Dolphin Square Foundation
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11 Belgrave Road
London SW1V 1RB
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Partnering with Developers,
Housing Associations and Managers

The profile of properties in the City of Westminster where DSF conducts the majority of its activity is that their value generally exceeds their cost to a very significant degree. In considering opportunities over the last three years and notwithstanding the credit crunch, which has played into DSF’s hands, projects proposed to DSF at retail prices have consistently proved too expensive to be acceptable to it and meet its running yield criteria of a 3% to 4.5% running yield and its total return criteria of 6% to 8%.

As a result, DSF has resolved to move ‘up stream’ and, after much deliberation, is ready to accept development risk to a certain level. In so doing, it expects to retain the developer’s return associated with the risk it accepts.

It does not intend to monetise its developer return, but by accepting the relevant risk and not having to pay the return, it will achieve a lower cost of acquisition. This is even more important as with its focus mainly on the intermediate market and Westminster City Council’s need to house key workers at levels well below the £60,000 generally known threshold  it must accept rents which are as low, on occasions as 35% of market rent.

DSF is however restricted in the risk it can take which must be limited to capital risk. It perceives the occupancy risk in a development as the capital risk and is ready to accept it. It cannot however accept any delivery risk and so needs a partner in development able to accept full cost overrun and timing risk, shielding DSF from it completely.

In addition to sharing development risk, DSF cannot take management risk and would look to its partners to manage the building and indeed the relationship with the building residents on a day to day basis. While DSF is delivering affordable housing in creating homes which are supported by government grant, the process of obtaining grant is burdensome and DSF does not intend to increase its staff to do so, wishing to keep its operating costs to the minimum in pursuit of public benefit. The result is that while DSF will own property in which it invests, it will grant leasehold interest of such length as enables its lessee, if so authorised by the HCA, to apply for grant funding. That funding, once received, is paid to DSF as a premium for the lease, it grants.

Generally, DSF will work with housing associations who in turn would manage the property for the duration of the lease they hold. Appropriate fixed or variable fees would be agreed according the risks borne by each party arising from the management activity. The occupier’s legal interest would be granted out of the lease held by the housing association. In the event that the occupier buys out the interest, then in addition to rents paid up to DSF, the proceeds of the sale would be paid up as well, after the deduction of such profit share as may be agreed and the grant which would be recycled by the housing association in the usual manner.

In developments where DSF has an interest, it would expect to fund its share of the costs of construction as the contractor’s monthly valuations are issued. That funding would be interest free subject to DSF being satisfied that the net return to it from its share of the development would be sufficient after its cost of funding.

DSF would be interested in considering both fully residential and mixed use schemes. In the latter case, if the dynamics are appropriate, it would consider acquiring all the residential accommodation, both affordable and private. In this respect, DSF has a target in delivering a minimum of 60% of homes, in which it is involved, as intermediate affordable, with a maximum of 40% private sale/rental.

Again DSF welcomes approaches from developers, housing associations and others who wish to consider with it the delivery of affordable homes for those living or working in Westminster.