The LGC and PGGM partnership aims to help address the UK housing crisis by increasing the supply of new homes. The UK does not achieve its minimum house building target – building only around 50% of its 250,000 annual requirement, forcing a higher proportion of its population into sub-standard rental accommodation.
In America and Europe, fully fledged institutionally funded and managed rental property markets have developed to increase the supply of homes, lower prices and provide better quality products and service. In the UK the rental market is different, due to the lack of supply of quality homes, and its cottage industry nature. LGC plans to disrupt the status quo of ever increasing rental rises by investing long-term institutional funds into building new homes to rent at scale, and by developing a UK institutional rental market.
Paul Stanworth, Managing Director of Legal & General Capital, said: “The UK rental market, compared to the US and Europe, is dysfunctional, with ever increasing rents and increasingly poor accommodation. For this to change, and renting to become more affordable, we need to invest in the ‘new’, and build new homes to rent, and just stop inflating the prices of old housing stock. At Legal & General we’re going to play our part by disrupting the market, and invest significant sums of long-term institutional money to build new rental housing, and develop a UK institutional rental market.”
The partnership signals a different approach in addressing the UK Housing crisis – long term capital will now be building and owning assets in scale, for the long term. The developments will be purpose built, and of high standard to suit institutional investment. The sites will help urban regeneration, and incorporate modern green design and infrastructure. The partnership has been seeded with three Build to Rent development schemes; Bristol, Salford and Walthamstow, forecast to deliver over 650 homes. It is also in detailed discussions on the acquisition of numerous sites, all situated in well-connected urban locations where there is strong demand.
Mathieu Elshout, Investment Director Real Estate at PGGM commented: “Investing in residential is the perfect long term real estate investment, as it provides a relatively high income security and diversification relative to other sectors. This partnership allows us to build and own good quality residential assets in the UK at scale, with a high degree of control over our investments.”
“As a responsible investor we believe that we have an obligation to contribute to a sustainable world. We can do so via impact investment, or investing in solutions, as we call it. This partnership not only addresses the supply/demand imbalance, it also aims to improve the UK’s built environment; acting as a catalyst for wider urban regeneration and creating rental stock in sustainable urban schemes centred around key transport hubs.”
LGC’s partner, PGGM brings substantial intellectual property to the joint venture – having invested in Built to Rent housing for over 40 years. It currently owns close to £3 billion of residential investment exposure through its strategic partnerships in the Netherlands and the US.
The investment supports LGC’s ambitions to increase its direct investment exposure to housing and create Build to Rent as an institutional asset class – investing Legal & General’s balance sheet capital to achieve high quality risk adjusted returns. While also building Legal & General’s franchise through the creation of attractive long term investment opportunities for Legal & General’s Retirement and LGIM’s pension fund clients. LGIM Real Assets will act as asset manager to the partnership bringing its significant experience to this relatively new asset class.
Legal & General Capital
Legal & General Capital (LGC) focuses on direct investments in four key sectors: UK Housing, UK Urban Regeneration, Alternative finance and Clean Energy. These reflect our aim to invest for the long term in economically and socially useful assets, to secure competitive returns and to create new asset classes for Legal & General’s varied investment requirements, for our partners and for the wider marketplace. We work closely alongside other businesses within Legal & General to ensure the broadest range of skillsets are deployed on any project and to utilise principal investment and asset management synergies across the Group. Investments to date have included CALA Homes (housebuilding), Media City/Salford (urban regeneration) and Pemberton (Alternative finance).www.legalandgeneralgroup.com/
PGGM is a cooperative Dutch pension fund service provider. Institutional clients are offered: asset management, pension fund management, policy advice and management support. On December 31, 2015 PGGM had EUR 183.3 billion in assets under management. The PGGM cooperative has approximately 700,000 members and is helping them to realize a valuable future. Either alone or together with strategic partners, PGGM develops future solutions by linking together pension, care, housing and work.www.pggm.nl