The China Investment Corporation (CIC) has taken advantage of the low Australian dollar to purchase nine office towers in Melbourne and Sydney for $2.45 billion, making it reportedly the biggest direct real estate transaction in Australia’s history.
A second announcement that has received less media scrutiny is the NSW government advertising campaign on how Sydney’s infrastructure will have to evolve for an additional one million citizens within the next 10 years.
With core property overheated, should superannuation funds be taking a more imaginative approach to opportunities, and should they be taking a greater measure of construction risk too?
There are a number of emerging social impact ventures with potential for super funds. Ian Learmonth, executive director at Social Ventures Australia (SVA), sees opportunities in developments with a mix of private market homes and social housing. He and interested super funds are talking to NSW premier Mike Baird’s office about getting concessions for such projects, after Baird committed to encouraging $1 billion in affordable housing spending.
The opportunity for investors is allocations of between $10 million to $50 million in the form of debt. For many large super funds this is not enough to get involved, but the intention is to start somewhere and grow the space.
“You have to think creatively about how you do these,” says Learmonth, who has already completed one such development with the backing of high net worth individuals and foundations and the involvement of social housing groups.
In the UK, where high demand for housing is leading to great pressure on councils to produce social housing, the model is already live. Lacking ready capital, some councils have used institutional investment to fund the building of social housing.
The London-based manager Cheyne Capital has helped fund the building of 80 units for Luton Council (north-west of London). The council has guaranteed the letting of each unit, while the building and maintenance of the units is the responsibility of a housing association with a strong record in building such structures. All the investors have to do is raise the money.
Cheyne Capital worked with insurers, a French pension plan, a UK pension plan and a philanthropic family on deals that pay out 6 per cent with guaranteed rent rises at CPI plus 1 per cent.
There are several things that are attractive about this. First, it is investors taking the bold step of getting involved in the construction of assets, rather than over relying on core property and infrastructure.
Secondly, Cheyne Capital has been smart enough to partner with the government-backed Big Society Capital, which takes unclaimed bank deposits and puts them to good social uses. This is an important calling card as social housing groups and tailor suited fund managers are not natural business partners.
Cheyne Capital is in the business of making money for itself and its clients. Luton Council has obligations for social housing. The social housing group needs money to build. If these somewhat unlikely partners can get round a table then they can make these investments happen.
Look out for more on this in Investment Magazine, which features a round table discussion on social impact investing.