There is a clear need for increased investment in the affordable housing sector: the demand for affordable and social homes is greater than ever, whilst the traditional methods for RPs to fund their development programmes (mainly debt funding) are becoming more expensive. At the same time, RPs are tasked with undertaking extensive works to their existing stock due to concerns around damp and mould, building safety and energy efficiency, whilst also facing high cost inflation.
To help meet these challenges, a growing number of RPs are looking to partner with investors as a way to release new capital into their businesses.
However, equity investment is about more than releasing capital for RPs. To create a fruitful partnership, there are a number of themes that both RPs and investors should consider before negotiations begin:
1. Get your board on side
Agree on what you are looking for in a partner (their values, skill set and track record).
Be clear on your red lines and be ready to address doubts or uncertainty about taking equity investment from a commercial partner or investing in a different asset class.
Some RPs and investors find it useful to draw on the expertise of non-executive directors for additional insight.
2. Set the parameters for the partnership
What is this partnership looking to achieve: is it a Special Purpose Vehicle for a single scheme, a long-term partnership, or something in between?
Will the RP and investor be 50:50 partners?
What risk appetite does your board have, and what level of control does your board expect over the partnership?
3. Define your values and be ready to communicate them
RPs will want to understand what investors offer beyond equity investment. For example, how would you deal with rent reviews in a high-inflation environment?
Investors want to know how RPs stand out from their peers. Examples include how you involve tenants in decision-making or details about your commitment to place-making and improving building safety.
4. Organise, update and collate your property data
A common stumbling block to partnerships is poor quality data.
Before investors can recommend an investment to their boards, they will need to see extensive and complete data about an RP. This data should cover details of the RP's internal governance procedures as well as the housing stock: EPCs, rent and service charge arrears, repair and redecoration schedules and more.
Compiling data in an accessible and comprehensive way allows for the direction of the partnership to be more clearly defined from the outset.