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Propertyshe podcast: Bill Hughes Head of Real Assets at Legal & General Investment Management

Posted on 22 February 2022

If we go back a couple of decades, quite a lot of real estate investors were either short-term in their thinking or passive in their thinking or too focussed exclusively on the financial impact of what they did and if you roll forward to where we are today, there’s an acknowledgment, I think, certainly in my business, that if you do things that work for society in the long-term, and I could loosely use the word ‘sustainable’ in saying that,  then the financial outcomes will be better.

Susan Freeman

Hi I am Susan Freeman.  Welcome back to our PropertyShe podcast series brought to you by Mishcon de Reya in association with the London Real Estate Forum, where I get to interview some of the key influencers in the world of real estate and the built environment.  Today I’m absolutely delighted to welcome Bill Hughes.  Bill is Head of Real Assets at Legal & General Investment Management.  Bill joined L&G in 2007 and is responsible for transforming its UK property fund management business into a global-reaching real assets platform.  Operating in both the direct investment and lending markets, today it actively invests and manages over £38 billion worth of assets under management, providing capabilities in real estate, infrastructure and corporate debt.  Bill previously held positions at RREEF, the Real Estate Fund Management business of Deutsche Bank and Schroder Property Investment Management.  Bill is currently a trustee of the UK Green Building Council and Chair of the Property Industry Alliance, bringing together the UK’s leading property bodies to give them a stronger collective voice on issues such as policy, research and best practice.  Bill was a Commissioner for the Lyons Review, is a Past Chairman of the Association of Real Estate Funds and a Past President of the British Property Federation.  So, now we’re going to hear from Bill Hughes about what it takes to run the Real Assets division of a major global investor at a time of extraordinary change for the sector. 

Bill, good morning.  I know that you’ve said that you choose your networking events and the people you talk to carefully so, I am particularly pleased to have you here today. 

Bill Hughes

Thanks for having me, Susan. 

Susan Freeman

Let’s just start with how did you get into real estate?  I know you did a Human Geography Degree so a path into real estate doesn’t seem that obvious.  How did it happen?

Bill Hughes

Well, in my family, the Degree I did is colloquially known as ‘colouring in’, I did four years of colouring in at Edinburgh.  And actually the first couple of jobs I did were very, very closely related to the subject matter in Human Geography and it was in those days about looking at cities and how economic activity related to where people were and I was doing some esoteric things advising London boroughs on high street regeneration one week and then finding locations for building leisure resorts in the Caribbean the next.  I had a very odd set of roles and some probably inexperience for sure, advisor for economic development but I got some quite interesting work in those days.  It was really using much of the Geography Degree I had done though, in fairness, informally.  And from there I moved into a research department, worked for a guy called Peter Evans who, at DT, and one thing I learnt from him is the criticality of evidencing what you assert by high quality sources.  He was, he was quite academic and he would get his red pen out and go through reports I’d written and be ruthless about it.  So he was bordering on academic as an approach, very thorough.  So, I learnt a lot from him, that was what was going on in my early stage of my career. 

Susan Freeman

And when did you join Legal & General?

Bill Hughes

So, I joined L&G just really as the global financial crisis was hitting so, I actually started being responsible for the business L&G in November 2007 and for those that would remember, there were a series of events that took place over that subsequent year involving various financial institutions going under and stock markets being adversely affected and the banking system was under severe distress and therefore any asset class that was related, and certainly real estate particularly there was, where borrowing was a feature, was month by month getting into a very difficult, difficult place.  So, when I joined L&G I inherited quite a number of distressed situations in terms of joint ventures and funds that we’d set up, not expecting the severity of downturn.  Again, just to throw a number out there, the real estate market in the UK on average fell by 43% and the scenario testing you would do wouldn’t ordinarily test that severity of value loss so, of course there were some challenging situations to work through. 

Susan Freeman

So, it was a bit of a baptism by fire, really?

Bill Hughes

Yeah.  It was in some ways although looking back I think joining a business that has got some challenges that needs to evolve, that needs to face into the difficult things as well as the opportunities, is actually a good time to join because we did work through the challenges and resolved problems that needed to be resolved and from there, you know we’ve had, we’ve had many years of relative growth and expansion and it’s not been plain sailing all the time of course, mostly in recent times we’ve had some different circumstances to think through but I think actually joining as CEO of a business in that sort of challenging time when things need fixing, is actually a good place to start. 

