Universities Superannuation Scheme and Morgan Sindall Investments’ agreement this week to launch a £200m fund investing in supported living illustrates a growing institutional appetite for specialised social housing.
USS, which holds assets valued at more than £49bn, will fund the construction of the specialist supported housing and take a 95% stake in the joint venture, while Morgan Sindall will source, build and manage the assets, and retain a 5% stake.
The jv has an initial £100m to deploy, and has already identified 500 flats to build around the UK in developments of around 20 units. It will deploy as much as £200m if the right opportunities emerge.
The deal is one of the first large-scale institutional moves into a specialist sector that offers potential for long-dated and relatively secure income returns.
Morgan Sindall has been working on the model for the past five years. In 2013, it took a 50% stake in HB Villages, a developer of purpose-built supported independent living flats. It has since delivered properties valued at £70m in total in 30 towns across England and has a £100m pipeline.
Because the blocks are essentially funded by the government, through ring-fenced local authority cash for specialist supported care, the risk profile is minimal.
“The investment market looks through the housing association and looks at those underlying demographics,” said Richard Dixon, director at Morgan Sindall Investments. “Increasingly, authorities need this product. It saves them so much on care fees compared with care homes that they are willing to enter into nomination agreements. This means they are able to underwrite a certain level of void rates, which allows investors to finance more cheaply. That has not been the rule to date, but it’s starting to emerge.”
Dixon said that specialist supported living facilities do not have the high overheads of care homes, and that modern, efficient specialist care means a saving of around £200 per unit.
JLL advised USS on the fund; PwC Corporate Finance acted for Morgan Sindall.
Specialist supported housing Q&A
How does it work?
Morgan Sindall Investments works with local care commissioners to identify a need for specialist supported housing, and then sources housing associations to take the lease. It then takes this to the institutional market, which forward funds the construction.
Why is it attractive?
Demographically driven and supported by government, supported living has potential. Yields have hardened from 9% five years ago to 6% today. The size of the market is also limited, keeping competition and prices strong.
Who else is in the market?
Last year Civitas raised £350m for the first social housing REIT on the London Stock Exchange. It bought a portfolio of 28 properties for £65m in December 2016.
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