PFP Capital’s Catherine Webster on how to have impact “twice over” in housing

We meet with Catherine Webster, the newly appointed CEO of Places for People’s subsidiary PFP Capital, and discuss their approach to driving social housing forward.

PFP Capital is the fund management subsidiary of the Places for People Group, one of the largest housing associations in Europe. As a regulated business under UK rules, the housing association is not able to handle equity, and so it established PFP Capital in 2017 to bring in institutional investments.

As well as being focused on having social impact by increasing the amount of affordable and mid-market housing available for key workers, all profits from PFP Capital go to create more social housing. “We therefore get to have impact twice over with what we are doing,” says Catherine Webster, who was appointed as the firm’s new CEO in January.

PFP Capital currently has three investment funds up and running, all of which are aimed to develop and manage mid-market value and affordable housing, but in Webster’s words “never luxury”.

These three funds in total manage £700m (€802m) worth of assets, including commitments, with some 3000 units under ownership or development.

Two of the funds are UK-wide, whilst one has been set up with the support of the Scottish Government to develop affordable housing solely in Scotland. It has now created a portfolio of over 1000 units for key workers in Scotland.

Webster is keen to stress that providing mid-market value housing as well as affordable housing is still very impactful in the UK market, where so many key workers struggle to be able to afford housing.

“Our Scottish fund, New Avenue Living, achieves 100% affordable housing, compared to the mainstream commercial developers who will often develop only 20 to 30% of their units in that category,” she says.

PFP is able to do this because it will forward fund a developer, removing a considerable amount of risk for them. Doing this also eliminates the significant sales and marketing costs in residential property in the UK which, alongside the favourable financing, creates the ability to convert the entire development to affordable housing. In the case of its Scottish fund, PFP benefits from a government subsidised loan.

“What we do is all about being impactful for our clients and our motto, shared with our parent Places for People, is ‘Because Community Matters’.”

Place-based investing

Webster is very much a supporter of the UK government’s place-based investing initiative. “It is the easiest way to evidence impact and given that my remit is to grow the business I anticipate we will continue to play an active part in this development.”

PFP intends to launch a place-based investing fund in the future working with specific combined local authorities acquiring stock from local developers in specific locations.

PFP has worked with the place-based investing specialist Igloo for the last four years and just recently bought the company. Igloo, which has B corporation status, is focused on regeneration and having place-based impact.

Investors

The majority of PFP capital’s investors currently are local government pension funds such as the Strathclyde Pension Fund, along with a major public sector worker pension fund, the Universities Superannuation Scheme.

However Webster intends to bring in more private investors as part of her growth mandate. “Involving more types of investors will make us a more robust company. We understand the affordable and market value sectors, and benefit from having the potential to source assets from our significant parent with 230,000 units under management.”

Webster says the investment case for potential investors is strong. PFP funds offer strong income returns and high single digit IRRs, and something like a 5 or 6% cash return. Their development funds can offer value added returns in the mid-teens.

Economic environment

UK commercial property has had a very difficult year in an economic environment of rising interest rates, with something like a 15% devaluation in many sectors. Fortunately Webster tells us residential doesn’t move in quite the same way and “residential for rent is much more stable and diversified”.

She says the crucial element in this is that rental income is still growing and that leases tend to be on a 12 month basis, allowing rent increases on renegotiation. There is very strong demand in the UK for core housing and rental growth is therefore good.

In addition, PFP’s financial arrangements are very long term and less reliant on short-term interest rate movements, especially as regards the Scottish fund which has government subsidy. PFP also has no units in the London residential market where there has been something of a doughnut effect as work from home has reduced the price of central London residential housing, as people moved further out to have more space.

Whilst rents are rising, Webster is keen to make sure that her tenants are not being priced out of the market. “Fortunately demand for our stock is so high we are unlikely to come under pressure. The labour market in the UK remains extremely tight and there is no sign of an increase in unemployment to date.”

The future

Webster is focused on setting up additional funds with ‘for profit’ registered provider of social housing status to allow for further social impact housing delivery. She is looking to replicate the approach of their Scottish fund elsewhere in the UK, and aims to grow the funds under management from £700 million to £2.5 billion over the next five years.

She believes the parent company will be important in helping this. “We have a parent with a strong development pipeline which can offer us opportunities in addition to those that we find on the open market. It is quite unique to be owned by a social enterprise, allowing us the chance to follow the same purpose as the group but with third party capital.”

“In conclusion, I think this is an interesting model to bring more capital into the social impact sector. This is what attracted me to join.”