London-based Octopus Investments, part of Octopus Group, has launched an affordable housing strategy for institutional investors.
The evergreen strategy is targeting initial commitments of £200-300 mln (€228 mln-€324 mln) across multiple closes in 2023.
As previously reported last May, the firm has acquired Registered Provider (RP) of Social Housing status and will operate a scalable, direct let model – rather than lease-based – to ensure what it says is a fair sharing of risk with its approved Housing Association partners, who will manage the properties on Octopus’ behalf.
The acquisition of the RP status ensures the strategy is subject to appropriate regulatory oversight and enables the company to draw on grant funding, where appropriate, to support the delivery of new homes. The strategy will use a fully onshore, unlisted real estate investment trust structure to ‘delivering long-term, transparent capital to the sector’.
The new homes funded by the strategy will be built to high quality and robust sustainability standards, it said. ‘In light of rising energy costs that are exacerbating fuel poverty, which is disproportionately affecting affordable housing tenants, building stock with as close to zero energy bills is a key goal. Octopus’ partnership with its sister company, Octopus Energy, will enable more energy-efficient homes to be built, and will reduce resident outgoings.’
Jack Burnham, head of affordable housing at Octopus Real Estate, said: ‘With Housing Associations searching for alternative funding routes for their development pipelines in the face of net zero costs and increased cost of debt, and Local Authorities aiming to move back into large scale social housing provision, there is a real need for trusted partners and private capital to step up. This is exactly what we are trying to do with our strategy, by helping institutional investors to channel their money into this area.’
‘It’s really important to us that the homes we’ll be funding aren’t just affordable at the outset, but affordable throughout their use – we’re not looking to provide a quick fix and walk away. Our direct let model means we are heavily involved in ensuring the high quality of accommodation and management. Also, by maximizing our close relationship with Octopus Energy, we can future-proof our portfolios from an energy efficiency standpoint, and benefit both residents and investors in the long-term. This way it’s truly sustainable for both the environment as well as the housing associations we partner with.’
Jennifer Ockwell, head of institutional at Octopus Investments, added: ‘What is particularly interesting about this strategy for investors, is that it provides Local Authorities and LGPS’ with the opportunity to co-invest. This increases the total capital available for affordable housing but also drives alignment, as we can work with these investors to fund schemes in their local areas. To add to that, this strategy is geography-agnostic within the UK and instead, is needs and affordability based, which supports the UK’s levelling-up ambitions. ‘
‘It has been great to see some initial investors going through the process of due diligence who are passionate about the social impact potential. However, there is a clear financial opportunity too. In general, affordable housing has low correlation to other property markets and the wider economy. With this in mind, the strategy is able to offer steady income, supported by government-backed inflation-linked revenues, and long-term capital growth.’
Benjamin Davis, CEO of Octopus Real Estate, added: ‘There is still a huge shortage of affordable housing, with more than a million people on a waiting list to move into these homes1. This, alongside the cost-of-living crisis, is creating a more urgent issue than ever before in this market. Committed private and patient capital has never been more essential.’
‘Our mission to invest in the people, ideas and industries that will change the world, our B Corp status, and our track record of both purpose-led and specialist real estate investing, means we can go a long way in helping to combat these challenges and deliver affordable housing with a difference. We’re here in this market to be a ‘forever landlord’, we plan to build a portfolio that we are proud of, and that investors can be proud of, for decades to come.’