Legal & General has an appetite for further investment in Wales building on its backing for major projects such as the Central Square regeneration scheme in the centre of Cardiff and Aston Martin’s new car factory in the Vale of Glamorgan.
That’s the message of Cardiff-born Tom Roberts who is head of strategic investment at L&G Investment Management Real Assets.
He is effectively an investment ‘home maker’ for the billions in funds that come under the umbrella of the FTSE 100 financial services giant, which through its early stage capital and longer term funds in the last few years has committed nearly £500m backing the development of Central Square and a new hotel for the Welsh Rugby Union, which will be operated by the Celtic Manor Resort, nearby on Westgate Street.
It also funded Aston Martin’s new factory at St Athan and the Department for Work and Pensions’ new 135,000 sq ft offices at Treforest, taking L&G’s overall investment in Wales in recent years to around £600m.
Its backing for Central Square, a development being driven by Cardiff-based property developer Rightacres, began with its early stage funding of the scheme’s first project in the 1 Central Square office building.
The latest has seen its forward funding for the under construction Interchange scheme, which will see L&G itself being the occupier of the scheme’s 120,000 sq ft of office space, by bringing its current workforce of around 1,800 in the city (currently at Knox Court and Brunel House) under one roof.
The Interchange, which will be ready for occupancy in 2023, will also provide a new bus station for the city and more than 300 build-to-rent apartments for L&G’s Build to Rent Fund.
Mr Roberts, 39, who attended Ysgol Glantaf and lives in Dinas Powys, has a 海角视频-wide remit to develop urban regeneration projects, with Cardiff’s Central Square seen as an exemplar.
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L&G Investment Management (LGIM) Real Assets is effectively the property and infrastructure function of L&G, whose main £60bn annuity fund has a property element of over £5bn.
Mr Roberts said “I am responsible for trying to originate, underwrite and then execute deals for all of our funds. So at Central Square in Cardiff our annuity fund acquired the new headquarters for BBC Cymru Wales and the HMRC, which totalled £200m.”
An example of its early stage funding saw L&G Capital forward funding the 1 Central Square office scheme, now fully let and whose tenants include Hodge Bank and law firm Blake Morgan, with £35m of finance.
Mr Roberts said: “L&G Capital has appetite for slightly higher capital to generate higher returns and at the time of forward funding what was Central Square’s first phase only 25,000 sq ft of 145,000 sq ft had been pre-let to Blake Morgan, but within six months of completion the building was fully let.”
L&G Capital then also forward funded Central Square’s second office scheme, in No 2 Central Square, with £55m; a development which is also fully let to law firm Hugh James and Cardiff University’s School of Journalism.
With longer-term funding L&G financed the new headquarters for BBC Cymru Wales and the HMRC at Central Square with a combined backing of £200m.
Mr Roberts said: “With the Interchange another £140m and the WRU [hotel project] as a sort of sixth phase of Central Square with a phase six, that takes our commitments to £475m.”
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While L&G is expected to hold the BBC, WRU, Interchange and HMRC property investments for the long-term, the 2 Central Square office building was subsequently sold to Credit Suisse, while Luxembourg-based real estate manager Aerium acquired 1 Central Square.
On the WRU hotel project L&G provided finance of £45m and for the new DWP offices at Treforest £52m.
Forward funding of the BBC been the end of L&G’s investment story, but Mr Roberts said the vision of Rightacres’s chief executive Paul McCarthy for a phased development approach to provide one million sq ft of new office, retail and residential space at Central Square, ensured a deeper and longer-term relationship.
Mr Roberts said: “Paul’s vision is brilliant and as someone from Cardiff I think it is amazing for the city and I am hugely proud to have had some involvement in that. So, credit to Paul who not only had the vision to deliver, but also attracted some major occupiers. The BBC is the most obvious, but there are so many occupiers as well who have shared that vision after Paul sold the dream of Central Square.
“I first met him back in August 2014 when Rightacres were on the shortlist for the BBC requirement along with some other sites and immediately knew it was going to be a good fit for our annuity fund.
“And it has just gathered momentum from there as initially we were going to look just at the BBC [funding], but that coincided with the emergence of our urban regeneration requirement which allowed us to look at multi-phased projects. It was almost as if that requirement was designed for Central Square in the sense of needing to partner that short-term capital with long-term capital to generate transformational change.
“There are few locations in the 海角视频, outside of Central London, that have this concentration of such high quality brand new developments as part of the same scheme. Usually you would see a new office being built and then something else down the road, but you don’t see that concentration.
“So, we are delighted that our investments have had a transformational impact at Central Square, but also our involvement at Treforest [new offices for DWP] and St Athan where we re-purposed an existing facility [former RAF hangar] for Aston Martin and giving that a greater intensity of use than it ever had before. That is something I am really proud to be involved in.”
