What does the company do?
Pax Apartments is a project company setup by Octevo Housing Solutions Limited (“Octevo”) to finance and build social housing.
Octevo, 100% shareholder of Pax Apartments, was set up in 2016 to identify and develop affordable housing using a business model designed to address the core procurement and funding barriers faced by a number of registered social landlords and some local authorities. Rather than requiring them to take on and fund the predevelopment, planning and construction risks and costs, Octevo would take on these costs and build and own the properties in return for a long term lease that should secure long term rental revenues for Octevo. This model is designed to allow private funding to increase the amount of small-scale, quality affordable housing for long-term social use.
Octevo’s objective is to build quality affordable homes that its registered social landlord or local authority partners will lease on a long term basis. In the case of this development, the leases are packaged up with one registered social landlord and will be effective for 50 years. A registered social landlord must abide by the UK’s regulation of social housing, which includes a cap on the amount of rent it can charge for affordable housing. Once the properties are built, the registered social landlord pays a single monthly rental amount in respect of all the homes and will manage the sourcing of, and ongoing relationship with, tenants (usually individuals and families on local authority waiting lists). It will be responsible for the ongoing maintenance of the homes as well as the collection of rent.
Why did the company raise money?
Pax Apartments raised funding to refurbish and fit out a building with 33 apartments. The property, for which Pax Apartments is the leaseholder, is in the Ropewalks area, within the Riverside ward of Liverpool, just south of the city centre. The original building, formerly warehousing and latterly offices, has been totally stripped back to its original structure and refurbished using quality materials and fittings. The layout provides spacious communal areas and good levels of natural light for all the apartments. The properties have been extensively refurbished in a contemporary style with quality fitted kitchens and bathrooms throughout and will be let fully furnished. The building will make 33 homes available for affordable and supported living. The owner of the freehold property and building is Hope Street Properties Limited to which Pax Apartments pays ongoing rent.
How does the company expect to repay the investment?
Octevo’s original model to repay investors was to look to sell the long-term rental income from the properties developed by Pax Apartments (either on its own, or packaged with the rental income from other properties being developed) to a large investor, such as a pension fund. In exchange for an upfront lump sum, the ‘new’ investor receives the rights to the rental income after costs for the remainder of the life of the lease. This upfront sum would be used to repay investors.
How is the company making an impact?
The UK has a shortage of suitable housing and in particular, a shortage of affordable housing available to people on social housing waiting lists. Octevo’s business model is designed to remove the barriers that are constraining registered social landlords and local authorities from delivering the number of new homes needed, and rapidly scale the the access to affordable, and high quality, homes.
Investment status
This investment was originally expected to be repaid on 30 June 2021. However, due to delays in completing the property portfolio, principally due to the knock on impacts of Covid and associated lockdowns, the company was unable to make the repayment and interest payment due on the original maturity date.
With the agreement of investors, the investment was first extended until 31 December 2021 (with the interest rate rising to 10%) and then further extend to 30 June 2022 (with the interest rate rising to 13%) to give the company more time. The original directors of Pax Apartments were unable to deliver their plan within the extended period and Octevo Housing Solutions is now in administration.
The new directors of Pax Apartments are exploring the option of selling the long-term rental income from the Pax Apartments properties alongside other properties developed by Octevo. Please see the Updates section for the latest news on the directors' efforts to return money to investors.
Key terms
Interest is paid every 6 months with the capital repaid as a lump sum on the maturity date.
This investment has first ranking security over all of the assets of Pax Apartments under a package of security documents including:
- a security agreement (including fixed charges and a floating charge) over all of the assets of Pax Apartments
- a share charge over the shares of Pax Apartments
- a security assignment of contractual rights granted by Octevo over certain documents.
As Pax Apartments does not own the building itself, the security does not include the building nor the freehold of the land.
The company can choose to repay the investment at any point from and including 30 June 2020, subject to paying an early redemption fee equal to half of the interest that would have been due between the early repayment date and the original maturity date, 31 December 2020.
See the Debenture Deed for details of all circumstances in which the option for early repayment may be exercised.Documents
Payment schedule
This table gives a breakdown of what is due to be paid back on this investment, based on an example investment of £1,000.
| Payment date | Capital repayment | Interest | Total |
|---|---|---|---|
| 31 December 2019 | £0.00 | £39.12 | £39.12 |
| 30 June 2020 | £0.00 | £34.90 | £34.90 |
| 31 December 2020 | £0.00 | £35.28 | £35.28 |
| 30 June 2022 | £1,000.00 | £156.93 | £1,156.93 |
| Total | £1,000.00 | £266.23 | £1,266.23 |