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Irwell Valley Homes part of ground-breaking Joint Venture

05 October 2018

Irwell Valley Homes part of ground-breaking Joint Venture

We're delighted to be one of ten Greater Manchester housing associations who have invested a total of £30m in a new joint venture (JV) designed to deliver additional market sale homes in the North West region.

The JV will take the form of a limited liability partnership (LLP) development company comprised of the 10 landlords, along with the Greater Manchester Combined Authority (GMCA).

The plan is to deliver up to 500 homes a year, initially using local authority and other public sector land. The JV could also bid for private sector land in the future. Along with delivering more homes, the profits will be used by individual housing associations to help cross-subsidise more social housing.

Each housing association partner will invest £3m in the JV, with the combined authority contributing a further £2m equity, taking the total investment to £32m. The GMCA will take a 20 per cent interest in the JV, while the associations will own 80 per cent. The 10 associations are Irwell Valley Homes, Bolton at Home, Great Places, Mosscare St Vincent’s, One Manchester, Onward, Salix Homes, Southway Housing, Trafford Housing Trust and Wythenshawe Community Housing Group.

The idea for the JV came from the wider Greater Manchester Housing Providers (GMHP) group, which numbers 25 housing association members, some of which put in seed funding to help develop the project.

Matthew Harrison, chief executive of Great Places, who led the JV steering group, told Social Housing that the focus would be on market sale initially as the JV has been designed to produce commercial returns to reinvest.

“It’s about additionality. We wouldn’t be doing it if it wasn’t. The fact it’s predominantly market sale means it’s probably additional to what the investors would do, as not all of them do market sale right now.”

He added that the move was in response to suggestions that associations in Greater Manchester are not doing enough beyond a narrow range of affordable products.

“The challenge was to do something different,” he said.

The JV, which is yet to be named, will act as a commercial developer, buying land and taking it through planning before building and selling the homes on the open market.

Profit will either be reinvested for future development or returned to investors. Any affordable housing developed as part of Section 106 agreements will be made available to the registered provider market.

The initial investment is made up of roughly one-third equity and two-thirds debt, with the debt lent by the housing associations on commercial terms through a revolving credit facility in a funding company (also an LLP), where each housing association has an equal interest.

Investment will be locked in for an initial period of seven years, meaning that the associations will not see a return before then unless dividends are paid. It is anticipated that the partnership will extend beyond this seven-year period, however.

The JV will be a separate entity from the development company LLP, where the combined authority’s cash will sit.

The 10 associations will invest in the JV through pre-existing commercial subsidiaries, such as Great Places’ private sale subsidiary Cube. This allows risk associated with the investment to be ringfenced from the parent associations, while profit generated by the JV can be gift-aided back to them.

The ‘devco’ can raise money independently as it is a commercial concern, but there are no plans for that at present.

Mr Harrison said the JV “will be run commercially so they’ll have to make a commercial return. We haven’t yet fixed our hurdle rates, but we’ll have an eye on behaving commercially while also being able to make competitive offers for land.”

He said that the JV is opting for sales rather than the private rented sector, which is “very hungry on capital”.

 “Our model is more about developing and selling and churning the money.”

The associations are in the process of appointing a board, which will be made up of Mr Harrison along with Sasha Deepwell, Irwell Valley’s chief executive; Bronwen Rapley, chief executive of Onward; Lee Sugden, Salix Homes’ chief executive; and Andrew McIntosh, investment director at the combined authority.

Ed Milner, a former development director at Keepmoat, has been appointed as project director. The JV is also looking to appoint a development partner from the private sector to help delivery on its first projects.

Talks have already begun with 10 local authorities in Greater Manchester about releasing land for development, with councils being offered an equity stake in a “profit-sharing vehicle”. Those vehicles will be individual special purpose vehicles (SVPs) for each council, rather than site-specific.

Mr Harrison added: “The support of the combined authority has been fantastic and with the local districts and Homes England supporting us with access to land, we have a real opportunity to ramp up delivery of new homes beyond our affordable activity.”

Steve Partridge, director of Savills Housing Consultancy, who is acting as an advisor on the project, said the offer is likely to encourage more council landowners to come forward.

“That seems to be attracting quite a lot of interest because local authorities don’t really want capital receipts at the moment,” he said.

The JV has already identified four sites, which are expected to deliver 400 homes. The company is targeting the development of 500 homes a year but will be reliant on sufficient suitable land becoming available before it can reach that goal.

“A lot depends on sites coming forward from local authorities and other sources,” explained Mr Partridge.

“Getting to 500 won’t be a problem of funding by the partners; it will be about land.”

Mr Harrison added: “We have enough land to get ourselves going, and then it can give some vigour to the conversation with other districts.”