React News caught up with the partners behind Station Hill, one the largest mixed-use projects to come forward since the pandemic.
With the corporate world wrestling over the impact of Covid-19 on future occupational strategies for much of the past two years, you can forgive investors and developers with large sites for holding fire.
A few hardy souls continued onwards, however. Designs were tweaked, teams put in place, and funding sourced.
One Station Hill, a 275,000 sq ft speculative office development by Lincoln Property Company and MGT Investment Management in Reading, is the first big regional play to test out the new world.
While others paused, the Lincoln MGT joint venture secured £107m in development finance from BentallGreenOak. Construction is underway and will be completed in early 2024.
The partners are also currently delivering 600 build-to-rent units at the Station Hill site.
React News talked through one of the biggest development projects outside of London with Callum Thorneycroft, managing director at MGT Investment Management, and Lincoln’s development director Alex Aitchison.
“Station Hill had sat around for so long undeveloped prior to our ownership, but now we are doing it and looking onwards to the next adventure”
ALEX AITCHISON, LINCOLN PROPERTY COMPANY
How did the joint venture form?
Callum Thorneycroft (CT): Lincoln MGT formed a joint venture in the second half of 2017. When we set up MGT five years ago, we were looking to be a thematically focused investment manager and decided to focus on build-to-rent development. We felt there was an opportunity to deliver this as part of mixed-use developments on large-scale sites. At MGT, our expertise is as investment managers, and we needed a proven build-to-rent developer and operator to deliver on these large scale opportunities.
Lincoln Property Company has developed, owned, and managed over 200,000 residential units and it was also looking to move and expand in Europe. So, like all joint ventures, it was a coming together of two complimentary skill sets.
Alex Aitchison (AA): I think you’ve hit one of the key points, but Lincoln Property Company is a privately owned investor, developer and operator covering all sectors.
When you bought the Station Hill site in Reading was the vision always a mixed-use development?
CT: Yes it was. But we have made significant changes from when we purchased it off-market in 2018. It had a planning permission in place. We bought it with the mindset that we could improve that masterplan and create a better destination. It had sat there for 20 years undeveloped but was crucial to the town centre.
AA: The previously consented scheme had over 1m sq ft of very densely packed offices, with all the buildings six metres apart, preventing natural light and outlook within the buildings, and also limited natural light to the public realm below. With a huge level of difference and a valley of c10m running through the middle of the site, it also meant a lot of ramps, but also stairs within the streets and public realm surrounding the buildings. Without enough natural light, it really would have been pretty unusable.
So your first stage is 600 units of the residential site along with the 275,000 sq ft office?
AA: Yes. We used to separate them out as two separate phases, but ultimately because the residential, which started first, takes roughly three years to build and the office takes two years to build, they’re now completing at the same time, alongside the public realm and link bridge to the City, leaving a natural divide to the future phases to follow to the West.
“We feel we are now starting to see that engagement from the corporates you wouldn’t have seen last year because now the build contract is signed; we’re now going vertical with the development and the window for the occupiers to make big decisions about big moves is narrowing”
CALLUM THORNEYCROFT, MGT
CT: As Alex said, delivering the first phase in one go, including the office building, the 600 residential build-to-rent homes, but importantly also the main public square and the public realm in one go, is a significant amount of lining up of all the ducks.
But by being able to do that, you’re genuinely creating a new destination and we talk about ‘a new front door to Reading’ as you come out of the station. It’s going to be a significant change to the perception of your arrival in Reading as the public realm will offer a completely new ecosystem.
Who are you trying to woo to this development? Existing Thames Valley occupiers or firms out of London?
AA: For the tenants the attraction is the overall design package – really efficient floor plates, column-free, the natural light with 3.6m+ finished floor to soffit, within the overall design of the building that has already proven how flexible and versatile it is has been over the last couple of years, and being able to cope with demand changes.
In terms of who and types of customers we can attract, such as a life science tenant, there are different spaces within the building that can accommodate to suit, so we aren’t really wanting to close the door on anybody. Reading has a solid tech-based pool of existing tenants, and there are numerous people coming out from London at the same time.
