The UK’s Universities Superannuation Scheme (USS) has entered into a £300m (€325m) 45-year debt facility with a real estate investment trust, acting on positive expectations about shared ownership housing in particular.
The £68.5bn pension fund has invested in property for many years, but the deal with Residential Secure Income (ReSI) is its first investment in shared ownership, a type of social housing that allows people to buy a share of a property and then pay rent on the remainder.
Explaining USS’s thinking behind the deal with ReSI, head of private credit Ben Levenstein said that because an individual only needs a mortgage for the share they own, the deposit needed is much lower than a typical property purchase.
“We think this type of arrangement has huge potential to help people who otherwise could not afford to buy their own home,” he wrote in a blog post on USS’s website.
As such, the investment in ReSI not only provided an attractive return and inflation hedge but represented “a situation where we can do all that and make a social impact at the same time”, according to Levenstein.
According to ReSI, the 45-year facility with USS represents the first standalone investment grade financing for shared ownership, “a sector where growth and supply have been constrained by a lack of long-term institutional debt”.
Alex Pilato, CEO of ReSI Capital Management, said the investment by USS was “a significant milestone for ReSI as well as the social housing sector”.
ReSI said shared ownership had proven highly defensive during the coronavirus crisis, with rent underpinned by owners’ mortgage providers.
ReSI Capital Management was acquired by alternative asset manager Gresham House in March, with the latter yesterday announcing it was planning to launch a limited partnership targeting institutional investors and local government pension schemes looking to access “the under-addressed” UK shared ownership market. The LP is due to be led by Pilato.
USS’s £300m debt facility with ReSI is drawable against acquisitions over the next three years. ReSI said it would initially draw down £34m and expected to make further drawdowns as it continued to grow its shared ownership portfolio, with some £36m expected to be deployed into an identified pipeline of new homes in the near term.
“For ReSI, USS is an ideal investor as we are able to make a multi-decade commitment that allows the team to manage their business more effectively to meet their long-term requirement to develop social housing and then manage tenants,” said USS’s Levenstein.