Susan Freeman

Certainly, when we are dealing with some of the challenges that we are looking at now and we’ll talk a little bit about those but just first of all, tell us, tell us a little bit about L&G and the property fund business, I mean I know that the number keeps moving up but I believe you’ve got over £35 billion pounds worth of assets under management, which is you know what a large undertaking?  How large is your team and how do you sort of manage this huge portfolio on a day-to-day basis?

Bill Hughes

Yeah, I mean, we have been growing through time.  Your number, Susan, is a little bit out of date, we’re nearer 40 billion than we are 35 now.  The way we manage it, is by having some really good leaders within the business who take accountability and responsibility for what they do.  So, we have a mature UK based real estate equity business, we have a growing what I call private credit business that has got several strands to it around infrastructure, real estate, lending, corporate lending and also alternatives in terms of how we structure aspects of the private credit business.  Each of those areas has got some strong leadership, everyone in the leadership team is ambitious, high standards, recruits people to help them deliver what they need to do and so, yeah, it is a big portfolio of investments that we make but I do also feel that we’re fully in control of it, we’re striving to be creative and innovate where we can, we’re working with new product areas into new markets, into new geographies all the time but I would say that we also have fantastically helpful tailwinds here, it’s very clear to us that investor demand for what I would call private assets in recent years and now and into the future, has been very much increasing and will continue to do so, so the appetite for what we do is, is really the tailwind, it’s how we execute that’s key but we don’t, we don’t have to work hard to grow the business in what is undoubtedly a very important growing part of the market, it’s just about quality of what we do. 

Susan Freeman

And how would you describe the culture of your team at L&G?

Bill Hughes

Yeah, well I’d like to think we have a strong culture here and I would describe it as being characterised by people being straightforward, collaborative and purposeful – they are three words I tend to use.  Straightforward means, you know, everyone says what they think and gets judged by that.  Collaborative means that no one is singly better than what the team can deliver, there’s an acknowledgement that everyone is capable of being the best they can be by working with people around them and really being open with colleagues.  Purposeful is another way of saying we think we’re here for a reason, we think we can achieve stuff, we think we can influence, we think we can do a really good job for investor client base but also we can, if we’re good at what we do, we can also influence society, we can change the built environment, we can actually provide something useful for the underlying investors that we represent but in large part right now, are UK pensions and savers.  So, the contribution we’re trying to make around the UK in terms of, for example, regeneration, thinking about housing in all forms of tenure, in part we’re doing that because that has a positive impact on the lives of the people whose money sits. 

Susan Freeman

So, the L&G website actually talks about a more inclusive form of capitalism which benefits everyone and you’ve talked about needing to be a positive force for society.  How does that differ from the past?  Is this a sort of new path that we’re going along?

Bill Hughes

Well there is lots of things that have changed.  If I go back a couple of decades, quite a lot of real estate investors were either short-term in their thinking or passive in their thinking or too focussed exclusively on the financial impact of what they did and if you roll forward to where we are today, there’s an acknowledgement, I think, certainly in my business, that in the long-term if you do things that work for society in the long-term and I could loosely use the word ‘sustainable’ in saying that, then the financial outcomes will be better so, you need a long-term timeframe, you need to recognise that it’s not only about the short-term financial impacts, it’s the long-term suitability and relevance in what you are doing is going to reward you and actually does deliver the best risk adjust and return because otherwise, otherwise the decisions you are making are not within the right timeframe.  Now, how things have changed I think is that there’s an acknowledgement that long-term capital, long-term patient capital of private sources of capital alongside the public sources of capital have got a bigger role to play and so we’re a long way away from what you might call the developer-trader approach that many had in the past and generally, Susan, given that our business is growing, for a lot of what we do, we’re creating, building, structuring assets that we would want to own long-term, so it, we can be influential partly because we’re getting bigger but also because we’re creating the assets that we think are fit for purpose for the long-term, as opposed to just buying assets to the market and selling them again, which doesn’t really serve a particular purpose. 

