Urban renewal may not be the first association the average saver or even fund manager may make with the word “retirement”. But long-term “patient” capital invested in pensions can play an important role in regenerating our cities.
Urban renewal evokes small industrial sections of a city in ruins which are gradually becoming gentrified thanks to the migration of artists who have discovered the place and settled there because the rent is cheap. In the United States, one of the classic examples is Manhattan’s SoHo, with its now-chic industrial lofts. Or Brooklyn, which has seen such a revival that it has become a global brand. In London, Docklands could serve as a comparable example, where urban regeneration that began in 1981 has continued uninterrupted to the present day.
Then there are entire cities that suffered population losses as their industrial centers moved elsewhere. In the United States, places like Tag and HudsonNew York or North Adams, Massachusetts, come to mind. Native American property Camel Rock Studios in New Mexico also reports a transformation of the casino into a film studio.
While new “art corridors” in these places go a long way to revitalizing them, there is so much more that can – and should – fit into regenerating their. Infrastructure for transport and technology. Decent, attractive and affordable housing for residents who find it hard to afford. Support for research, education and innovation, both at the institutional level and for start-up companies. New jobs, some of them maybe in the creative industries. A sense of pride in place – and hope.
Full disclosure, as a major global asset manager, many of our investments are in real assets. In the UK, the $2 trillion in assets under management across our various divisions (including Legal & General Investment Management, Legal & General Capital) represents 1% of the country’s total GDP. We have the economic muscle to orchestrate how these assets are used to make a difference in society.
We have been investing in the built environment and infrastructure needs of society since our inception in 1836. In the modern age there has been a need to upgrade our towns and cities across the UK. As we emerge from the pandemic, it has never been more important to support the recovery of our economy, to stabilize and to rebuild in a fairer and better way than it is now.
For 10 years, Legal & General has been investing in urban regeneration through a multi-pronged, long-term approach we call inclusive capitalism. In the UK, we have developed a number of mechanisms to help it succeed at the investment level, and how, through collaboration between the different parts of our business and with local governments and communities, we we saw huge improvements that eventually spread to a societal scale. This is a model that can be applied in both American and European cities where the development of truly vital city centers is stagnating.
Under the Legal & General umbrella we have businesses driving change through direct property development and through our property asset transactions we are able to look at urban regeneration from many angles. We don’t just walk in and build houses, we don’t just build office buildings: we work to build fully integrated ecosystems in cities and towns. We create new long-term assets using the premiums we receive from pension risk transfers; these assets will further support inclusive capitalism and tackle social issues, such as the housing crisis, health inequalities and urban underdevelopment. Our goal is to work with local partners, communities and authorities to understand the challenges faced and, over five to 10 years, completely transform the city, creating jobs, economic growth and quality of life in these areas.
It is important to note that these projects that we are involved in are what we would consider long term. Very few have a life of much less than 10 years and, in some cases, like our £4 billion (~$5 billion) joint venture with Oxford, it can last for decades. Another project, ID (Innovation District) Manchester, is intended to be a £1.5 billion (~$2 billion) development value vehicle over 15 years. This is achieved through our investment in Bruntwood Scitech, a UK specialist in science and technology driven property innovation districts.
Our urban regeneration division operates with three fundamental objectives: to generate profits for our shareholders, to create assets for our retirement activities and for third-party investors, and above all, to create sustainable value for society through the investments we make. . We embraced science and technology, but also added an “A” for the arts (hence STEAM), embodied in our investment in the new NBC/Universal/Sky Studios at Elstree, near London. This brand of 360 degree urban renaissance is truly exciting and our approach is relatively unique. How do we do this?
Newcastle Helix: How PRT bonuses can support long-term assets and effects
When we receive a premium from pension risk transfers, we strategically allocate this asset and transfer the funds into one of these projects. So far our portfolio of urban regeneration and high growth joint ventures spans 18 cities across the UK. For example, in a long-term project we are working on in Oxford, the rents generated by our new buildings there are then used over the long term of that lease to pay pension holders on the back of the initial PRT transaction .
During the development of the economy, we are also concerned with the social impact of the project. A case study for this would be our Newcastle Propeller partnership where, six or seven years ago, we entered into a dialogue with Newcastle City Council and Newcastle University, who jointly owned what was the old Scottish & Newcastle Brewery, very close to St. James’s Stadium Park, just north of downtown. This site had suffered, like many sites in industrial towns in the north of the UK, overshooting its target but not really having the value within it to find sustainable, speculative and regenerative development.
We started to consider a partnership approach where we would actively invest in the site. We worked with the town hall, which took an emphyteutic lease on an office building that we developed for them. Then we committed to speculatively developing the next phases of a larger plan. As part of this program, and supporting our belief that science and technology is vital to the economy, Newcastle University has also developed two national innovation centres, one for data and one for aging, and a large faculty for urban sciences.
Working with us, the council developed further buildings around the brewery site. We are currently building a hotel, we have already delivered accommodation and we plan to have construction units for rent on the site. This post-industrial wasteland of 10 hectares, which had no use and could not be grouped in a coherent way, was energized by the strength of the partnership. We’ve seen many factions come together in equal parts to regenerate the city, and the project is now about 70% complete, with new collaborations happening there all the time.
Newcastle Helix is pedestrian friendly and becomes a true community. The fact that it was co-designed and planned, with many different and mixed-use buildings, goes against the historic town plan, where you had a central commercial core with a donut of residential buildings around it. In the case of Newcastle and many of our other urban regeneration initiatives, collaboration brings it all together in a thriving community, along with recreation and amenities to improve people’s quality of life.
Could this collaborative investment model work in the United States?
We believe there will be opportunities to extend this approach to the US, where there are many similarities to the UK property market. In fact, we recently announced our first such initiative in America, Ancora L&G, a company that will develop commercial real estate for the biotechnology and life sciences industry. The model itself is highly portable and our UK delivery track record should serve us well in carrying out these types of projects in all US geographies.
Our opportunity pipeline for city and town center regeneration projects tends to be quite large, as this approach yields the most benefits when done at scale. We do not confine ourselves to a geographical concentration or to a specific area. Instead, we’re looking to work with like-minded partners, identify places where we think we can have a fantastic relationship with perhaps a local authority and community, and really deliver high-quality property assets. .
The idea of using company capital for the benefit of society really means working across the country, not just in high-value locations that might traditionally be considered where a real estate business should focus its activities.
Any new urban regeneration project should meet the financial criteria of what we need, but it must also create a broader social objective. We are looking for this opportunity to raise more boats, which usually involves a partnership with a local authority.
From there, we craft an economic structure that creates a virtuous circle from investment incentives to shareholder returns, while improving community life.
We want our projects to support growth and responsible business, which leads to safer, healthier and more creative communities and environmental improvement.
Wes Erlam is Director of Urban Regeneration at Legal & General Capital, one of the UK’s leading financial services groups and a major global investor, with international operations in the US, Europe, the Middle East and in Asia, with some $1.8 trillion in assets under management.