This is the second in the series of insights looking at funding options for retrofit and regeneration works. In this insight we consider stock disposals, both tenanted and void, and the opportunities/drawbacks that they present to raise finance to invest in existing homes. 

Motivations for stock disposals include:

• ESG drivers;
• focusing on a particular geographic area; and
• ensuring tenants are provided with the highest-quality homes the sector is able to deliver at value - especially when considered against the new Safety & Quality Homes and Tenancy Standards.

Stock disposals can take the form of traditional portfolio disposals of tenanted or void stock. They can also be achieved through void disposal programmes (VDPs) with the rolling disposal of individual void units, often via auction. We are also seeing an increasing number of disposals to “for profit” registered providers (RPs), and out-of-sector disposals of non-core units, including keyworker/student accommodation and market rent properties.

Whilst there are some important factors to consider when looking at stock disposals, it is difficult to ignore the numbers. Some of our clients have been able to raise over £100m in capital receipts through VDPs alone, which can be reinvested in existing stock – or in the development of new homes. This funding is much needed to ensure homes meet all health and safety requirements; decent homes standards; and carbon reduction targets.

Is it all good news?

Whether stock disposals will work for your organisation needs to be carefully considered. If you already have modern, efficient homes in a centralised geography, then this funding solution probably isn’t for you. But if you have some geographically remote properties and/or homes that would be challenging to bring up to the necessary standards, then a disposal programme could be worth exploring.

What about the risk of negative PR?

Common criticisms of stock disposals can sometimes result in negative PR that organisations are not getting the best value for these properties; that they are “selling the family silver”, reducing the total number of homes available in the sector; and/or that they are passing under-performing properties onto buyers who are less able to bring them up to standard.

Although there is always a risk of negative PR when disposing of stock, we see many clients achieving high capital returns without negative PR. This is achieved through careful planning and strategy and, particularly for tenanted disposals, carrying out careful due diligence into buyers so you are confident they can provide a good level of service and maintain the homes to the required standards.

How do we do it right?

Getting it right is all about careful consideration of the pros and cons, and having a well thought-out strategy. This might, for example, include:

• Clear criteria to decide which properties to sell: we see different approaches taken by different organisations. It might be that all properties in a particular geography are put up for sale; or just units within a specific scheme. It might be that refurbishment/repair works above an agreed threshold trigger consideration for disposal. Some RPs have a pre-agreed target list; other RPs consider any property as and when they become void, if they meet certain criteria. There is no “right” or “wrong”, it is about what works for you, in your area.
• Clear internal process and buy-in: you need buy-in across the organisation, at Board level, and a clear, efficient process to ensure quick sales of low performing units.
• Making sure you don’t flood the market: a slow-release of units across different geographical areas is essential, so that your properties aren’t competing with each other and driving prices down.
• Understanding your stock: knowing which properties have planning restrictions, or LSVT obligations, that might limit future use (or require clawback payments) is critical. 
• Taking the right advice: having the right advisors in place will allow you to set up and run an efficient programme that allows you to meet your goals.

Getting it right allows you to dispose of properties that are expensive to maintain (e.g. because they are outside your core geography) or which are no longer fit for purpose (e.g. because they no longer meet the needs of a client group) or simply because they house non-social housing residents and the priorities of your organisation have shifted. Disposal provides capital income that can be used for investment in your remaining housing stock.  

This type of property churn has long been recognised as an essential way of ensuring the efficiency of a portfolio of properties.

How Capsticks can help

We act for a number of RPs small and large – in some instances generating tens of millions each year. Our tried and tested processes, supported by innovative IT solutions, ensure quick and painless disposals and efficient accumulation of capital receipts.

In order to ensure the most effective stock transfer, we can assist by helping you to:

• Identify stock: we can identify all registered stock owned by your organisation, including all subsidiary names, if required. This can help to assess the geographical spread and aid in visually assessing the extent of any outlying stock or boroughs where you may have a smaller presence. 
• Understand existing stock: we can help you with pre-disposal due diligence and front-loading reviews, to help you identify any disposal restrictions, third party requirements or other provisions that could cause price chips or impact the practicality of disposing of the stock.
• Know what buyers are looking for: our experience in this industry, including acting for both sellers and buyers, means we have extensive knowledge and are able to pre-empt what prospective buyers will want to see from a legal perspective.
• Launch to the market: we can assist with all forms of disposal routes; from bi-lateral deals (particularly if there is an RP predominately located in the selected area) to competitive tender. 
• Taking the right advice: having the right advisors in place will allow you to set up and run an efficient programme that allows you to meet your goals.  We work closely with all the main selling agents and valuers acting in the sector.

If you have any queries around what's discussed in this article, and the impact on your organisation, please speak to Susie Rogers to find out more about how Capsticks can help.