Susan Freeman

And you are able to take a longer term view by you know the nature of the fund and you are investing people’s money.

Bill Hughes

Yeah.  Look, most of the capital that we are here to manage, most of it, not all of it, most of it has got a long-term timeframe and I guess what I’m talking about, when I talk about timeframes, I think there’s been insufficient recognition of the benefit of having a long-term frame in terms of what you can achieve.  If you can free yourself from the illusion of the importance of quarterly or annual numbers then you can achieve a lot more.  Actually, once you’ve got into your stride and once you’re good at what you’re doing and you can deliver some great returns but actually do work for the short-term as well but that’s because you’ve got a long timeframe and over a period of time assets reach fruition in a big portfolio at different times so, that all, that all ends up being a positive, virtuous outcome that you know in our case we’ve got good investment returns on a relative basis over short, medium and long term but it’s based on a long term philosophy.

Susan Freeman

And I know you’re committed to measuring social value across your platforms but how do you, how do you measure it?

Bill Hughes

I think that’s really tough.  I’m not going to pretend it’s easy.  We’ve been using a company called Social Value Portal for a lot of what we do and that is a relatively mechanistic way of applying a financial benefit to outcomes around what you do for wellbeing, health and wellbeing for employment and for the good of society but it is, it is challengeable and it’s, in my view, quite clumsy but you know in the absence of anything else, that’s what we’ve chosen to do and I think, you know I just think that yes, it’s important to have social value as being what you do and the measurability of that is just necessarily a change.

Susan Freeman

And a number of real estate companies are now coming through as B Corps, I mean is that something that L&G would consider or is L&G too big an organisation to take that on?

Bill Hughes

I wouldn’t think of us as being too big in anything that we do really, I mean, size is a virtue as well as an impediment and so I do try really hard to make sure that whatever we’re doing, we are versatile and responsive and I would never say never about anything that we do here.  A really good manager of a big business captures benefits of scale but also stays light on their feet and versatile so, yeah, any number of ways to make a benefit out of that but that’s the challenge for us.

Susan Freeman

And there are so many challenges that I know at the moment but I just wondered what you regard as your greatest business challenges right now?

Bill Hughes

I think the single biggest challenge facing the private market sector and certainly real estate, is the whole idea of how we transition to net zero, that is the single biggest issue because it’s important, time critical and very challenging to deliver on.  I mean, I’m broadly very positive about our asset class because, as I said before, the weight of capital that wants to be in private markets is getting more and more significant and undeployed allocation that wants to be in this space is more and more visible but how you, how you transition the existing built environment to net zero is tough.  By the way, there, I don’t think there are many easy answers, there are certainly easy things you can do to improve the performance of real estates to make it more efficient in terms of carbon and use and energy and use and you know less wasteful and conserve water, there’s various things you can do but that only gets you part of the way there, in terms of truly getting to net zero, especially in property that is occupied where you may want to make significant interventions in terms of retrofit but where you don’t necessarily easily get access to a building to do that while it’s being used, that’s pretty tough.  And whilst, at L&G we would prefer not to be dependent on carbon offsetting.  As things stand at the moment, I think my view of this is there’s lots of things you can do before you think about carbon offsetting but right now, I think it’s likely that carbon offsetting ends up being part of the equation if you really want to get to, across to net zero in a sensible timeframe.  And by sensible timeframe, I mean we’re targeting 2030 for some of our fund activities, you know, which is only eight years away.  I think to talk about 2050, in my mind is a little bit loose, a bit too easy, too far away, I think the reason we talk about 2030 and in some cases 2040, is we want to make sure that we’re very focussed now and for the next decade and the decade after that rather than you know leave the idea of hanging out there for 2050, it feels too, too far away. 

Susan Freeman

And it’s quite scary when you think that 2030 is just eight years away.

Bill Hughes

Yeah, no, it’s coming, it’s coming quickly, it’s coming quickly.  So, we’re working, we’re working really hard, you know every day of the year, to make progress.  We have asset plans in place with very specific measures that we can take, some of it is based on today’s technology, some of it will be assisted by technology and technological developments and the Government regime may help in the next few years but you know you can’t take technological advancement or Government regime for granted, you have to do what you can do. 

