Whilst there is ongoing talk in the market around M&A activity to achieve growth, a viable alternative is strategic partnerships.
The pressure to build more homes brings added competition and whilst mergers between providers can deliver economies of scale they do not always bring the right product expertise.
Joint ventures and strategic partnerships can provide this. One-time rivals in this space can collaborate to unlock opportunities that independently wouldn’t be worth the risk.
We’ve observed partnerships divisions emerging amongst Housing Associations that are keen to capitalise on a more efficient growth model – but are they sufficiently resourced to manage such risks?
The reality has been that employing the right people to lead this area is proving a challenge for the sector. We are often called upon to assist when a direct search has failed and recent searches in this space have revealed there aren’t many organisations in the sector that have seen a joint venture through from start to finish.
The skill set differs from those who are used to managing an off the shelf solution like a Section 106 or design and build contract. And typically no two partnership structures are the same. Consequently there is a need for those commercially astute enough to advise on the best model and partner for each scheme. An entrepreneurial mind set is needed along with substantial appraisal experience if Housing Associations are to hedge against each unique framework of risks.
For Angela Wood, Regeneration & Partnerships Director at Peabody Group, once selected the partnership must also be underpinned by the right legal structure, ‘Finding the right partner is essential; each needs to see the value that the other brings. Getting the structure right can vary from a simple collaboration agreement to an LLP or SPV.’
How each partnership is structured subsequently dictates how involved the Housing Association partner is. Asking your existing team (who may have never managed a joint venture before) could also prove a challenge in this respect.
Choosing the right partner
Prospective partners will not always bring the same value to the table. Housing Association’s with established technical, commercial and sales teams can therefore dictate the terms of a partnership a lot more than they used to.
Being clear about the division of labour will in turn dictate the experience needed, as Angela explains;
’It’s really important to clarify the roles of each party – including who is best placed to lead on each element of the development process. This can vary from scheme to scheme depending on complexity and relationships with local authorities and the HCA.’
Attracting those capable of orchestrating the right mix of partners to align with your own business goals could prove shrewd investments themselves. But given they haven’t existed in the sector until this point, where do you get them from?
Real estate consultancies offer financial modelling expertise, a valuable cross-sector network and a commercial view of the residential market. Housebuilders and developers with Partnerships businesses will know the sector and will have been delivering the JV model for longer. Construction companies and main contractors may not spring to mind immediately, but they will have a thorough understanding of how to implement robust commercial processes that shield Housing Association’s from risk.
This comes at a cost but with a clear return on investment.
Depending on the location of your business and output required, a £90,000 – £120,000 basic salary plus a modest incentive plan will attract someone of the required calibre and track record although they will need help in being on-boarded to the business.
For Philip Browne, New Business & Partnerships Director at Clarion, essential to the success of each partnership is a focus on shared values. ‘For us the right partner will have aligned values and objectives. It is important to develop a strong relationship so the inevitable compromise will be more easily achieved. We do this through good communication, building trust and understanding each other’s drivers.’
Our view is that a focus on shared values must extend to the hiring of staff directly. Those who don’t possess this will not last long but those who do can have a transformative impact on your business.