In this insight, we consider portfolio transactions in more detail to help inform:

• the current market for portfolio transactions
• when you should proceed with these projects
• what preparatory work is needed to achieve the outcomes that you want. 

In particular, we consider the impact of the changing political, economic and regulatory backdrop.

This insight has been produced in collaboration with Francis Gater, Director - Housing Consultancy, and Charles Cleal, Senior Director – Head of Housing Consultancy, of JLL, to ensure that you are getting the full picture, covering legal and transactional/market issues.

Our recent Funding Retrofit/Regeneration insight series looks at a number of different approaches to address the different ways to raise capital. This includes an insight on portfolio transaction projects which you can review here.

The market

We spoke to JLL who advised that the market for registered provider (RP) to RP transfers (transactions of portfolios of stabilised, tenanted homes) or Portfolio Transactions, as they have come to be known, has remained buoyant recently. However, the operating environment has changed, and the market is evolving as a result. We’d previously seen an extended period of demand outstripping supply and prices paid reflecting this. More recently we’ve seen this shift, with a greater number of portfolios coming to market and buyers having more choice in an environment where funding is more constrained, the cost of development has increased, and there is a greater focus on investment in existing homes.

Activity in the market continues, but in some cases the number of bids we are seeing for portfolios has reduced slightly. This means that, if you are looking to sell, you should take advice on the local market; consider your strategy and timings closely; and assess the impact on business planning. If you are a buyer, there might be less competition in some areas of the country, and this could be an opportune time to take advantage of this.

In the stabilised shared ownership market, revised investor returns, and higher cost of capital have both had an impact on the yields achievable. However, buyer interest remains as the fundamentals have not changed, and there is still a large amount of capital chasing this type of opportunity.

Thinking about a portfolio sale? 

Consider your drivers

What is driving your project? If you are a seller, this might be:

• a need to raise capital
• a reduction/change to the geographical area in which you operate
• divestment of non-core stock (e.g., care homes/student accommodation)
• lowering repair/refurb costs
• a desire to hit carbon efficiency targets
• other reasons – or a mixture of several of these.

Take these drivers, and any deadlines, into consideration when looking at current market conditions in your area and deciding when to proceed.

If you are a buyer, a potential acquisition might be part of a strategy to grow or could simply be a response to an opportunity that has arisen. Either way, now is likely to be a good time to proceed.

A need for strategy 

Although the number of potential buyers might have reduced, pricing on the whole is still at a premium to Existing Use Value for Social Housing (EUV-SH). If you are considering a sale, the focus should be on strategy, engaging with the market early to assess demand, and shaping portfolios in terms of size, geography and make-up, in order to meet the demand.

What does the future hold?

With election dates fast approaching on both sides of the pond, as well as unpredictable economic position, it is difficult to assess how the market will develop in the medium to long term. 

The good news is that the elections will be done and dusted by Christmas, and the economy is stabilising. JLL believe new government policy could bring positives, given a greater focus on supply and with the potential for particular attention on social rent as the priority tenure. As well as traditional portfolio transactions between not-for-profit RPs, JLL predict more activity from For Profit Registered Providers (FPRPs) in the portfolio transactions market and this brings with it different prospects, and considerations for sellers. Both Capsticks and JLL are well placed to advise sellers in this nuanced area of the market.

Timing is key 

The timing of any transaction is key. With lots of opportunities currently live, supply may start to diminish in the Autumn as the current stock in the market goes under offer. If you are thinking of a sale, the preparation of the portfolio continues to be highly important and balancing timing with accuracy of data gathering will be crucial to success.

Top tips

As well as timing, we recommend that you look carefully at the following points early in your project:

• Potential buyers – not forgetting the “for profits”. Some portfolios (e.g., market rent; staff/student accommodation) could potentially be disposed of outside the social housing sector, which might open up your pool of buyers.
• Internal PR/buy-in – ensure you have the support of your Board to buy/sell, and that the rationale for the project is clear to all.
• External PR – consider how you will frame external messaging around the project.
• Resident engagement – the new Consumer Standard has tightened the regulatory consultation requirements and the due diligence needed into potential buyers.
• Grant monies – how will these be dealt with? Homes England /Greater London Authority (GLA) grant monies no longer transfer automatically to buyers: instead, the prior consent of Homes England/the GLA is required and this must be obtained through submission of standardised forms.
• Selling strategy – consider getting early advice from valuers, selling agents and/or your solicitors. As well as tenanted disposals, many of our clients have rolling programmes to dispose of void properties which can bring in significant capital receipts.
• Pinch points – don’t underestimate the time it will take to review the portfolio that you are selling/buying. Buyers need to do careful due diligence to ensure
  
  - they know what they are taking on
  - to support valuation advice
  - to keep assets & liabilities registers up to date upon acquisition
  - to ensure future disposal/charging is possible.
  
  Sellers need to prepare the portfolio to pre-empt and resolve issues that might otherwise be raised by buyers – therefore preventing delays and price chips. The key here is early engagement, and the innovative IT solutions that we use at Capsticks (including artificial intelligence) are critical to success.

Key points to take away

If considering the acquisition or sale of a portfolio:

1. take early advice
2. consider timing
3. get the support of your Board
4. plan your project carefully (including soft-market testing) to put yourself in the best position to sell/buy and to avoid delays/price chips
5. attend the Capsticks/JLL webinar in the autumn for a more detailed, post-election, analysis. Details to follow soon on our events page.

How Capsticks and JLL can help

Both Capsticks and JLL regularly advise on RP portfolio transactions; each dealing with the transfer of thousands of units each year. This enables us to use tried and tested strategies/drafting for most issues; focusing time and effort on practical solutions to project-specific matters. 

If you have any queries around what's discussed in this article, and the impact on your organisation, please speak to Susie Rogers and Kayleigh Bradford at Capsticks or Francis Gater and Charles Cleal at JLL to find out more about how Capsticks and JLL can help.