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Brighton & Hove CLT

Financial performance

With the capital raised from this share offer, BHCLT will buy its first property, which they will lease to SEASALT, a student housing co-operative who they have been working with for the past 3  years to develop the project.

Income from the lease will be used to pay back mortgage costs, interest on share capital, ongoing maintenance and development of the properties and BHCLT's running costs. BHCLT will also use it to generate reserves, which it will invest into future projects to continue to grow community-led housing in Brighton and Hove. As the Society grows its asset base, it will be easier to raise finance to expand and develop new projects.

SEASALT student housing project

BHCLT will be the owner of the property with SEASALT taking on an initial lease of 7 years, with a commitment to extension. The lease clarifies who is responsible for what and timeframes, with the day to day management of the home, the internal (nonstructural) repairs and internal maintenance being undertaken by SEASALT. BHCLT will continue to offer further advice and support where necessary..

Setting the rents

The rents are based on an analysis of the student housing market in Brighton and Hove. Weekly rents are projected at £105 per person, with an annual rise in line with inflation. While this fits into the government definition of ‘’affordable”, as set at 80% of market value, BHCLT recognise that this is still quite high (the Local Housing Allowance, for example, is currently £98.96), and furthermore is predicated on rises and falls in the market. BHCLT's aim is for rents that are genuinely affordable and based on incomes. It is not possible to achieve lower rents with property prices as they stand at the moment.

The model contains relatively high allowances for voids and for maintenance costs, as BHCLT wants to ensure that the property is well-maintained, project well-run and ensure they have allowed enough contingency. After the initial years, if turnover of tenants is low and well-managed, as planned, it will be possible to reassess rent levels.

Ongoing costs and headline figures

Ongoing costs for managing the property have been decided in partnership with SEASALT and drawing from organisational knowledge of setting up and running housing co-operatives. They include 8% allowance for voids, £6000 annually budgeted for repairs and maintenance (with an additional £6000 allocated every five years for emergency repairs), insurance, and overhead/admin costs for both SEASALT and BHCLT. As this is the first project, BHCLT will reassess the budget in the initial years and reallocate expenditure if necessary.

The headline figures also include mortgage repayments and 3% annual interest payable on community shares (set at the minimum target raise).

The table below shows the overall project cost for the first five years, including both BHCLT and SEASALT expenditure. The overall BHCLT financial projections and cash flow position show the income to BHCLT through the lease and the expenditure that falls within its field of responsibility. It also models the projected 5% annual withdrawal of community shares.

How the project is funded

Pre-development costs were spent and committed from a combination of funding sources including: BHCLT’s Community Led Housing Programme group support grants; Homes England Community Housing Fund; BHCLT and SEASALT own contribution (including in-kind contribution).

 

Long-term lending:

BHCLT has progressed discussions with Ecology Building Society who are very supportive of the project. From this discussion, they have modelled a mortgage of approx. 80% loan-to value, spread over 40 years. This is initially modelled at a rate of 4% and has been stress-tested over the first 10 years with incremental increases to 7%.

Cash contribution from BHCLT and SEASALT:

Both BHCLT and SEASALT have committed £10,000 to the project outside of other funding contributions. For BHCLT, this funding is ring-fenced from reserves, and for SEASALT it was received in the form of match funding from the University of Sussex. This money is intended to support the cash flow of the project and to deal with any unforeseen expenditure.

Community Shares:

The minimum and optimum target raise is set at £260,000, as the amount required to secure a mortgage on a property and to carry out initial renovation and energy efficiency measures, following the main long-term borrowing from Ecology Building Society. BHCLT has based this figure on its experiences with properties to date. The maximum raise is set at £385,000. If they reach the maximum target, they will be able to fund a higher percentage of the project cost at the lower interest rate of community shares. This will create capacity for increased loan borrowing at a later date, meaning that BHCLT is always able to recycle the lower-interest, long-term capital from community shares into projects at earlier stages.

10 Year Financial projections

The BHCLT share offer document, which can be downloaded from the Ethex site show BH CLT's 10-year financial projections, based on the three sources of income as outlined above. They have modelled these projections at both the minimum/ optimum share offer raise of £260,000 and the maximum share offer raise of £385,000.

The cash balance through the two options is similar. The maximum raise would create more flexibility on the mortgage lending, meaning that when a second property or scheme is ready for capital funding, BHCLT will be able to take out further lending on this property, which will help to support the investment raise on the next scheme.

The business plan, which is also downloadable from the Ethex site, includes the profit and loss, cash flow and balance sheet projections.

 

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