The Canada Pension Plan Investment Board and Lendlease have embarked on a £1.5bn PRS push to be seeded with parts of the developer’s existing London assets.
The first investment will be a £450m phase at Lendlease’s £2.3bn redevelopment of Elephant & Castle, which will include the 445 homes developed for the rental market at Elephant Park on the site of the former Heygate Estate.
The pair will also be looking at Lendlease’s other London schemes, notably the International Quarter in Stratford and the High Road West estate regeneration in Haringey.
“The attractive part of the jv is that it is in a position, given its business model, to secure and develop PRS sites,” said Andrea Orlandi, managing director and head of real estate investments Europe at CPPIB. The partners will develop sites on a 50/50 basis, take an equal slice of the development profit, then transfer them to a fund held 80/20 with CPPIB the majority shareholder.
Orlandi said: “We are focused on scale and creating a secure pipeline. Given Lendlease’s development track record and the quality of what it produces, we took great comfort that the final product will be one of the best in the market.”
Lendlease has courted controversy with some of its London schemes. Its redevelopment of Elephant & Castle was accused of causing “social cleansing” through its failure to resupply the social rented homes it demolished. In Haringey its proposed jv with the council to redevelop thousands of homes has attracted protests and may contribute to a change in council leadership.
Orlandi said that this was not an issue for CPPIB and that it had had good experiences with Lendlease.
“All developments of large mixed-use products are complex, and when you look at what Lendlease has developed in Elephant & Castle, it looks great, and it has come a long way for the community and the micro location there.“
Not worried about delays
Nor did was he concerned about the possible delays inherent in estate regeneration.
Orlandi said: “As long-term investors, large developments are attractive to us. They play to our strength, which is our ability to be patient. We are developing to be able to own and are open to large regeneration projects.”
Alongside the 2,500-home scheme in Haringey, Lendlease has also recently started work on the Timberyard, a 1,132-home project in Deptford, SE8. The jv will then look for other occupied or vacant sites in London and other key UK cities.
The advantage for Lendlease is that it will be able to build out units far faster than it could if it was using its own balance sheet and relying on the private sale market. “[Partnering with a fund] allows you to continue to build at times in the cycle when you cannot continue with open market sales. What that means is that delivery will accelerate in cities like London,” said Dan Labbad, chief executive of international operations at Lendlease.
He said that the partnership was not a hasty reaction to the slowing London investment market and that absorption at Elephant & Castle was still going well. Doing the next phase of Elephant & Castle for the rental market was already allowing it to be built out faster, he said.
“We would not be building two buildings at once. And given the headwinds of Brexit and a number of other things, we do not want to be complacent,” he said. “So this does give us a defensive opportunity that allows us to keep building when we otherwise would have been idle.”
Lendlease will develop, construct, and manage the build-to-rent homes on behalf of the partnership, and is in the process of setting up its own management company, to managed by Stephanie Barborossa.
Lendlease has developed and managed thousands of homes in the US, and Labbad said the firm intends to launch its own management company, owing to a dearth of UK operators.
First large UK investment
Although CPPIB has financed UK residential development before as part of its partnership with Landsec at Victoria, this is its first large-scale UK investment. In North America it has invested in thousands of units in the multi-family housing market.
It has, however, been investing in the UK student market for several years through Liberty Living, which it bought for £1.1bn from the Brandeaux Student Accommodation Fund. Liberty Living’s portfolio comprises 16,700 beds.
Orlandi said that investment into the UK student sector gave CPPIB confidence from an operational perspective, to expand its activities in the UK.
CBRE advised Lendlease on the joint venture.
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