At the end of last month, the real assets division of the global asset manager BlackRock became the majority lender in a £362 million (€419 million) acquisition financing for 3,000 homes by UK shared-ownership housing provider Heylo Housing.
Funding for the acquisition comprised £262 million of index-linked and £100 million of fixed-rate facilities provided over 25 years.
The deal marks BlackRock Real Assets’ 18th investment in UK residential and brings its commitments to the sector to £1.1 billion. But while it has established a lengthy track record backing residential assets in the country, it is only the firm’s second shared ownership debt investment. In July 2020, the manager provided its first financing facility into the nascent sector, a £50 million loan also to Heylo Housing.
According to Jonathan Stevens, head of European infrastructure debt and deputy chief investment officer at BlackRock’s real assets’ debt business, the chance to support affordable living in the UK was a key element behind the company’s decision to support the scheme.
“Heylo housing plays an important role in supporting the provision of affordable housing in the UK, so we were eager to assist its latest acquisition,” he told Real Estate Capital. “We are helping facilitate better housing security for a slightly higher income group than the one we support in other types of social housing schemes. But just because this group is not having a social need for housing, does not mean their need for housing security goes away. For us, it is important to provide it across the entire income spectrum.”
Backing the provision of quality affordable housing in the UK, enables the manager to meet the increased demand from its institutional clients for environmental, social and governance-aligned investments, Stevens said. “From an ESG perspective, shared ownership is doing a public good. But also, these schemes’ assets tend to be new buildings, which are constructed to the highest environmental standards.”
Around 75 percent of the 3,000 homes have an EPC rating of B or higher which, according to Stevens, is particularly relevant with regards to the risks of cladding on tower blocks. “Making sure we are investing in properties that are fit for purpose in the long-term is an important component for an investment to be sustainable and resilient.”
According to Stevens, from an investment risk perspective, shared ownership represents an attractive long-term investment that provides stable and predictable income as well as diversification benefits. “The scheme’s homes are located across different UK geographies, which is good from an investment risk perspective since housing markets do not necessarily move in the same way,” he said. “It also provides diversification benefits to our clients’ fixed income investment portfolios.”
Another feature Stevens likes about the sector is its ability to provide investors access to inflation while keeping a low degree of economic correlation, particularly when compared with other infrastructure investments such as airports, which might be more impacted by covid-19.
He added: “It offers us the possibility to invest in a less heavily contested type of investment, due to its relative immaturity, but that can deliver substantial volumes of prime capital into a resilient investment class.”
He says the fact it is a relatively new sector in which a small number of operators are active explains the scarce financing support it has traditionally enjoyed from lenders. “It will take time to mature and scale. But, when it does, it will gain access to the most conventional capital market financing.
“As long as the rates environment remains relatively benign, investors looking for yield and inflation will increasingly turn their eyes towards the asset class, which will in turn present a wider range of lending opportunities.”