With an estimated pipeline of £17bn of rental stock and a forecasted requirement of some £300bn more over the next five years, registered providers find themselves facing an interesting strategic dilemma – are they better off sticking or twisting?
Traditionally RPs have been perceived as “different” from owners of other classes of real estate, but many of the issues that they face – such as how to utilise property more efficiently – are all too familiar to property owners.
RPs, as charitable organisations, do not have activist shareholders. But they do have numerous stakeholders, including the government, which want them to be ever more efficient.
For example, demonstrating “value for money” is among the regulatory standards that RPs need to comply with. As a result, many RP management teams may be reflecting on how they can “sweat” their assets more effectively.
In the past, RPs have borrowed money against their real estate, undertaken sales and leasebacks and looked at spinning off listed REITs, as well as establishing Opco/Propco structures. These options offer a potential strategy for RPs as other investors acquire social housing units.
For medium-sized RPs, however, the pressing question is whether they could meet their charitable aims more effectively as property managers, rather than owners. They especially need to be clear about their business model and how they plan to deliver it.
Some RPs have already begun to undertake this role. For example, Places for People – one of the largest RPs in the sector – has already been expanding its fund management business. Devonshires recently advised on an equity sharing structure that would enable an RP to multiply its stock.
Furthermore, there are plenty of would-be owners to work with – not only established investors such as pension funds, but investors poised to move into the sector, drawn to “lookalike” utility returns from an asset class with long-term, inflation-linked income streams.
But these new investors may not have the requisite skills to effectively manage social housing. RPs have honed their unique property and tenant management skills over several decades and will understand, for example, the tension between the requirements of equity investors, the aspirations of tenants and the approach of a regulator.
RPs are also well placed to manage investors’ PRS and student portfolios, which could provide additional revenue streams for those organisations looking to scale up their management operations.
For an industry like social housing with a reputation for innovation in meeting the challenges of reduced funding, perhaps the most radical solution will be the most obvious – letting investors to look after their assets, while RPs focus on managing their tenants and communities.
Andrew Crawford is a consultant at Devonshires
