London-based M&G Investments has extended £40 million (€55.2 million; $58.5 million) in private placement financing to Estuary Housing Association, a provider of social housing in Essex and the East of London, the firm said in a statement.
The long-term financing is a 30-year bilateral financing. The borrower has a 12-month deferred draw-down option on £20 million of the financing. Santander GBM assisted Estuary in arranging the facility.
The private placement will enable Estuary to fulfil its development ambitions of 400 homes over the next three years. Half the homes are to be built in London boroughs and the remainder in Essex. Once completed, the developments will bring Estuary’s total housing stock to around 4,500 properties by 2018.
“The process of raising funds through a private placement was new to Estuary and we are very pleased that we have been able to raise funds at a favourable rate that enables us to meet our social purposes through the provision of much needed affordable homes in areas of acute need,” Paul Durkin, chief executive of Estuary, said in a statement.
Until 2007, housing associations relied on banks and The Housing Finance Corporation to meet external funding requirements. However, institutional investors have been providing increasing amounts of long-term finance as banks withdraw from the market, M&G said.
M&G’s pension fund clients continue to seek cash flows over the long-term which are secured against residential property, Davie said. To date, M&G has invested £5 billion in UK social housing through property transactions, public bonds and private placements, a large proportion of it invested since the financial crisis. Most is in bond financing but in 2014 around £400 million was extended in private placements to housing associations, typically not large enough to access the bond markets.
“Estuary plays a vital role in a region where there is both a severe shortage of housing and a growing population. Financing of this type for housing associations enables them to contribute towards meeting the growing demand for affordable housing in their local communities,” Mark Davie, head of social housing, M&G Investments, commented in a statement.