Fast money, slow money

Rebuilding Canning Town

Our participation in the English Cities Fund (EcF) has enabled 650 new one and two bedroom apartments to be built in Canning Town as part of a wider £3.7 billion urban regeneration plan. The ‘Rathbone Market’ project is a flagship project which delivers new homes in a mix of tenures, including affordable homes.

Why investing slow money is important to us

Our long term funds, especially our £44 billion annuity book, can invest money over a very long time horizon, sometimes as much as 30, 40 or 50 years. This provides us with an opportunity to increase the returns on shareholder assets. This shareholder capital is currently invested mainly in traded assets such as equities, cash and bonds. However, there’s significant scope to move this solvency margin into higher returning long term investments as we build our direct investment capability.

Rebuilding Britain and getting the economy moving

Our strategy is to gain attractive returns by investing in sectors vacated in recent years by banks, hedge funds and private equity. Areas such as housing and urban regeneration have the potential to give us stable revenues and good long term returns. This also supports competitive pricing for our customers and enables us to be economically and socially useful by providing infrastructure funds to rebuild Britain. Many regions outside London and the south need new investments in homes and infrastructure, creating new jobs and stimulating local business growth.

Legal & General... has a range of initiatives across the country, working in partnership in public and private, to help rejuvenation.”

Lord Heseltine, July 2014

Overcoming Britain’s housing crisis

The UK has neglected house building since 1979, falling from post-war highs of 400,000 a year to barely 125,000 homes a year. Campbell Robb, CEO of Shelter, said when submitting their entry for the Wolfson Economics Prize: “soaring prices and years of rock-bottom house building have pushed the housing market to crisis point.” We need to free up more land for building and invest in all housing sectors. Young people are squeezed out of the market and want more affordable homes, young families need good quality housing to rent or buy, key workers, especially in London, need low-cost accommodation and elderly people want smaller specialist homes, when their physical health declines in later years.

Our work with Places for People and CALA Homes

Our £252 million Places for People investment enabling 7,000 more new homes to be built over the next seven years, is the largest direct investment made by an institutional investor into the affordable housing sector. David Cowans, Group CEO of Places for People said: “The scale of under supply in housing and the need to invest in infrastructure across the UK is central to our determination to develop partnerships with investors like Legal & General”. Our 46.5% owned joint venture company, CALA Homes became a top ten UK house builder with the acquisition of Banner Homes in March 2014 and is targeting £800 million of sales by the end of the 2016 calendar year.

This investment from Legal & General is proof that Salford is a successful, growing city. It’s another example of a successful regeneration scheme, which will benefit Salford and its residents.”

Ian Stewart, City Mayor of Salford

Bridging the north-south divide

The north of Britain needs investment through ‘slow money’ to avoid missing out on the economic recovery. Because big successful cities drive economic growth, we need to get our cities rebuilt and regenerated. Greater local decision-making will enable investment in projects that provide a platform for growth. We also need to invest in skills, especially in the high tech sector and improve transport infrastructure. Greatly improved rail transport and better airports outside London and Manchester will stimulate local economies. Our future strategic aim is to invest more of our slow money in projects outside London and the south.

Creating better student accommodation

The National Union of Students says that: “more than three-quarters of students live in poor accommodation”. To help solve these problems we’re already funding a pipeline of over 17,600 housing units for students, investing over a billion pounds in places such as Greenwich, Aberystwyth and Hertfordshire. Our 1,014 unit, £90 million Mayflower Plaza development for the University of Southampton opened in 2014 and means that students enjoy high quality housing in a city centre site, with good access to transport links. It also frees up homes for families elsewhere in the city.

Vimto Gardens development (photo)

Regenerating Salford

Our work with English Cities Fund

We’ve invested our ‘slow money’ into English Cities Fund and worked with local councils in Salford, Liverpool, Wakefield, Plymouth and Canning Town to regenerate some of the UK’s most important city centre sites. In Salford, our investment is part of a partnership that will create around 11,000 new jobs, 2.37 million square feet of commercial space, 849 new homes and 390 hotel rooms.

New homes, jobs, offices, retail and leisure space and improved infrastructure, like the delivery of the Ordsall Chord, will create a sustainable transport hub in Salford Central Station and will support the city going forward. The 97-home Vimto Gardens development, was built on vacant land around Salford Central Station and the riverbank opposite Manchester’s successful business district of Spinningfields. The north has sometimes lost out on any economic recovery. So we’re playing a meaningful role in bringing about major regeneration and helping to bridge the north-south divide.

From 2004 to 2013, for every 12 jobs created in the south, one was created elsewhere.”

Centre for Cities, Cities Outlook 2015

Investing in care homes

A recent report from Demos estimated that retired people own £1.3 trillion of the UK’s housing equity, with a projection that 3.5 million of them want to move to more suitable smaller homes to free up income or improve their quality of life. While the government wants to enable more elderly people to stay in their own homes as long as possible, we also want to help elderly people who need a greater level of support by helping establish better quality care homes. We’ve invested around £220 million in the care home sector, acquiring units let to Care UK and Methodist Homes.

MANAGING THE RISKS

Long-term investment in infrastructure through commercial lending inherently exposes us to the risk of loan default. We have over the years, through Legal & General Property, built significant expertise in property markets, and combined with our credit capability, we are able to assess the risks of each transaction and the quality of security that we may take.

£15bn

Direct investment programme with £5.7 billion invested to date

Places for People: £252m acquiring 4,000 homes, building 7,000 houses, 50-year lease

Transport and logistics: £320m, maturities to 30 years

UK investment programme map (map)

Aberdeen International Business Park: £127m investment, 335,000 square feet of office space

CALA Homes: £210m investment (47% stake), further £200m for Banner Homes

English Cities Fund schemes in Liverpool, Plymouth, Canning Town, Salford and Wakefield: over 5.4m square feet of mixed-used space, brownfield land

English Cities Fund schemes in Liverpool, Plymouth, Canning Town, Salford and Wakefield: over 5.4m square feet of mixed-used space, brownfield land

Royal Liverpool University Hospital: £429m rebuild

Methodist Care Homes: £70m investment, 30-year lease

University of Southampton: £93m, 1,104 beds, 40-year income

Sentinel Housing Association: private placement (registered social housing provider in Hampshire)

Thames Valley Housing: £40m, 25-year facility enabling 500 affordable homes

Hyde Housing Association: £102m investment, 15-year facility

FURTHER READING

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