Octopus Investments, part of Octopus Group, has launched an affordable housing strategy for institutional investors.
The evergreen strategy is targeting initial commitments of £200-300 million across multiple closes in 2023.
In May 2022, Octopus has acquired a Registered Provider (RP) of Social Housing and will operate a scalable ‘direct let’ model – rather than lease-based – to ensure a fair sharing of risk with its approved Housing Association partners, who will manage the properties on Octopus’ behalf.
Octpus said the acquisition of the RP ensures the strategy is subject to appropriate regulatory oversight and enables the company to draw on grant funding, where appropriate, to support the delivery of new homes.
The strategy will use a fully onshore, unlisted real estate investment trust structure, delivering long-term, transparent capital to the sector.
The new homes funded by the strategy will be built to high quality and robust sustainability standards. In light of rising energy costs that are exacerbating fuel poverty, which is disproportionately affecting affordable housing tenants, building stock with as close to zero energy bills is a key goal. Octopus’ partnership with its sister company, Octopus Energy, will enable more energy-efficient homes to be built, and will reduce resident outgoings.
The strategy is targeting resilient, index-linked income from the forward funding, acquisition, and long-term ownership of a portfolio of affordable homes across the UK. Co-investment opportunities will be available for locally interested investors such as Local Government Pension Schemes (LGPS).
The strategy will be led by Jack Burnham, Head of Affordable Housing, Octopus Real Estate, who commented: “With Housing Associations searching for alternative funding routes for their development pipelines in the face of net zero costs and increased cost of debt, and Local Authorities aiming to move back into large scale social housing provision, there is a real need for trusted partners and private capital to step up. This is exactly what we are trying to do with our strategy, by helping institutional investors to channel their money into this area.
“It’s really important to us that the homes we’ll be funding aren’t just affordable at the outset, but affordable throughout their use – we’re not looking to provide a quick fix and walk away. Our direct let model means we are heavily involved in ensuring the high quality of accommodation and management. Also, by maximizing our close relationship with Octopus Energy, we can future-proof our portfolios from an energy efficiency standpoint, and benefit both residents and investors in the long-term. This way it’s truly sustainable for both the environment as well as the housing associations we partner with.”
Benjamin Davis, CEO of Octopus Real Estate, commented: “There is still a huge shortage of affordable housing, with more than a million people on a waiting list to move into these homes. This, alongside the cost-of-living crisis, is creating a more urgent issue than ever before in this market. Committed private and patient capital has never been more essential.
“Our mission to invest in the people, ideas and industries that will change the world, our B Corp status, and our track record of both purpose-led and specialist real estate investing, means we can go a long way in helping to combat these challenges and deliver affordable housing with a difference. We’re here in this market to be a ‘forever landlord’, we plan to build a portfolio that we are proud of, and that investors can be proud of, for decades to come.”
