BlackRock has completed its latest investment in UK social housing with a £100 million (€115 million; $129 million) commitment to a development project in Scotland.
The investment backs the development of 3,500 social and rented homes in Scotland by Wheatley Group. Wheatley is Scotland’s largest provider of housing and currently manages 83,000 properties.
S&P recently revised Wheatley’s standalone credit profile from triple B to single A following an improved financial performance over the last couple of years and an expectation that it will continue.
Shortly after the UK voted to leave the European Union, S&P concluded it had a negative outlook, but revised that to stable last month after concluding that it will be able to continue “mitigating any potential pressure from continued institutional and economic uncertainty surrounding the Brexit negotiations”.
At the end of 2014, the property firm raised £300 million through a public bond, but retained £50 million. In January 2015, the firm returned to the capital markets to draw down the retained amount, obtaining a coupon of 3.542 percent – at the time an all-time-low coupon for a UK housing association.
Jonathan Stevens, head of European Infrastructure Debt at BlackRock, said: “We were able to provide capital that was an appropriate scale and profile in terms of maturity. £100 million is a relatively small amount for a public issue and this would carry execution risk. Here we were able to offer a good volume of capital and to work reasonably nimbly, which meant our proposal for a bilateral investment proved attractive to Wheatley.”
Last year saw a low number of bonds issued by social housing developers, but Stevens said he expects to see both public and private issuances grow over the next 12-24 months.
He said: “We are probably not unique in viewing the social housing sector as an attractive, long-term investment, which in a period of political and economic uncertainty can provide a counter-cyclical, defensive investment opportunity.
“Recent changes in regulation across the UK, but more specifically in England, has meant the availability of grant funding is lowered and providers have to be a bit more entrepreneurial and be responsible to develop growth,” he added.
Alastair MacNish, chairman of Wheatley Group, said: “The new funding will allow us to press ahead with our plans to supply 3,500 new affordable homes across Scotland and continue to deliver excellent services.”
UK social housing has increasingly become a focus for private debt funds as demand continues to increase and many housing associations shied away from the public markets last year.
Earlier this year, BlackRock participated in a £275 million investment in a housing development project in Manchester. Alongside the Pensions Insurance Corporation, BlackRock provided £75 million of financing, while Yorkshire Building Society supplied an additional £25 million in debt. Lloyds has provided a £100 million revolving credit facility.