M&G inks affordable debut in £500m tie-up with Hyde

M&G Real Estate has made its first shared ownership acquisitions as part of a £500m strategic partnership with the Hyde Group. The pair will fund a pipeline of 2,000 homes around London, with backing from Homes England, alongside local government pension funds and private investors. M&G’s affordable housing debut has been hotly anticipated as part of a £3bn expansion plan to target the wider European living assets sector. The M&G UK Shared Ownership Fund has raised £215m from Cambridgeshire and Northamptonshire Local Government Pension Schemes and Homes England, along with two M&G client funds and investment from Hyde. The fund will invest in existing stock and acquire new schemes through forward funding and forward purchase agreements, with an aim to grow to the same level as M&G’s £1bn UK Residential Property Fund. It is managed by M&G’s head of residential, Alex Greaves, and assistant fund manager Chris Jeffs, working with Mark Davie, head of social housing. M&G’s first acquisitions for the fund will be the £61m purchase of 422 homes in London and Kent from Hyde. The housing association will continue to manage the homes and all income will be recycled back into M&G’s fund. Last year, M&G also registered the fund as a for-profit registered provider under the Regulator of Social Housing. Development blocks as costs rise The duo said the partnership was a direct response to funding challenges for housing associations, which face rising costs to ensure homes are safe and sustainable and meet new fire safety and building safety requirements. These challenges have seen a number of the UK’s largest housing associations halt development plans and slash targets as they focus on upgrading existing portfolios. The venture also comes ahead of the government’s new shared ownership model to be introduced for all section 106 agreements from next month. This will see landlords foot the bill for all essential work over a 10-year period, which may further squeeze viability for new-builds. Greaves said: “We are fully committed to innovating and improving standards and will add scale and efficiency to the portfolio – just as we have in the private rented sector.” He added that M&G will grow its investment forming partnerships with other housing associations “which will help to make a more speedy, positive impact on the delivery of much-needed housing stock”. Peter Denton, chief executive at Hyde, said: “If we don’t find new sources of funding, we simply won’t have the resources to keep developing at the same rate. This is one of the main reasons we want to work in partnership with others and look at new ways of doing things – including whether we own some homes or manage them on behalf of others. “This isn’t just Hyde – there’s a real risk that housing associations will be forced to reduce the number of new homes they build, as a result of having to pay for these essential works. While we’ll improve residents’ lives as a result, we mustn’t allow development to stop when there is such a shortage of affordable homes.” Means of diversification The agreement follows similar attempts by Notting Hill Genesis and others to dispose of shared ownership built assets, to capitalise on opportunity as investors hunt secure, long-term returns from affordable housing. Investment from both Northamptonshire and Cambridgeshire LGPF came after backing for M&G’s UK Residential Property Fund since 2017. Investment manager Paul Tysoe said: “For income-seeking investors such as pension funds, shared ownership offers another means of diversification, due to the sector’s low correlation with other asset classes and long-term inflation linked income with exposure to house price growth.” Homes England has also previously funded BTR delivery, financing 534 homes in 2009 that were subsequently acquired by M&G as the seed portfolio for the UK Residential Property Fund in 2013. Gordon More, chief investment officer at Homes England, added: “Strategic partnerships play a pivotal role in our mission to use everything at our disposal to intervene in the market and encourage the construction of more homes.” To send feedback, e-mail emma.rosser@egi.co.uk or tweet @EmmaARosser or @estatesgazette Photo: James Veysey/Shutterstock