HOMESELECTED INVESTMENTS - AFFORDABLE PROPERTY FUND
- SUMMARY:
- An actively managed affordable housing property fund established to profit from the downturn in house prices and the economic cycle but focusing on a demographic (local authorities and students) and geography (London) that has good defensive qualities
- Delivering a target IRR of 9% with low volatility and limited correlation with other asset classes
- The fund will be investing in predominantly ex council properties with the following characteristics:
- positive spread of at least 1% between the external cost of funding and gross rental yield
- a mix of 1,2,3 and 4 bedroom flats with an average property value of £130,000
- located in London with a particular focus on South West London
- located within close proximity to universities, schools and hospitals
- tenants will be students, immigrants, housing associations and key workers employed in health, education and community safety – not exposed to an increase in unemployment in the City
- The fund will also acquire affordable housing from property developers that are constrained by capital and as part of the package it will negotiate extended rental terms with local authorities
- Demand for rented property in the fund’s target market is underpinned by:
- reducing mortgage availability precluding first time buyers from home ownership and increasing the demand for rented property
- growing unemployment raising demand for affordable accommodation
- an increase in student numbers to achieve government targets and due to a growing number of foreign students benefiting from the lower Sterling cost of an education in the UK
- a rising number of single family households and down sizing in the economic downturn
- Supply of housing in the fund’s target market will be constrained by:
- restraints on government spending due to high levels of public debt and a budget deficit
- the collapse of private sector construction and development and its negative impact on developers' contributions to social housing schemes under section 106 planning gain agreements
- a lack of funding available to universities to build new accommodation
- stricter lending covenants imposed on developers and buy-to-let landlords by banks
- limited space for the building of new homes in London
- Hibridge Capital has a combined 15 year track record of investment in the affordable housing sector and its owners have together invested over £900,000 of their own capital in the fund
- Key investment terms and structure:
- target size: £8m equity. First closing £2 million on 31 March 2009, second closing £6 million on 30 September 2009
- minimum investment - £100,000
- 1% initial fee, 1% annual fee, 20% performance fee in excess of achieving the UK base rate
- maximum gearing 70% loan to value of property and 1.5x interest cover
- unauthorised investment in the shares of a BVI domiciled private company
- term of investment: 8 years (30 Sept. 2017) with redemptions only on a matched bargain basis
TRELLIDOR