Financial Planning

1. Financial Planning Steve Bendle, Community Finance Solutions

2. CLT aims • Viability • Income > expenditure: costs less than part-equity sales + long term loans + grants • Affordability • part-equity at 3.5+1 times household incomes • rent at 67%-80% Local Reference Rents • Affordability in perpetuity • rented homes • lease under Declaration of Trust • Shared Ownership with restricted stair-casing if changes to Leasehold Reform Act in Housing & Regeneration Bill • Sustainability • as organisation • more than housing • low impact housing

3. Different CLT needs • Urban schemes • may be very large • full value security may be available: homes can be sold fully so long as receipts recycled • Rural new build schemes • s.106 may restrict value • may be mix of housing, workspace, community • Rural “quota” schemes • need to buy before sales proceed

4. Matching cost and incomes

5. Viability • Cost: £106,000 • Target cost for affordability: £86,000 • £20,000 required • Charitable grant, HC grant, some high % sales, cross-subsidy, developer condition

6. Finance requirements • Pre-development finance • Essential to secure planning and buy site • Little or no security • May require £10k-£30k • Development finance • To buy the land/housing and build the scheme • Development seen (unreasonably) as inherently risky • Choice of mortgages for part-equity purchasers • Long term loan financed from rents • Possibly plus rent element on part-equity • Grants to bridge viability gap • Sales/high % sales to meet specific needs and generate income • Dowry/reserve for viability

7. Appropriate financial instruments High chance of repayment Fixed assets, “hard development capital” Secured loans Unsecured loans (“mezzanine”) Working Capital Low Risk High Risk Sunk costs, “soft development capital” Equity Grants, donations, gifts Low chance of repayment

8. Risk decreases over time, but £s increase Feasibility Pre-planning Financial risk Construction Occupancy Time

9. How best to fund your scheme High Risk Grants, donations, equity Work at risk Gifts in kind Mezzanine debt Senior debt Low Risk Feasibility Pre-planning Construction Occupancy

10. Some finance options • Banks • Prefer large schemes but not to be ruled out • Building societies • Some large, some small, some local • Few will fund development • Housing associations • Excellent solution if willing • Local authorities • Repeatable/sustainable? • Community finance • New, not well understood • Ethical banks • Charity Bank • Intermediaries • Venturesome

11. Proposed facilitation fund • £2m-£5m investment by major charities and others • Aim of maintaining fund indefinitley • Pre-development • Up to £30,000 • 3 tranches • Written off if fails; repaid + 20% if proceeds • Development finance • Up to 30% • Where no MIP in particular but could be any reason • Technical aid • 1.5 days pre-development • 5 days development • Includes “investment readiness”

12. Attracting Investment • Need to show • awareness of the financial risks • ability to manage them appropriately • appropriate finance • Security • Available value @ 1.5x loan • Income stream • Experience either as 3 years accounts; or on Board

13. Investment readiness • Project management • Key people – committed, appropriate mix of skills and experience • Technical management – involvement of professional expertise in key areas • Financial information and management • well evidenced budgets and clear cashflow forecasts including significant contingencies • risks identified and addressed • ownership of the plan • Appropriate financing • factor in risk and appropriate financial / social returns

14. Some sticking points • Section 106 Agreements and “mortgagee in possession” clause • Rental schemes and need for low start finance • Timing of raising finance • Pre-development finance • Initial start-up capital • Reserves and income once in management

15. Holsworthy Devon • Initial grant support • £40k Second Homes Tax • grant from charities • used to meet architectural and legal fees • First scheme: 5 flats over supermarket to be purchased on completion • Had to be able to guarantee purchase to developer even if residents not all in place • Charity Bank/Venturesome loan @ 6.5%/7%, fully repaid in 4 months • Second schemes: 3 part-equity “do-it-yourself” shared ownership using commuted sum

16. Buckland Newton Dorset • Initial technical aid • £7.5k grant cost of setting up CLT (£1k) and initial design • further £25k loan for detailed design and planning approval • WDDC development funding • planners refused mortgagee in possession clause • 70% could have been borrowed from Charity Bank or Ecology BS but WDDC decided direct lending easier • Tenure • 8 part-equity with small (1% of unsold element) rent • 2 rent-to-equity • Mortgages • 3 lenders in place aware of conditions • none have yet agreed link to wages not values • Credit crunch maymean 90% maximum loan • Long term, low start finance • Charity Bank @ 6.5% • interest only paid initially • Ecology BS had offered interest only

17. Chipping Lancs • Brabins Trust existing almshouse charity setting up new CLT with Brabins and other representation • Initial technical aid • Support from Great Places Housing Group for pre-development costs • Further finance • GPHG offer of development finance and long term finance • Development support • Viability • Also needs HC support

18. Key points • Viability: cost equal to affordability target • Think through the risks at each stage of your scheme • address them • finance each stage appropriately • Use professional / technical expertise to help manage risk as early as possible • Keep it simple (if you can!) • reduces risks • easier to attract investors

19. Sources of support • Supportive RSLs • development expertise • finance expertise and access to low cost borrowing (£60b assets) • some retain strong neighbourhood and community focus • HC encouragement as ‘community anchor’ organisations • Development Trusts • development and finance skills; but only rarely affordable housing • CFS • toolkit • website www.communitylandtrust.org.uk • www.clt-conference.co.uk • network: http://www.talk.communitylandtrust.org.uk • Regeneration agencies, LSPs, others?