Catherine Webster has spent much of her 30-year real estate career “ashamedly” turning a profit for businesses. But in her new role as chief executive of PfP Capital, Places for People’s residential and urban regeneration fund management arm, she has found a way to revel in a shame-free, unapologetically capitalist approach.
When EG spoke with Webster at this year’s MIPIM conference in Cannes, she was three months into leading a subsidiary that channels its profit into its £5bn parent social enterprise to maximise its impact. It owns and manages 230,000 homes, 75,000 of which are affordable.
It is a structure that Webster had not encountered before, having held senior roles for the past few decades at the likes of Lone Star affiliate Hudson Advisors, TIAA-CREF and Lehman Brothers Global Real Estate, on different risk-profile strategies across sectors. Most recently, she was executive director for strategy and investment at Quintain.
“I spent most of my life in capital markets of some description and ashamedly making a profit,” says Webster. “If we make a profit for the group that then goes back to create more social value, how can that not be the best thing? So, unashamedly capitalist, but for good reasons.”
That perspective is amplified by the housing sector’s need for institutional investment, says Webster, who is also co-chair of the Creative Land Trust. Government grants are limited, she says, housing associations are allocating most of their financial resources to tackling building safety issues, and housebuilders typically cater to individual buyers.
For Webster, PfP’s model offers a more encompassing route to social and market value growth. She underlines that, unlike other providers that seek partnerships with institutional capital, it is the only housing association registered provider that has an FCA-regulated fund management group to bring capital in, from institutions of various sizes.
“They don’t have to be just the big guys – you can bring smaller people into the market,” says Webster. “There’s a fascinating opportunity to try and bring that agglomeration of capital in to work on both the social and the market value.”
An investment smorgasbord
The fund management arm is targeting £2.5bn of capital within five years, having amassed more than £600m. Clients include Strathclyde Pension Fund, Nationwide Pension Fund and the Universities Superannuation Scheme.
New fund strategies are underway on shared ownership, community infrastructure, student accommodation and further affordable housing. Its existing three strategies focus on the private rented sector, affordable housing in Scotland and mixed-tenure housing stock.
The circa £330m PRS strategy, a joint venture with USS, generates returns in the high single digits, while its £200m Scottish social housing strategy produces mid-single digit returns. Seed partners have invested £80m as well as debt into the third, which is value-add and targets mid-teen returns.
Webster plans to grow the offer to a “smorgasbord” of core, core-plus and value-add portfolios. She adds that PfP Capital is holding “some really interesting conversations” with other housing associations that are exploring alternate funding options.
“We don’t want to grow and be volume for the sake of volume,” says Webster. “What I’d really like for us to end up being is somewhere you can pick strategies [from] across the range, from student to build-to-rent, to later living.
“It can be affordable, or market value, and it can be assets that we’ve bought in the open market, [from Places for People] or other housing associations, so that people have that complete smorgasbord as to what they can do.”
Ultimately, Webster sees the potential for PfP Capital to act for the affordable housing sector across the board, beyond just the parent group.
“If we can do it so that we are also the fund management group, not just for Places for People, but for the social housing sector, that would be superb,” she says.
Delivering homes
More broadly, Webster notes that the residential sector has stayed resilient, having experienced a smaller correction in Q4 last year than many of its real estate counterparts.
“Residential tends to be a bit more of a ‘steady Eddie’,” she says. Investor interest is also robust, she adds, as more seek to diversify away from commercial.
However, the market continues to be underpinned by a vast housing shortage. Britain has a backlog of 4.3m homes missing from the market, according to recent findings by Centre for Cities. To tackle that, 442,000 homes per year will need to be built over the next 25 years. The government’s target, which is not being met, stands at 300,000 per year.
The industry can work together to boost supply, according to Webster. This could involve more housebuilders developing mixed-tenure schemes from the outset that can be forward-funded, rather than offloading new-build homes for rental in bulk to housing associations at a substantial discount.
As such, PfP Capital is in talks with housebuilders about partnerships that can bring developments forward. “There are portfolios that we’re buying from housebuilders, but what doesn’t work is if it’s gone through the process and then they have to take more of a discount than they actually want to,” says Webster.
In addition, the government needs to do more. Now that its Help-to-Buy scheme has ended – which Webster expects to have a “massive effect” on the market – more initiatives are required. While she understands the “fixation” with home ownership – especially as a homeowner, herself – she says new types of tenures need to be devised.
“I’d like to see them come up with something else,” says Webster. “I’d love for it to be ‘help to rent’, but I’m not sure how that would work.”
Having a meaningful post dedicated to housing within central government would also be helpful, says Webster.
“The bit that we’re always upset with in the residential industry is the fact that we get a housing minister every 3.5 seconds,” she says, adding that, besides Homes England, there is no long-term government postholder thinking about ways to stimulate the market.
Social and financial returns
There is an enduring perception that positive social impact is delivered at the cost of market-rate returns. For Webster, there is not a trade-off. However, the complexities arise in demonstrating the social impact of an investment, beyond the City’s language of monetary terms.
“When we talk about social value and impact, people equate those words to a discount on returns,” says Webster. “It’s additive. We get financial returns and on top of that, you can get social returns. The confusing part is the impact. It’s not philanthropy and it’s not taking de minimis, charitable-type returns.”
While Webster understands why the industry is “obsessed” with showing the pound signs behind social value, being from a financial background herself, she points out that several aspects are not measurable. However, she cites other ways to demonstrate impact, especially within the supply chain.
Using local suppliers, employment and apprentices can be factored in, as well as ensuring that local communities will benefit from a project.
“Making it standardised is the issue,” adds Webster. “But as long as people are very clear about how they’re doing it, [they] should be able to show it and hopefully avoid whatever the equivalent of greenwashing is for social impact.”
There are also ways to ensure social value is a thread that runs all the way through a project’s lifecycle. Webster highlights that Igloo Regeneration, the development manager that PfP Capital acquired within her first month as chief executive, engages with the community before the planning stages.
“Being vertically integrated means that the vision you started with is hopefully – unless you change your mind halfway through – what you’re going to end up with when you’re long-term managing it,” she says.
In the meantime, keeping up with the rapid pace of change around ESG in the residential sector is essential. To stay on top of it, PfP Capital is working with consultancy Hillbreak to ensure it is at the “vanguard” across the company as well as its funds. The outcome of that project is expected later this year.
“We will keep coming back to making sure that what we’re doing is appropriate,” says Webster. “There’s that phrase: ‘Do what you do well and when you realise it can be better, do better’. That’s what we’re assigning ourselves to.”
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