CT: The other thing we’re seeing is the strong international corporate base within Reading and the Thames Valley already, across tech, pharma, and life sciences, is growing more around the traditional centre. Corporates are starting to settle on some of their post-Covid-19 strategies.
We feel we are now starting to see that engagement from the corporates you wouldn’t have seen last year because now the build contract is signed; we’re going vertical with the development and the window for the occupiers to make big decisions about big moves is narrowing. Now’s the time for them to be starting to engage.
You must have had the odd sleepless night through the pandemic when you were considering pulling the trigger on a 275,000 sq ft spec build?
CT: I didn’t. Covid-19 has been a huge macro event. You can’t get away from it, but it goes back to a comment I said earlier: on a large mixed-use scheme like this, you have to take a medium-term view. We bought it because of the fundamentals of the location and our belief in the office market here. We have the best location in the Thames Valley and we’re delivering the best product.
“We bought it because of the fundamentals of the location and our belief in the office market here. We feel like we have the best location in the Thames Valley and we’re delivering the best product”
We took (the pandemic) as an opportunity to test the flexibility of our design with Gensler, and we stood back and said, “we’ve got the right bones of the building here and we’ve got a fantastic location and we’ve got the right capital structure to deliver this.” That’s where large scale developments often fall down. They don’t have that right capital structure in place to deliver through what can sometimes be longer term periods.
Do you get the sense occupiers will be more comfortable for paying a premium for the best space as result of the pandemic?
CT: Office space is still a big cost for corporates, but is smaller relative to their other costs, such as the cost of them not retaining talent. That’s one of their biggest costs. There is such a pressure to get the right people. The desire to have people in the office and have office space that people want to come into is huge, because to not have that and the cost of not having the right workforce is a bigger cost than paying a couple of extra pounds on the rent.
So, we are seeing that and you’ve seen that on deals being done in Windsor recently, for example. Smashing previous headline rent highs because people are willing to pay for the right quality product.
What are the plans for future phases?
AA: Ultimately, the phase 3 has a flexible outline consent, which permits office, residential for sale and build-to-rent, senior, and hotels, but in terms of volume, is roughly the same size and scale as the first phases that are under construction. We could do it all office for the right tenant. We’ve got an amazing amount of flexibility.
“We could do phase 3 all office for the right tenant, so, we’ve got an amazing amount of flexibility”
ALEX AITCHISON, LINCOLN
Are your investors patient?
CT: Yeah. It goes back to that comment of taking the right medium-term view and having the right capital structure in place for large scale developments. Along with Lincoln, we have the experience and recognise what type of capital structure you need to deliver these type of developments. That is absolutely critical. If something like the pandemic comes along, we’re comfortable to back ourselves with our skill set that we’re building the right product fundamentally, that can flex a little bit if things do happen.
So yes, we have the right capital structure in place. And as Alex says, big schemes like this are about momentum. No-one believes you’re doing anything until they see the cranes coming out the ground, right? Which is fair enough because they don’t see everything behind the scenes, but there are now a lot of cranes on site.
Could the Lincoln MGT partnership do more deals in the UK? You have another project in Greenwich, right?
CT: We’ve got the Lincoln MGT joint venture. We’ve selectively looked at large scale build-to-rent-led projects. And you’re right, we have a partnership with Knight Dragon to deliver build-to-rent on Greenwich Peninsula. That will be 600 units in the first phase with a potential second phase. That’s in planning at the moment. And we’ve also looked at other large-scale projects selectively as a joint venture.
AA: Station Hill and Greenwich Peninsula are great reference projects for Lincoln and Lincoln MGT and prove what the team can do. On both those assets, especially Station Hill, we felt it important to evidence and reference what we’ve said we were going do. Certainly there were those who doubted us at (Station Hill) that had sat around for so long undeveloped prior to our ownership, but now we are doing it and looking onwards to the next adventure.