Bid target Intu sells the advantages of living at the mall
Shopping centre group discovers residential attractions as suitor circles
“Convenient for local shops” is notorious estate agent speak (expressing either a proximity to those of the kebab variety, or a 30-minute drive to the nearest Waitrose). It is up there with “Excellent transport links” (meaning you won’t sleep because of the traffic) and “Cash buyer preferred” (indicating no bank will lend on the property). But it seems shopping mall owner Intu wants to make “convenient” less of euphemism — by having up to 5,000 new homes built literally in and around its centres.
On Monday, the group said it was considering “opportunities within the portfolio for alternative uses of some of our available land”. These included residential developments, hotels and flexible office space. According to Intu, at six of its main shopping centres, there are 470 acres that could be built on. And there are another 34 sites valued at £65m but “with negligible income”, that it thinks could generate returns in other ways. One building intended as an extension to an adjacent mall was valued at £3m in June, and is now being sold to a student housing provider for £7m. Hence Intu’s belief that changes of use could “create value directly but, moreover, would increase the overall attractiveness and catchment of the centres”.
Turning shops into homes is not a new idea. The first US shopping mall was built in Rhode Island in 1828 but turned into a residential and mixed-use building in 2013. This year, shopping centres in Bristol, Buckinghamshire, Cheshire, Newcastle, and Sheffield have all been sold to residential developers, or are the subject of planning applications. Adding homes to shops — which is actually what Intu is proposing — is not new, either. Intu’s own Nottingham centre includes 400 apartments, and it was built in 1972.
But turning shops — or retail land — into homes is becoming a new political idea. In next week’s Budget, chancellor Philip Hammond is expected to announce planning reforms to speed up the conversion of shops into homes. It is one of the most cost effective ways to add urban housing — especially for older people — as the transport infrastructure and civic amenities are already in place.
However, as with estate agent speak, Intu’s announcement may require a little interpretation.
It suggests an initial 1,700 private rental units could yield 5 per cent on development costs of £240m. But that yield is calculated without the cost of the land and is lower than the 6-10 per cent achieved on retail rents. So turning to residential tenants as shop tenancies prove harder to fill may mean average yields become lower.
It also suddenly quotes residential unit numbers, development costs, yields and valuation uplifts — just five days after a consortium led by John Whittaker’s Peel Group made a preliminary £2.9bn offer for the group. With the consortium’s existing 29.9 per cent stake likely to deter rival bids, Intu may be left with only one way to secure a higher price. Or “Talking up a property”, as estate agents call it.
Lloyds: whose £80bn?
Lloyds Banking Group was finally able to disclose the details of its much-anticipated tie-up with Schroders on Tuesday. It has appointed the asset manager to look after £80bn of a £109bn investment portfolio, and will take a 20 per cent stake in Schroders’ wealth management business, plus a majority stake in their new financial planning joint venture. But see if you can spot whose interests appear absent from Lloyds’ main reasons for the deal:
“Lloyds Banking Group and Schroders plc today announce that they are entering into a strategic partnership to create a market-leading wealth management proposition.
“This strategic partnership will combine Lloyds’ significant client base, multichannel distribution and digital capabilities with Schroders’ investment and wealth management expertise and technology capabilities.
“For Lloyds, the partnership is in line with the strategic objectives outlined in its latest strategic review and will accelerate the development of its Financial Planning and Retirement business, and deliver significant additional growth.
“For Schroders, the partnership will continue its expansion into the strategically important UK wealth management market, building on its core strengths in active investment management. It will also leverage Benchmark Capital’s award-winning adviser platform technology.”
Did you spot that? No mention of customers — the people to whom the £80bn belongs — in any of the first four paragraphs. It is almost as if an £80bn investment mandate has been awarded principally on the basis of what Lloyds gains in return — ie a chunk of Schroder’s profit and all that “strategic” product distribution.
To be fair to Schroders, its investment performance is highly regarded and boss Peter Harrison does talk about being “focused on the evolving needs of UK savers and investors”. So, too, does Lloyds’ head of wealth management. It was probably just Lloyds’ head office that briefly forgot whose money it is.