Residential specialist Hearthstone Investments is to raise £500m for a fund to invest in London social housing next year.
The fund manager will work with local councils and housing associations in the Greater London area to identify brownfield sites with potential for residential development, which will then be leased back.
Chief executive Christopher Down said Hearthstone was looking to partner with a developer and was in advanced negotiations with several parties.
Hearthstone aims to raise around £100m in a first close in the second half of next year, and will raise the remaining capital in several stages over the next two to three years.
The fund, aimed at institutional investors, will be ungeared and have a 20-year lifespan.
It follows a £150m vehicle launched by Hearthstone in November to invest in social, affordable and PRS stock in Scotland. Investors that have committed funds to this vehicle include Falkirk Council Pension Fund, which invested £30m.
The new London fund will have the capacity to make some investments in PRS and affordable housing via a sub-fund, and investors will be able to choose how much exposure to each asset class they take on.
UK housing associations have so far been reluctant to team up with private funds and institutions to develop new homes, and have focused on managing existing stock rather than expanding, according to a paper given by Michael Oxley of Cambridge University’s Centre for Housing and Planning Research at the IPD/IPF conference last month.
“Where they have developed new property, housing associations have tended to tap into the bond market rather than pair up with private sector partners,” Oxley said.
Housing associations that have raised money on the public bond market include Glasgow-based Wheatley, which raised £250m in November.
However, Down said he was confident there was an opportunity for private funds in the sector.
“In our experience, housing associations are willing to take a blended approach to funding new social housing, and will consider asset leasing deals as long as return expectations and timeframes are realistic,” said Down.
