L&G racks up deals to expand BTR portfolio

Legal & General’s £47.5m purchase last week of a site in Bath for the development of 171 homes for rent is just the start of a major acquisition push from the insurer this year, build-to-rent (BTR) fund manager Dan Batterton reveals.

The insurer is under offer or in exclusive negotiations on deals for the development of 2,500 units, requiring an investment of more than £600m from its £1bn BTR fund, he tells Property Week in an exclusive interview.

It has already committed £320m from the fund for schemes totalling around 1,100 units in Bath, Bristol, Salford and Walthamstow, he says.

“With the 1,100 we’ve got, I’d like to double that by the end of the year and then know that some of [the other deals] will come through next year,” he adds.

L&G is under offer on three sites, including one in travel zone 2 in London and another in an unnamed regional city. As tipped by this magazine in January, it is also under offer on Mustard Wharf in Leeds, which has planning permission for 250 units.

In addition, L&G is in exclusive negotiations on deals related to a further 1,400 units across six schemes, requiring an extra investment of around £330m. The deals are a mixture of land deals, which will see L&G develop the units itself, and subject-to-planning deals, where the insurer funds another developer.

Aspirational

They are all in the 15 locations L&G is targeting, including “aspirational cities” such as Oxford, Cambridge and Brighton.

Progress has been good, if not as speedy as they would like, says Batterton. “We’re seeing the deals - they’re just slow,” he says. “The schemes that we can make work are often compromised in some way, in that they have an industrial estate on top or ground contamination problems. It just takes such a long time to remove those risks from difficult sites.”

L&G spent more than a year negotiating last week’s deal for the Bath site, for example working with developer Deeley Freed on the planning process before the deal was agreed. Bath is attractive because of its restrictive planning rules, which make consented units quite valuable, says Batterton.

“Bath sits in a bowl and the edge of that bowl is green belt, so it’s really difficult for the city to expand at the speed at which people want to live there,” he says.

If L&G were to complete all the deals it is negotiating on, it would use up its £1bn fund, which is part-financed by a £600m partnership between Legal & General Capital and Dutch pension fund manager PGGM. But it would not have trouble “raising the same amount of money in short order”, he says.

“We’re not promoting our fund for new investment at the moment because we don’t need it, but we’re still getting contacted by UK pension funds,” he says. “We won’t stop when we hit a billion. The bigger the fund, the more diverse the cashflow - and the more certain it is.”

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