Developers: If You Get Unemployed Tenants Back Into Work, You Can Have Cheaper Debt

Doing good for the world should be an aim for real estate in and of itself. But in the growing world of social impact finance, it can have an impact on the bottom line too.

U.K. housing association L&Q has agreed an innovative £100M lending deal with French bank BNP Paribas which will see it rewarded with cheaper debt if social impact targets are met.

The five-year, £100M debt facility is structured as a positive incentive loan, whose interest rate is tied to L&Q meeting certain social impact key performance indicators.

Under the terms of the agreement, L&Q will benefit from an undisclosed discount on the margin of the loan if it succeeds in getting at least 600 unemployed residents back into work in the first year, rising by an additional 25 residents in each subsequent year.

Through its Independent Lives programme, L&Q undertakes capacity building by working directly with its residents and others in the wider community to develop their employable skills and find appropriate, sustainable jobs.

The loan also includes an option to extend the term by two additional years, as well as the possibility of adding an environmental key performance indicator later in the life of the facility. This will supplement the existing discount available to L&Q if it meets the social impact target.

L&Q houses around 250,000 people in 95,000 homes, mainly in London and the South East. On average its residents pay 50% of market rent or less. The loan will form part of its overall £5B funding package.

“To our knowledge, this is the first ever U.K. housing association loan that incorporates a concrete, positive impact metric,” BNP Paribas U.K. Head of Corporate and Transaction Banking Simon Gates said. “It is the result of close collaboration to conceptualise and structure what represents a landmark deal for sustainable finance in the U.K. We think this is a watershed moment.”

"Everything that L&Q does begins with social purpose, and we believe that no one should be denied the opportunity to achieve their potential because of where they live,” L&Q Group Finance Director Waqar Ahmed said. “Through the L&Q Foundation, we are investing £250M to transform communities and help people lead independent lives. By forging strong relationships with partners, we are able to deliver even greater charitable outcomes.”