Not many would opt to launch a new investment business line in a global recession with the country under national lockdown. But, Legal & General is ploughing ahead, seeking scale in the nascent market of rental housing.
“Other businesses may look at the market and the economy and say, ‘No, not now’,” says David Reid, managing director of L&G Suburban BTR. “Why not now? We believe in something for the long-term, we have the patient capital and we’re here for another 100 years.”
Reid frames Legal & General Capital as an accelerator for the group, but also highlights the counter-cyclical qualities of BTR. In fact, now is perfect timing.
L&G started exploring the move into rental housing more than 12 months ago and the pandemic has only accelerated the economic case. “The macro economics make sense. Pricing is something we are working on, but the economics of it, with an increased number of families renting, that was pre-Covid,” says Reid.
He notes the clear demand from renters for suburban housing in the short-term and heightened investor interest in this product. In the second half of this year Sigma Capital agreed a £316m initial investment in BTR housing with Sweden’s EQT, Hearthstone has just raised £97m in its second housing fund and a number of new entrants and developers are pitching rental housing to institutional funds.
Reid says it is still too early to call the flight to the countryside in the long-term, but agrees there is also heightened demand from housebuilders amid larger political and economic changes and the end of Help to Buy. “A greater number of housebuilders are looking at this market,” he says. “There is an opportunity, it was there before Covid and we will look to accelerate it now.”
L&G SBTR will do this by partnering with large housebuilders and strategic land specialists, forward-funding consented schemes. It is building a pipeline to deliver 1,000 homes a year by 2024. The business is targeting average schemes of around 100 houses nationwide, but Reid highlights North West, Midlands and South West and says they are not targeting Greater London, but also not ruling it out.
“The big question for us over the next 12 months is how do we get to scale relatively quickly and how can we find those trusted partners,” says Reid. “We are looking to aggressively enter the market and see where we can move it.”
The business will also look to directly deliver schemes, supported by the various housing “tentacles” of the wider group enabling speedy development. This means modular housing and mixed tenure sites, working with the affordable homes business too.
“There is a platform here and the group has invested enormously into the housing market – from the way it is delivered, to the land, the build to sell, build to rent, later living and affordable,” says Reid.
It is in negotiations on the first acquisitions and Reid will establish a core executive team spanning investment, finance, development and operations by next quarter. “We are putting that into place now and we need to see how fast we can grow,” says Reid.
He adds: “L&G puts its money where its mouth is. It is launching a business during an economically difficult time for the UK. But as it has proved with other businesses, it can do that.”
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