Landmark shared ownership residential property purchase by USSIM from Sage Homes helps validate a new capital model in affordable housing.
The combination of early investment by private equity and institutional investors providing long-term capital could be a factor in helping to ease the UK’s housing issues, according to a leading institutional investor.
The Universities Superannuation Scheme (USS) last year acquired over 3,000 units of shared ownership homes from Blackstone’s Sage Homes and announced the launch of its social housing provider Sparrow Shared Ownership. At £400 million, it was the UK’s largest transaction since the inception of the sector in the 1990s.
“Given its scale, we think it’s a pretty interesting deal for the evolution of the market,” said Eamon Ray, head of private credit and alternative income, USS. “We like to think of this transaction as a validation of the model where private equity comes in early to build and scale businesses… and institutional capital can come in at scale to hold into the long term.”
He said the transaction demonstrates the business model is repeatable. “We’ve put in place things to create a long-term option for institutional capital that allows future investors to come in. We had challenges sourcing the right opportunity at scale, so we are hoping to create options down the line for investors with a similar mindset.”
Ray said it was an appealing opportunity for USS’s scheme. “Shared ownership is an attractive asset class for long term investors, given the multi-decade inflation-linked rental cash flows, and real estate asset-backing providing downside protection. The asset class is big enough to allow other like-minded investors to invest large amounts of capital.”
You are forming a genuine partnership with people on their largest personal assets with a multi-decade horizon. Doing it well is very important.
Eamon Ray, USS
USS completed its first shared ownership deal in 2020, when it provided a £300 million long-term, inflation-link debt note to the sector.
“We found it very hard to replicate that structure leading to us exploring equity options and ultimately deciding to acquire a registered provider,” he said.
Ray cautioned that shared ownership is a “competitive” market from which to source assets and highlighted the importance of working for the end customer. “It’s very hard to find long-term alignment, which is crucial in this space. You are forming a genuine partnership with people on their largest personal assets with a multi-decade horizon. Doing it well is very important.”
The USS transaction has smoothed the path for others to complete similar transactions. “Buying at this scale in the for-profit space hadn’t happened before, so we spent a lot of time with the regulator. It was an important part of the evolution of the model,” said Ray.
“The way we created the structure allows other investors to join us over time. The creation of both an investment opportunity for others and a partnership opportunity for the sector is a unique way to invest. We are proud of what we’ve achieved.”
Ray also stressed the ESG attributes of the sector. “There’s a social impact,” he said. “We believe in the shared ownership model. It creates optionality for home ownership for those who might not otherwise be able to afford it.
“It can’t be the only solution to the housing crisis or the affordability crisis. But if you can connect with people that want to partner for 30 years, it has a very valid place in the UK’s housing ecosystem. Housing associations are capital constrained and institutional capital flowing into the sector can help ease that.”
Eamon Ray was speaking at PMP’s Inside the Deal conference. For upcoming events click here.