December 2020 Pipeline Update
- 9th December 2020
- Sourcing
Charity Proposition
Target yield 5-7% (location dependent), inflation linked
The charity pays for all repairs and maintenance
No voids
No management fees
5- to 10-year government backed leases
95% lease renewal rate (Nacro’s portfolio)
Summary
We completed Tranche 1 of the Nacro deal at the end of October and with the required building works nearing completion we are about to commence two leases with the charity Nacro on 5-year terms. You can invest in this opportunity on the Exchange at a yield of 6.8% (as at 7 December 2020). These properties are helping to fulfil the local government contract with Nottingham local authority to provide supported accommodation to vulnerable adults in order to rehabilitate and reduce social issues.
Sourcing property, particularly in the West Midlands, has proved challenging due to a very “hot” property market and difficulties finding areas that meet the specific criteria required by the police and local authorities. Local and national lockdowns have added to these challenges.
For this reason the first tranche was smaller than we had hoped and we have not found anything suitable in the West Midlands. However, having expanded our search areas for Nacro we have had offers accepted on two properties in Bristol, one in Croydon and a further property in Nottingham. This is helping to fulfil their central government contract as well as the Nottingham local authority contract. We hope to complete most of these purchases in the first few months of 2021.
We have also had an offer accepted on a bungalow near Newton Abbot in Devon and we are awaiting final approvals from the local authority. This will be leased to a charity called United Response to provide supported accommodation for two people with autism that require additional support to enable independent living.
Estimated total value/timing of opportunities:
- Tranche 1 (Nacro – Nottingham) – £282,000: Completed
- Tranche 2 (Nacro – Croydon) – £400,000: Anticipated February 2021
- Tranche 3 (United Response – Devon) – £365,000: Anticipated February 2021
- Tranche 4 (Nacro – Bristol) – £545,000: Anticipated February/March 2021
- Tranche 5 (Nacro – Nottingham) – £125,000: Anticipated July 2021
Accomodation profile
Tranche 2 (Nacro – Croydon)
The property under offer is a 3-bedroom terraced house with two reception rooms on Pemdevon Road in Broad Green, just to the north of Croydon town centre. The property is in good condition but will require fire safety works to meet HMO standards. This property has received full approvals.
Tranche 3 (United Response – Devon)
The property under offer is a 3-bedroom bungalow on Orchard Close in Kingsteignton, near Newton Abbot in Devon. It is already renovated to a high standard and requires little further work. We await the final approvals from the local authority in Devon. We are in talks with United Response about enabling investors to donate some or all of the income earned from this investment to the charity. Please contact info@assetzexchange.co.uk if you may be interested in this proposition.
Tranche 4 (Nacro – Bristol)
This tranche will involve the purchase of two fairly modern houses, one 3-bedroom property and one 4-bedroom property in the Hartcliffe area of Bristol. The properties are in good condition but will both require fire safety works to meet HMO standards. These properties have both received full approvals.
Tranche 5 (Nacro – Nottingham)
This currently consists of a 2-bedroom terraced house in Old Basford in Nottingham. The property is in a reasonably good condition but will require fire safety works to meet HMO standards. We have had a delayed expected completion date so may look to add further properties in this tranche.
Features of the leases
Although not offered to all landlords, Assetz Exchange has negotiated a full repair and maintenance lease with Nacro meaning they will undertake all day-to-day repairs at their own cost. Nacro will remedy and pay the repair costs of any damage caused by their residents. We have now agreed 10-year lease terms for all the properties with no breaks for the first 2 years and upwards only rent increases linked to the Consumer Price Index (CPI). The leases are backed by the government or local authority payments to Nacro.
The lease with United Response will be similar to that with Nacro. It will be a full repair and maintenance lease with a 7-year term with no breaks in the first 3 years. Again, it will have upwards only rent adjustments linked to CPI.
There will also be no void periods or management costs that are associated with normal ASTs which act as a drag on yield.
Ongoing demand
For Nacro, searches for further properties are continuing in several London boroughs, Hastings, Nottingham and the West Midlands, and we expect further opportunities to be numerous across the country over the course of next year.
We hope we can continue to work with United Response and that implementing our proposal enabling charitable donations via the Assetz Exchange platform will make our proposition even more attractive.
We continue to engage with other charities and housing providers to explore further opportunities.
Property profiles
| Town and postcode | Croydon CR0 | Devon TQ12 | Bristol BS13 | Nottingham NG6 |
|---|---|---|---|---|
| Charity | Nacro | United Response | Nacro | Nacro |
| Area | Broad Green | Netwon Abbot | Hartcliffe | Old Basford |
| House type | 3-bed terrace | 3-bed bungalow | 3- & 4-bed terraces | 2-bed terrace |
| RICS valuation | TBC | TBC | TBC | TBC |
| Assetz Exchange Price (£) | 360,000 | 365,000 | 222,000/235,000 | 100,000 |
| Lease length (years) | 10 | 7 | 10 | 10 |
| Gross yield | 7.3% | 7.2% | 7.9% | 9.9% |
| Net yield (funding target) | 5.3% | 5.5% | 5.6% | 6.5% |
Please note
RICS valuations will be carried out prior to the purchase of the properties. Given these are sometimes carried out prior to HMO conversion works they may not capture any uplift in value resulting from additional rental income that can be gained by renting a property out by the room.
Tenant profile → Nacro
Nacro is a social justice charity founded in 1966. One of Nacro’s main aims is to ensure that disadvantaged young people and adults reach their full potential in life. Good quality and appropriate housing is often the first step to unlocking this potential by laying the foundations for stability and improvement. Housing is, therefore, integral to Nacro’s work.
Over the last 50 years, Nacro has developed specialist housing knowledge and expertise in delivering housing solutions for vulnerable groups. This includes people that have experienced homelessness due to current challenges in the housing market.
Nacro currently provides a range of accommodation options including supported housing, floating support services and Nacro’s social lettings agency – Nacro Homes Agency.
They have expertise in meeting the specific needs of people who have been homeless, care leavers, young people including teenage parents, women, families, former members of the regular armed forces, victims of domestic abuse, people experiencing mental illness or impairment, people experiencing alcohol or drug issues, people leaving prison and people in wider contact with the criminal justice system.
Tenant profile → United Response
United Response were founded in 1973 with just one service in West Sussex. They now support around 2,000 people, work in 400 locations across England and Wales and employ more than 3,500 staff.
They support adults and young people with disabilities to live the life they choose. That includes people with learning disabilities, physical disabilities, autism and mental health support needs. They can help with things like day-to-day living, finding a house or a job, education, and activities in the local community.
As well as supporting people, they campaign on disability awareness and social care policy, provide expert guidance for professionals and carers and make easy to read information, like Easy News.