Fintech firm Growth Capital Ventures, which raises finance for high growth SMEs and property-related projects through co-investment, is opening up new opportunities in house building.
Growth Capital Ventures (GCV), which has successfully raised capital for a number of high growth businesses and projects, has a new drive to revive the UK housing market with its co-investment model. It has already secured £400,000 of funding for a pioneering project building quality family homes in Chilton, County Durham.
Through its innovative co-investment financing model, the project was oversubscribed within a month – 47 days before the scheduled close.
Now GCV has a pipeline of similar residential projects to unlock development sites in a targeted approach which will contribute to addressing the UK’s housing shortage. GCV co-founder Craig Peterson says: “It is crucially important that the country starts to build the right homes in areas where they are needed and residential property investment opportunities will be a key sector for GCV in 2018.’’
Everyone knows that the UK has a housing crisis. Along with Brexit, it is at the top of the political agenda. At the core of the problem lies a shortage of housing and it has been estimated that we need to build at least 300,000 new homes a year to meet demand.
“It is sobering to reflect that in the last decade we have only ever managed to achieve about half of that,’’ says Peterson.
The inevitable result of the lack of supply has been a steep rise in prices – so much so that, since the early 1990s, house prices have more than doubled in real terms, despite the 2008 crash.
However, Peterson argues that the problem is not only one of simple supply and demand. Certainly house prices are too high in some areas such as London where foreign investors have driven up prices, but indiscriminate building is not the answer. A number of European countries which have undertaken programmes of subsidised housebuilding have only succeeded in building up stocks of unoccupied homes. Less than a year ago it was reported that the number of empty homes in the UK was at its highest for 20 years.
“The UK housing market is far more complicated than might appear at first sight,’’ says Peterson. “It is made up of many different regional markets, which are often behaving in different ways. If you aggregate them, you get overall figures but this can give a misleading picture and that can create problems if it leads to attempts to address the issue by taking the UK, or even England as a whole, and attempt to balance the overall national supply with the overall national demand. A one size fits all approach is not the way to tackle our housing crisis, it’s vital the right homes are built where people need them.”
He argues that the regional nature of the market calls for targeted building by those with the specialised local knowledge who know what kinds of houses are needed and where they are needed.
In the past this function was ably performed by the independent SME housebuilders but they were hit hard by the financial crisis when banks were reluctant to lend, driving many out of the market and others out of business altogether. The numbers of smaller regional house builders – those building fewer than 100 homes a year – halved between 2007 and 2014 to fewer than 3,000 – down from a peak of 12,000 in the late 1980s. These small builders built just under 20,000 homes in 2013, compared with an annual figure of almost 51,000 a decade earlier.
But, as Peterson points out, in its latest report, property expert Savills says that, if there is to be any step change in the UK’s housing supply, it is precisely these smaller independents that will have to shoulder the burden. “There are sites all around the country that could be unlocked for development but these don’t appeal to the larger builders because they are just too small for them. However, this is where SME builders could provide homes,’’ he says.
GCV not only has an analysis of the problems behind the UK housing crisis but has also developed a model to help address them. Its development company, Homes by Carlton, has years of experience in housebuilding and development. It specialises in providing high quality houses on those kinds of smaller sites which the large builders find it uneconomical to develop but where there is still a need and a ready market.
GCV works alongside Homes for Carlton as a Financial Conduct Authority-authorised investment firm that can focus on structuring the funding packages and introducing these opportunities to its investor base. GCV’s co-investment model, which it has pioneered over recent years, connects a range of investors to growth focused investment opportunities.
Retail investors can use GCV’s GrowthFunders website to learn about carefully vetted businesses and then invest from £100 upwards, alongside professional investors and institutions and high net worth individuals who are part of GCV’s offline G Ventures Investor Club.
Co-investing in this way allows independent housebuilders, which have been starved of capital by the banks, to gain access to the funds that will allow them to unlock sites throughout the country that have great development potential. It can bring them back into the market to do what they do best – apply their local knowledge to provide homes where they are needed.
“Co-investment also gives everyday investors access to those parts of the UK housing market where demand far outstrips supply, so that they can share in the returns which have always been the preserve of the larger investors, but with the assurance that they are investing alongside professionals,’’ says Peterson. “It also allows them to diversify and balance an investment portfolio as such a residential property investment will typically make a return over an 18 to 24 month time scale.’’
In the Chilton development, investors bought shares in the special purpose vehicle (SPV) Homes by Carlton (Chilton) Limited.
The project is targeting a base case of a 1.5 times return on money for investors.
Mike Priestley, a founder member of the GCV investor network, says: “I’m delighted to be investing in this scheme. Quality regional housebuilders need innovative funding solutions and I am particularly interested in solid alternative investments that have the potential to deliver better returns than mainstream opportunities’’.
David Nixon, also a founder member of G Ventures, adds: “I understand property development and the opportunity to back residential development projects that have the potential to deliver a decent financial return, create jobs and enhance the local area makes this type of investment compelling.”
The site, on which there will be 14 homes, will include three CoreHaus homes, which are built using a standardised modular core that reduces the onsite construction process by up to 50%, providing sustainable developments that deliver both economic and social value.
CoreHaus is backed by national procurement organisation and social enterprise Fusion21, which co-invested and anchored the equity round. Fusion21 helps people buy smarter in the public sector and make a difference in communities across the UK. The organisation has saved its 400-plus members more than £177m with fully compliant procurement frameworks and created more than 4,000 jobs, while the social value of its projects currently stands at £68m.
Dave Neilson, chief executive at Fusion21, says: “Working with Homes by Carlton and GCV provides us with a fantastic opportunity to pilot our sustainable CoreHaus modular housing solution, whilst building much needed new homes and generating social value in the form of job creation and apprenticeships.”
The Chilton site will comprise three-and four-bedroom homes ranging from townhouse style terraces to semi-detached and detached homes for families and professionals.
Work is scheduled to start on site later this year, with an estimated 18 month rolling build and sales programme.
GCV is encouraged by the success of the Chilton scheme as it is just the first of four planned sites in the North of England, which will see the creation of more than 300 new homes.
Peterson points out that investors in these projects will not only have the potential to realise market beating returns, they will also be helping to address the nation’s housing crisis and make a positive social impact.
He adds: “We will be creating over 200 direct jobs and 150 indirect jobs within the supply chain. Skills and training is high on our agenda and apprenticeships will feature heavily. We are keen to support the local supply chain and we will be going out to tender with local subcontractors and suppliers to create more jobs in the North East.’’
Co-invest in deals with real purpose.
To find out more about investing into property projects or high growth businesses, visit www.growthfunders.com or call 0330 102 5525.
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