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As we continue to celebrate the 50th anniversary of Trowers & Hamlins' Manchester office, partners Eleanor James and Katharine Lewis discuss a build to rent project that had health and wellbeing woven into its design right from the outset and review how sustainability-linked finance has developed in recent years.

Focus on: Angel Gardens

In the heart of Manchester's NOMA innovation district you will find a 466-unit purpose-built apartment. One which was built specifically for renters and designed with the health and wellbeing of its residents firmly in mind.

Moda, Angel Gardens was the first property to be completed as part of a UK-wide portfolio of communities being developed through a partnership between Apache Capital and Moda Living Limited – all of which aim to provide residents with amazing spaces to call home.

When Trowers first began advising the Apache sponsored project company on the finance for the acquisition and subsequent development of Moda Angel Gardens, very few people had heard of 'build to rent' properties and fewer still were looking at how, by putting the health and wellbeing of their residents front and centre of everything they did, it was possible to build long term communities of renters.

Angel Gardens, though most well-known by all at Trowers as "the place with the football pitch on the roof" – it seemed like such a novel thing to do at the time – was designed to support the mental and physical wellbeing of its residents, with the intention of creating a place where people wanted to live long term. Central to that (very successful) strategy was the inclusion of flexible, luxury amenity spaces alongside high quality individual living space designed with renters in mind and which would encourage residents to come together in social situations, building relationships with neighbours to foster a sense of community.

Facilities include the aforementioned roof top football pitch, a 24-hour gym, gym studio space, a sky lounge, a roof terrace with barbecue areas, private dining spaces, a 24-hour concierge and an on-site maintenance and repairs team all of which are accessible to residents via an app that also allows them to check out what is going on at Angel Gardens on any given day of the year.

The success achieved at Angel Gardens with this strategy has been developed and built on at each subsequent project completed by Apache and Moda, giving the companies which own these buildings the flexibility, if they wish to do so, to tap into the more recent trend in the real estate finance market for sustainability-linked loans.

Sustainability-linked loans are the most common form of 'green' finance used in the real estate finance market. Unlike labelled 'green', 'social' or 'sustainability' loans where the monies borrowed must be used for a specific purpose - for example, in the case of a green loan to finance or refinance a project which will have or has a specific environmental impact, such as building a wind farm - the monies borrowed under a sustainability-linked loan can be used for any purpose but the costs of borrowing are tied to the achievement of specific, measurable and meaningful pre-agreed targets which, depending on the project, may have either or both of a positive environmental or social impact.

The rise of sustainability-linked loans

Back in 2015, when the options for financing the cost of acquiring then developing Angel Gardens were first being discussed, the loan market was only just beginning to take its first, somewhat tentative, steps down the road of offering use of proceeds (i.e. 'green', 'social' or 'sustainable') loans, and finance of this nature wasn't typically available for the majority of development projects such as Angel Gardens.

In the years since Angel Gardens was completed, we have seen rapid growth and development of the green, social and sustainable loan market, as well as the development of 'sustainability-linked' loans. The greater flexibility offered by sustainability-linked loans has made this type of 'transition' finance much more attractive to borrowers in the real estate market as they, like all other businesses, strive to meet net-zero and other targets which aim to support both people and planet whilst also continuing to make returns for shareholders.

A combination of regulatory and stakeholder pressure has driven increases in 'green', 'social', 'sustainable' and 'sustainability-linked' lending over the past few years but, since 2022, we have seen a tapering off of the growth in these markets. 2024 is likely to be a year of consolidation as lenders, borrowers and others in the market adjust to new regulations, additional reporting requirements and increasing scrutiny. But for projects like Angel Gardens, where the focus is already on ensuring a positive impact on residents, there will continue to be opportunities to leverage the aim to create the long term, sustainable communities of the future.