Nightingale growth set to explode with $300 million finance fund
Tina Perinotto | 29 March 2018
Exclusive: Nightingale Housing is set to leap out of start-up mode to full scalability with a new fund that promises around $300 million in finance.
The surge in financial clout for this innovative social and environmentally sustainable housing model, which has taken the development world by storm, has been crafted by an enthusiastic bunch of supporters.
They range from a social finance organisation, Social Enterprise Finance Australia (SEFA); National Australia Bank; and Brightlight, an institutional advisory organisation whose chief strategy officer Sam Richards was previously chief operating officer of Goldman Sachs Asset Management and Christian Super.
According to the model’s progenitor, architect Jeremy McLeod, the finance could enable the model to be self-funding.
“This is a game changing piece which interestingly is made possible by financial institutions working together – SEFA, Christian Super, then Brightlight and NAB,” he told The Fifth Estate on Thursday.
It could mean “we will never have to go to the bank again”.
Anticipated investors in the Brightlight-crafted fund include super funds, private equity and banks.
The new model originated in funding of the current Nightingale projects, whose designs are driven by end buyers, preclude investors and dispense with parking and private laundries in favour of community gardens on roofs and housing that is environmentally sustainable and community focused.
“SEFA put together the finance for Nightingale 2, working with the NAB social innovation team and found a way to finance it outside of standard construction finance,” McLeod says.
The NAB team, led by associate director Katherine Leong, looked at the project from a “totally different perspective” – as construction finance for housing rather than development finance.
It was refreshing to meet innovative bankers, McLeod says, “people who care about the outcomes.”
McLeod, who it turns out, has been working on this dream model since 2007 (interrupted by the GFC), says to get Nightingale 1 up and running involved dealing with 34 lending institutions, an exercise he now politely describes as “incredibly challenging”.
Nightingale 2, though, had an easier ride and finance was sorted out “immediately and at a really good rate”.
Now the team is working with Brightlight, which is the fund manager working with Christian Super (whose tagline reads “super that’s changing the world”).
Hanna Ebeling, head of portfolio management for SEFA, told The Fifth Estate on Thursday that SEFA was able to provide $6 million in finance via a lending syndicate with Social Ventures Australia & Christian Super to Nightingale 1.
SEFA provided $900,000 in mezzanine finance (subordinate debt) for Nightingale 2, alongside NAB which provided the senior debt. For Nightingale 3 SEFA was investing $3 million.
Now, because of the speed of growth, the concept had outgrown social finance capacity.
So SEFA introduced NAB, which provided a $100,000 grant to explore more “scalable” finance solutions, resulting in the $300 million fund, developed by Brightlight, that makes the model replicable and enables it to fund itself in future.
Ebeling explains that subordinated debt is that “slice between the equity and the larger Brightlight fund” that provides the “glue” that enables Nightingale to access institutional funding. Subordinate debt means in the event of failure it ranks under the senior debt provided typically by the bank, but ahead of equity in any payout distributions.
“Really it’s around collaboration and finding new structures within a robust financing ecosystem.” Ebeling says. “It still has to be robust and well thought through.
“It’s trying to deliver innovative new angles on a traditional financial approach.”
In many ways it’s not surprising that McLeod is now on a roll. Numbers talk. The model now has 13 “live” projects in Melbourne and one in Fremantle. Other cities, especially Brisbane and Sydney, are searching hard for either the sites or the site-buying model that will work to make Nightingale not just environmentally excellent but affordable as well. That’s the twist and that’s the appeal.
At last tally the waiting list was at 5200 people. About 800 people interested in the model turned up in recent weeks to information sessions on the model.
McLeod says there was a line of developers, builders and architects joining the queue every Thursday morning (at 10am) to walk through one of the projects and see for themselves what the fuss is about.
Other developers are also following the Nightingale model with most of the features replicated, albeit with car parking (which Nightingale typically avoids) and no capped profits (which Nightingale does cap).
But that big waiting list is not something McLeod is proud of.
“When we had 125 people on the wait list and we delivered 20 apartments it felt pretty good. But now we feel the pressure and it’s quite a burden about how we deliver housing.”
So what’s driving the shift in funding support?
McLeod says, “The people working in the financial sector have for a long time had to answer to shareholders, and what we’ve seen is there has been an incredible awareness around impact investment, that you can get financial returns and social and environmental returns simultaneously.
“And isn’t it interesting that if you think about the future of housing in Australia, investing in something that is going to give an environmental and social return actually de-risks your investment.
“So if you think about it from a risk return point of view, it makes so much sense to invest in something meaningful that people want to live in.”
And to prove the model has ethical teeth Nightingale Housing recently handed back $109,000 of unspent construction contingency money back to Nightingale 1 owners.
Not many developers do that.