SUPPORTED BY ICSH HOUSING FINANCE CONFERENCE 2014 Building Capacity, Accessing Finance Enhancing Delivery
Donal McManus Executive Director Irish Council for Social Housing
Introduction & Background ICSH biennial Finance Conferences / Seminars since 2010 backdrop of financial crisis Purpose to examine and develop new financing mechanisms with loan finance Involve all existing and new stakeholders such as financial institutions Conference will focus on new and regulatory environment and, importantly, what new delivery models can be undertaken
Different tiers of non-profit housing associations.
Changing Financial Landscape
Pre-2009 operating environment for housing associations - AHBs
Kilmihil Community Housing Association, Co. Clare-Tier 1 housing association.
Inis Housing Association, Co. Tipperary- Part V energy efficient homes. Tier2 Beidh muid a sharu (we shall overcome.)
Respond! Housing Association, Cork Clúid Housing Association, Longford, redeveloping local authority housing.
Post-2009 operating environment for housing associations (AHBs)
Evaluating the new environment Challenges Funding schemes to deal with private/loan finance environment Accessing sufficient loan finance on good terms and conditions Implementing regulatory changes Having a viable stock transfer/management model where required How to increase supply for general and Special Needs such as homeless? Opportunities P & A agreement-loan finance options Increasing interest from financial institutions Assist local authorities with regeneration/retrofitting Supply Part V-NAMA (NARPS) Transition from congregated settings for people with disabilities
Pathways for Loan Finance Options Pursued Housing Finance Agency (HFA) -Longer term finance Private Financial Institutions (banks) -Move more to short/medium term finance but some longer term Capital markets (pension fund, bond, placements) -Long-term finance Social finance -Medium-term with social objectives with 2 organisations -NAMA -Other (EU structural funds ERDF, EIB) Progress report 9 approved housing bodies certified, other Tier 3 s applying 3 institutions with circa 15 associations Engagement with 2 institution to establish criteria for investors, still early days Programme for smaller housing associations with limit per project Some funds to complete projects Decision on retrofitting programme
ICSH Financial Modelling 2010
The aftermath of housing failures- Housing associations playing their part Involved in role out of range of new policies reflecting shift from capital to revenue expenditure 480m 2008 to circa 50m 2014 AHB output reached peak in 2009 with 2,011 new homes completed and 3,000 households accommodated Mopping up of housing failures Empty/unfinished estates(including NAMA) and managing unsold local authority affordable housing Assisting people with unsustainable mortgages Resolving problems of poor quality housing Some collaboration between housing associations including joint delivery Social housing delivery entering new phase Accessing loan finance New regulatory environment
Iveagh Trust, Rathmines, Dublin Build to Lease Loan Finance and P &A
Clúid Housing Association, Beacon South Quarter, Sandyford, Dublin HFA Finance
Túath Housing Association-Bank Finance Scotch Hall, Drogheda, NAMA Knightsbridge, Trim, Co Meath, CALF
Utilising vacant properties with loan finance.
Fold Ireland with DCC, Dublin 11- stock transfer with loan finance
Key issues for supporting not for profit sector (VRC July 2013) Engagement with new financial models and intermediaries Measured regulation Sustained policy co-ordination Capacity building for the sector
Integrating three key frameworks to facilitate enhanced role for AHBs.
Compliance and regulatory responsibilities
Key financial issues for AHBs raising private finance Realistic loan to value ratios-nature of social housing long-term low risk Reserves can only be used once-with stock not growing significantly large new planned projects may not be feasible Over use of reserves will limit the capacity of many associations, including mid sized associations and may run counter to housing regulatory requirements Having a CALF scheme which enables development Greater standardisation including that of financial statements
Measuring outcomes for tenants.