Susan Freeman

And that takes me on to something which we have talked about in the past and that is the property industry’s reputation and it seems with the built environment being globally responsible for around 40% of carbon emissions, you know this is something which the finger is going to be pointed at the real estate industry for.  You know, how can we do more to be recognised for the sort of positives rather than always being criticised for the negatives?

Bill Hughes

Yeah, around that subject, I think of two areas where the industry has been criticised really.  One would be around carbon emissions and being wasteful with the resource, so I can come back to that in a second and the other would be if anything, contributing to wealth inequality so, exacerbating or amplifying wealth inequality I think is another that is associated with our sector, you know, if you look at the number of real estate individuals in the Sunday Times Rich 100, for example, and at the section of our industry.  So, how can we change?  Well I think on the first, on the think carefully about conserving and building sustainably and only building responsibly, we’ve talked about that a little bit and I think you know L&G is an example, is making great strides in that area and I hope that we set an example that others would choose to follow.  We’re not alone in that by the way, I’m not going to pretend that we’re out on our own, many long term investors know that they have to take that subject seriously.  And we do need to profile what we’re doing and to make sure that there’s a recognitioning Government and other influences in the general public that we’re not just sitting on our hands and that we are making progress, that we’re engaging in technology to help us with that, you know that we’re investing in companies that deal with air source heat pumps and ground source heat pumps and that we’re moving away from boiler, gas fired boilers in the house, for example.  And lots of other examples I could tell you about but I don’t think there’s enough profile for the good things that we’re doing there.  And then on the subject of wealth inequality, again I would say L&G is very aware of that as a subject, we are working hard to make sure that we invest in building types and locations that are about providing a contribution to society in those locations, we’re not looking for just targeting capital into the high growth areas where we make expensive locations even more expensive, we’re trying actively to find areas that have got loads of potential or areas that have got a supply and demand imbalance for something that is needed and we’re trying to create real estate and buildings where, based on the need for those buildings, we’re filling a gap in terms of the supply and you know that’s one reason why we have a significant build to rent activity, it’s why we have an affordable housing division.  We’re not just chasing commercial real estate and looking to find prime locations, we’re genuinely trying to even things out, you know the levelling up agenda is very much talked about at the moment and we can come onto that in some more detail but I think one of our aims is to even out the performance of the UK by finding the latent potential outside of the southeast and helping to stimulate productive economic activity in those locations, so that’s why we’ve invested in Sheffield and Sunderland and Newcastle and many other non-southeast cities, we’ve become a major investor in. 

Susan Freeman

And since you mentioned the Government’s levelling up agenda, do you think that the Government is looking along the right lines?  I know in the latest paper they were talking about King’s Cross style developments, you know out round the country, I mean is that feasible?

Bill Hughes

Well, first of all I would say that the White Paper is admirable in terms of what it’s talking about but I think it’s also very light in terms of measures and funding so, it’s good to have it as a framing statement for what Government wants to have happen but, in the end, the private sector will need to take the initiative and make things happen.  To some extent I would say L&G has been in that space of, as I said, you know finding areas for potential that have experienced underinvestment, we’ve been doing that for you know for the last ten, fifteen years.  Do I think there’s the scope to have lots of King’s Crosses around the UK, to use the terminology?  Yes, I do think there are a number of cities that will have the potential for that to happen but you know you need to apply a little bit of common sense to that because first of all, King’s Cross took, is taking, it’s not finished, is taking a very long time, I think that project in terms of gestation and through the process was round about thirty years ago when that really got any sort of real traction and there were people talking about it before then.  So, there’s a long timeframe involved but the idea of finding an area in need of regeneration next to a, in that case a station of strategic significance, is something that can be repeated.  You know, at L&G we got some thoughts about finding those locations and figuring out how to address the investment opportunity.  The public sector will be important here because when you have a local authority or some sort of regional support for schemes and some assistance with let’s say land assembly or dealing with the public realm, there’s a lot more that could be achieved so, so, I’m pleased that the Government has framed the subject, I think our job is to find the organisations in the public sector, not just in central Government, elsewhere too that can help to make those things happen.  So, we have some ideas, Susan, about that but I don’t think there’ll be forty of them but I think there might be six, eight, ten. 

