L&G: We believe in regional development
There is “no fundamental reason” the UK’s regional towns and cities cannot thrive as long as strong partnerships, creative thinking, and bravery are employed to unlock their potential, according to Legal & General.
As the government pursues its devolution agenda, regional towns and cities have an unprecedented opportunity for growth.
Legal & General is among the investors most alive to this opportunity and is active across the North delivering regeneration projects that aim to improve places and the lives of people who live in them.
“We believe in regional development,” said Wes Erlam, managing director of urban regeneration at L&G.
“We have a huge amount of conviction and belief that the regions are a place for investment, a place for regeneration.”
There is no doubt that the North is crying out for investment; rankings for the worst performing places on metrics including house prices, productivity, employment rates, and skills are dominated by Northern towns and cities, according to data from Centre for Cities.
However, end values, whether commercial or residential, coupled with stubbornly high build costs, present difficulties when it comes to getting much-needed regeneration projects off the ground.
It is incumbent on investors like L&G to face those challenges head on, Erlam said.
Strong unions with powerful and experienced partners are non-negotiable if your aim is making a project in the North stack up, according to L&G, whose partnerships are plentiful.
ECF – a JV between L&G, Muse and Homes England – is delivering regeneration projects across the country from Salford to St Helens, while the investor has teamed up with the Newcastle University and Newcastle City Council to deliver the £350m Helix mixed-use scheme in the city.
Access Development Partnership combines the spending power of L&G, Nest, and PGGM to deliver build-to-rent homes, while L&G’s affordable homes arm has received £220m from the Greater Manchester Pension Fund in recent months to address the “acute demand” for discounted homes across the country.
L&G’s approach is about taking the challenges – be it a lack of affordable homes or down at heel town centres – and viewing them as opportunities, Erlam said.
“What we’ve shown is that by working in partnership, we’re able to take some speculative development risk and we can be quite innovative about the use of capital.
“Quite often, what that means in a regional city that might not be viable is you have to be braver.”
Bravery in this context means a willingness to veer from the normal way of doing things, said Tom Roberts, head of strategic investment at Legal & General Investment Management.
“It is about not necessarily just looking for the easy option,” he said.
“[We have] to be creative, to be flexible, to be ready the to adjust our mindset to working with partners to really deliver the best outcomes. We’re always willing to be flexible to deliver the best outcome.”
The result is the ability to deliver in tough markets that might not appeal to others, Roberts said.
“Any development appraisal has been incredibly challenged.
“If you look at the three primary levers that you’ve got to play with – rent, cost, and yield – costs have been increasing, yields have been moving outwards, and rents have generally been increasing, but not at a at a particularly high rate.”
However, he believes the picture is improving and that confidence in demand for the end product is encouraging investors to get on with delivering.
“What we’re noting is that where you can create the right product, occupiers are prepared to pay the equivalent rent that’s required to develop that stock,” Roberts said.
“We often talk about this flight to quality and if you can deliver the product that is truly best in class, in the best locations, occupiers will [pay].”
Getting around the viability challenges that are crippling some in the industry is easier when you have the financial might of an investor like L&G. Its size allows it to take a long-term view on investment. L&G can wait decades for a return whereas smaller outfits might be spooked at having to wait so long for a pay day.
This patient approach provides public sector clients with the kind of certainty they crave, which means that the L&Gs of this world are well-placed to hoover up work.
Since 2020, ECF has secured various large scale regeneration schemes in the North West: a 20-year gig to reimagine St Helens, the £2.5bn Salford Crescent job, and, more recently, the 1,200-home Stockport 8.
Being trusted to deliver these high-profile and transformational projects is testament to ECF’s track record, according to Roberts.
“In the 23 years since it was established, ECF has worked hard to generate a reputation as being an exemplary developer, and I think that reputation is very valid.”
Valid or not, ECF’s success has left some developers’ noses out of joint. Erlam believes the partnership’s recent victories are down to an alignment of visions between client and developer.
“There might be a sense that ECF seems to be picking up many more [projects than other developers], but there will have been a period prior to that when ECF was probably picking up fewer schemes,” he said.
“What ECF does is work out where it can make a difference and then when it decides to bid it goes absolutely strongly for that opportunity with an intent to win.”
ECF is perhaps best known for its work at Salford Central, where it has delivered thousands of homes that achieve rents the city could have only dreamed of 20 years ago, and hundreds of thousands of square feet of office space let to global firms and government departments.
Looking ahead, Roberts believes the partnership can make a similar difference to the market in another emerging city.
“The place that actually excites me the most is Bradford,” he said.
ECF is delivering 1,000 new homes, three new community parks and public spaces, shops, cafes, restaurants, and offices in this year’s UK City of Culture, a project Roberts thinks could emulate much of what has been achieved in Salford.
A young population and the vibrancy that brings makes for an exciting prospect, he said.
“Bradford feels like a really inviting opportunity. I think it is another excellent example of a location that arguably isn’t appealing to the wider development market at the moment, but it’s exactly the kind of area that ECF believes that if we can take those early steps to create product that that is deemed investable then others will follow.”
While undoubtedly one of the most active investors in regional real estate and regeneration right now, L&G won’t say yes to everything.
Local authorities hopeful of the kind of patient capital L&G can provide need to get their ducks in a row.
Meanwhile, combined authority mayors, who act as investment lightning rods for their city regions, should continue to be “as noisy as possible [and] to ask for as much as possible” or else miss out, Roberts said.
“A lack of clarity of the vision for a particular site or location, a lack of civic or local government support” could all turn L&G off, Erlam added.
“It doesn’t work for us to be involved in sites and doing very little for a long time. That that doesn’t work for any investor,” he said.
“If you go to most of the places where we operate, you will normally see physical activity happening.
“We like CGIs, but we much prefer actual buildings.”
Bradford isn’t European City of Culture. That is an international award that has a somewhat higher bar. It is the holder of the rather naff UK city of culture title.
By Jeff
L&G please come and develop Liverpool Waters
By GetItBuilt!
If ECF get massive grants for Stockport, surely it makes a mockery of the procurement process they ran to select a developer! Leaving themselves open to challenge?? Homes England a major shareholder and board members in ECF!!!
By Liv
@Liv 11.09am.Grants are given to most developers to assist with viability and delivery of large scale regeneration schemes and to bring them forward. If HE have an interest in ECF it gives me more confidence that delivery will actually happen and I’m sure the procurement has been undertaken properly given the parties involved
By Mad Hatter
PR puff piece for the eyes of LA’s
By Anonymous
The point on procurement is how can the process be fair if one party is part owned and controlled by the party issuing the grants! No doubt it’s needed but that isn’t a fair contest for developers who don’t have such shareholders and insight into grant giving!
By Liv
Good article here. Thank you. Reading up quite a bit here as I’m a video producer that specialises in manufacturing and industrial sectors.
By Industreel