Conclusions -Although private finance through accidental route of extending P & A, much learning has been gained -Crucial that finance is integrated with policy and regulatory environment -Every stakeholder has to except some risk -New Social housing strategy has to be clear on role of AHB and loan finance to avoid mixed messages -New finance options should reflect the environment, development finance, acquisition, regeneration Donal McManus ICSH donal@icsh.ie www.icsh.ie
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New Regulation & Financial Landscape ICSH Financial Seminar 2014 Damian Allen Principal Officer Housing Regulation Department of the Environment, Community and Local Government
Context Collapse in grant funding 2011 Housing Policy Statement Grant Thornton Report
Social Housing Completions and Acquisitions 2008-2013 6000 5000 4000 3000 Acquisitions 2000 Completions 1000 0 2008 2009 2010 2011 2012 2013
Voluntary & Co-Operative Completions 2008-2013 2500 2000 1500 1000 Completions 500 0 2008 2009 2010 2011 2012 2013
Why regulate? Protect social housing assets Safeguard Public Investment Support Private Investment Positive Outcomes for Tenants
What has happened? 2012 Consultative Phase 2013 Voluntary Regulation Code July 2013 Financial Capacity Group 2014 interim Regulatory Committee Regulation Office HSCA Pilot phase
What do investors look for? Sound financial record Well-managed assets in good condition Reasonable surplus Quality Management Team
What would a well-regulated sector look like? Regulator with capacity and tools Well-skilled AHB Boards AHBs benefitting financially Stable
Statutory Regulation Government approval July 2014 Heads being drafted General scheme to Government Q1 2015
Other measures Release of expired mortgages LA Circular Early release of existing mortgages Regeneration funding ERDF / EIB
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AIB Backing Social Housing 9 th October 2014 Ken Burke, Head of Business Banking
AIB is Making Significant Progress Leading Business & SME Market Position 2.5m Customers 270 Branches 10 Business Centres Direct Channels Return to Profitability 437m (H1 2014) 5.6bn in Lending Approvals (H1 2014) 2.6bn in Lending Approvals to SME customers (H1 2014) 42% increase on same period in 2013
AIB Customer Focused Sectoral Strategy Focus on key customer segments & sectors Our best people engaging with customers Develop deeper customer insights around needs and economics Deliver superior customer experience supported by people, technology and innovation Dedicated Sectoral Teams + Specialists Agri, Fish & Food Technology, Media & Telecoms Energy & Cleantech Export Finance Property Hospitality & Tourism Healthcare & Life Sciences Retail Nonprofits & Professional Services Entrepreneurship
AIB Sectoral Strategy Supporting Business Series of Outlook Reports
Our Commitment to Supporting Development of New Homes 350m New Homes Fund - Finance for development of new homes including social housing Residential Property Outlook report launched May 2014 Creation of a new Not for Profit sector team In-house specialisation Increased Lending to Social Housing Develop deep understanding Execute transactions efficiently
Working Across the Industry Active engagement with Key Stakeholders: ICSH and members DECLG & Dept of Finance Housing Agency, Regulation Office & Charities Regulator Local Authorities, AHBs & PPPs Property Industry Ireland
What we Look for in a New Project: Received CALF approval / advanced negotiations with HA Amount of CAA (the higher the better, max 30%) Term of the PAA exceed loan term with headroom Market rent agreed with Local Authority Planning Approval Location of the units demand evidenced building communities AHB Positive Reserves & Sinking Fund
Initial Due Diligence The Borrower Proven Past Performance (3 years Audited Financial Statements) Board and Senior Management of AHB with sector experience Well Developed Finance Function Transparency, Good Governance & Financial Viability Adherence to the Housing Regulator VRC
Example of a Project Supported in 2014 Respond! - Tier 3 AHB Project: 3 Projects: Purchasing/Fitout of Units & New Build Units Total Project Cost 10.435m Equity 23% of total project cost CALF 22% CAA, 20 year PAA Loan 15 year term (committed), 20 year amortisation AIB Sanction 55% of total project cost
Typically a Sanction will require: Credit Considerations Assignments over Payment & Availability Agreement All sums mortgages/charges over the property/properties Lien on Payments Account/Rental Account linked to P&A Minimum Debt Service Cover Ratio* of 1.25 times (*DSCR - Ratio of free cashflow to total debt service cost)
What Could Improve the Landscape Increased public stimulus and capacity to address market need P&A payments to continue over void periods & during any restructuring Continued impetus to streamline Planning Process & CALF Funding Evaluation Fast track emerging regulatory environment Collaborative approach - shared learning to enhance professionalism and project execution Encourage project scaling by providers with robust cashflow
AIB Building Communities AIB is backing the Social Housing Sector 350m New Homes Fund Providing innovative and relevant products & services Investing in our frontline capabilities Nonprofits sector team (knowhow & specialism) Specialist New Business Teams in Dublin, Cork & Galway Exclusive sponsor of ICSH conferences Strong Engagement with Industry Bodies & Government Stakeholders Actively lending strong deal pipeline
AIB is backing the Social Housing Sector Thank You Important Regulatory Information Lending criteria, terms and conditions apply. Credit facilities are subject to repayment capacity and financial status and are not available to persons under 18 years of age. Security may be required. Allied Irish Banks, p.l.c. is regulated by the Central Bank of Ireland.