unlocking that quirk of the system would open up a lot of delivery – but lenders are still ‘getting their heads around’ how they underwrite these kinds of products.
– There has been a short-term change in development financing for private projects, with clearing banks pulling back. New lenders have focused on residential, with funders providing bridge funding and mezzanine financing targeting that sector.
– Schemes have stalled because of community buy-in: developers could therefore be encouraged to think about their CIL being a grant of free shares for tenants so they ‘part-own’ their community.
- Giles Barrie, Senior Managing Director, FTI Consulting and former Editor-in-Chief at Property Week (Chair)
- Jacqueline Esimaje-Heath, Regional Development Director, L&Q
- Louise Sherwin, Director, Deloitte Real Estate
- Omega Poole, Partner, Head of Debt Advisory, Mishcon de Reya LLP
- Rachael Hickman, Head of Housing Delivery and Compliance, Greater London Authority
- Richard Meier, Founder, Stories
- Roger Clarke, Managing Director, Head of Capital Markets at IPSX
- Tim Weightman, Group Executive Director – Assets and Investments, Places for People