Mr Roberts said that L&G Capital typically funds early stage projects with slightly higher risk capital compared with its annuity fund, and then typically looks to recycle quite quickly. As a result, while the Interchange scheme secured L&G Capital forward funding, the office investment has now been sold to the L&G Investment Management LPI Fund following the letting deal with L&G.
On L&G Investment Management Real Assets’ 海角视频-wide investment strategy, Mr Roberts said: “Cardiff has been one of, if not the most successful regeneration schemes that we have committed to. It is something we have been doing for about five year now in terms of large-scale urban regeneration.
"We view it as a long-term commitment, but also partnering our short-term and long-term capital. The concept is that we can ideally use the front end capital,like L&G Capital, to help create products for the longer-term funds like the annuity fund.”
However, it doesn’t always follow that L&G funds will take L&G Capital investments on.
Mr Roberts said: “1 and 2 Central Square are perfect examples of that, where ideally we would have loved to have kept them within the L&G umbrella, but given the occupational profile they weren’t suitable for the annuity fund. Ultimately if the market is prepared to pay a price that is more aggressive than one of our funds is, then we are under a fiduciary duty to get the best value for the shareholder or pension fund holder.
“So, we would have loved to have kept this all together, but quite frankly it was the best thing to do.”
L&G’s current investment portfolio in Wales is around £525m, following exiting of the office investments at Central Square. As well as Treforest [DWP] and St Athan [Aston Martin], it also includes the historic Hodge House office scheme in the centre of Cardiff, which has seen its first wave of new tenants signed up following a £10m refurbishment.
On future investment in Cardiff he said he is in discussions with Mr McCarthy over Rightacres’ Central Quay regeneration scheme, on the site of the former Brains Brewery immediately south of Cardiff Central Train Station, that overtime could see more than two million sq ft of new office, residential, retail and leisure space developed.
Mr Roberts said: “We are talking to Rightacres about Central Quay which is a fantastic site and super exciting, particularly the residential element, which will create a wonderful live-work-play environment. The success of our commitments in Cardiff have been such that the enthusiasm for more investment in the city is high.
"Talking to Nigel Wilson [L&G chief executive] there is a keen awareness of the impact that our investment has had and our finance director Jeff Davies, from Llanelli, and Laura Mason, from Swansea and who heads the annuity business, are always enthused about investing more into Wales.
“Given that the scale of investment here way exceeds what anyone else has done, I think a lot of people realise that we are serious about investing in Wales. We have done what we said we would do, but there is appetite to do a lot more.”
On the hotel project with the WRU, Mr Roberts said: “We have forward funded the cost of delivery and the WRU has entered into a long-term lease with us. All being well post this pandemic, the rent they are liable to pay is very low versus the profit they could make.”
The WRU is confident, after costs, of generating an annual profit of several million pounds a year once the luxury hotel opens later this year.
Mr Roberts added: “It’s a structure that should work well for everybody.”
On the outlook for the office market and a move towards more home working, he said: “I think the pandemic will accelerate that in some cases, particularly where offices are close to obsolescence However, I think there is always going to be a demand and need for companies to be able to have staff congregating to share ideas.
“For example, there will be far more break out and collaboration space in L&G’s new HQ at the Interchange scheme than the existing facilities in recognition of the way people collaborate and the way they work is changing.
“So, people might not need such big desks, but require more spaces to be able to breakout and collaborate. For me the concept that you go to work to get your head down, is something that will change quite significantly in the coming years, and again be accelerated by the pandemic.
If you are facing one of those days when you have reports to write and various sets of numbers to get through, the reality, in my opinion, is that you are better doing that at home, providing you have the space and environment to do so, where you can get your head down and concentrate without distraction.
“When you need to talk to people and have meetings,that’s when you need to be in the office for that interaction where you can share ideas. So, I think there will be a more flexible approach going forward and many companies will adopt that.”
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On the retail sector, where the traditional high street bricks and mortar has become more challenged in the face of e-commerce, Mr Roberts said: “We are quite fortunate from an L&G perspective that we have always been, relatively speaking, under-invested in retail and we have never been big shopping centre investors and have always been more focused on office and industrial space.
“In terms of alternatives we have always been keen on leisure and hotels and post pandemic that will be something we would be comfortable to go back into, but the real growth areas for us in recent years has been residential and areas like build to rent.
"What is most exciting from a future investment perspective is our traditional pension funds have historically been limited to office, industrial and retail space, but are now able to view residential as an asset class or sector that they can invest in.
"Certainly that shift towards a long-term rental model is something we have seen throughout the 海角视频 as having a real success.”