Susan Freeman

So, that’s a good opportunity for the property sector to show that it can lead the way and you know actually put out some positive stories and I mean just in terms of reputation, I mean there’s also the cladding issue so, you know if we’re trying to get the positive stories out there and you have developers being accused of you know being cowboys, again, that you know is not something that one would want to have out there but I mean it seems that as well as the cladding, when the cladding comes off, we’re sort of discovering bad workmanship, I mean is there anything that you know the industry should be doing, the Government is asking developers to pay for the cladding but it seems that we, somehow we have to improve building standards across the board?

Bill Hughes

Yeah, well I think, I think building standards, as a regime, is what it is but I think compliance with building standards is probably what you’re talking about there and that’s been deficient.  I think it also goes back, this subject goes back to what is the behaviour of a long-term investor that would want to own the asset it’s building so, if L&G is building buildings that it expects to own for ten, twenty, thirty years or more then we’re going to be aiming and doing whatever we can to make sure the specification and the quality is right.  I personally think that is, is just about having a professionalised, rigorous approach to how you construct buildings and it’s perfectly possible to have the right skillsets in-house or outsourced to make that happen and, in some ways, I think it’s legitimate really, it is legitimate for Government to focus in on this because there has been some substandard buildings put up, there’s been poor behaviour by short-term profit takers and I think it’s right for Government to call that out.  On a relative basis, I’m not overly concerned by that because I don’t think that’s pointing the finger particularly at an organisation like L&G that’s long-term but we have an obligation to make sure our supply chain behaves in an appropriate fashion and we will, and continue to put some, some rigorous controls around the organisations that work with us around you know the construction, contractor, subcontractor sector and we’re very selective there and we will continue to be so. 

Susan Freeman

And just turning to the housing crisis, which is something that you know has been debated over many years now and you know we just don’t seem to be any closer to solving it but I know at L&G, I mean you have got thousands of you know homes in course of being constructed and I mean you’ve mentioned build to rent, I know there’s also later living and you’re clearly permitted to, you know to delivering new homes but why is it proving so difficult to actually address the problem and actually provide the sort of homes that people can live in?

Bill Hughes

Yeah, well I think L&G has turned its attention to that subject significantly over the past decade and I see others doing that too so, the reason the issue has really not been sufficiently addressed is that there are not, there are not enough largescale investors really seeking to make a difference and they’ve left it to the housebuilders which, you know, being really clear, housebuilders have got a motivation to keep volumes low and to maintain their own margins so, housebuilders, housebuilders were never going to be any sort of an answer to the supply shortage but long-term, largescale investors can make a difference because we can do things at scale, again we have a long-term view of a large block of land in terms of delivering housing over a long period of time, decades for example.  One of the other things that, there’s actually a couple of thigs that are worth mentioning here.  I think it’s important to recognise that there are lots of different parts of the housing market rather than generalise about it and one reason why L&G has been involved in build to sell, build to rent, affordable housing, later living, student accommodation, really everything that’s out there is because most locations need some of that to make sense and the housing scarcity manifests itself in lots of different ways and mostly across all forms of tenure but to differing degrees.  The other thing I’d say that we’re really excited about and committed to is the fact that the modern methods approach to building housing in a factory environment has huge potential for delivering more supply efficiently, to a high standard and the UK is significantly behind where it should be on that subject, you know you can look around the world, quite a lot of European countries, certainly Japan, have really made a virtue out of offsite construction for sometime and we’re playing catch-up.  So, L&G has committed to doing that, as you might know, Susan, we have a factory in the vicinity of Leeds, near Leeds, we are building homes in a factory environment, we’re getting high quality, we’re ramping up scale and that sort of commitment to quality, professionalising modern method as opposed to what is called traditional build, has got to be a big part of the future and the potential there is huge but again, timeframes, you need to be a long-term investor to make sense of the capital investment in a factory and its facilities and the production supply chain you create, you need to be long-term to make real sense of that. 

Susan Freeman

And how long is it going to take to build up some sort of critical mass in offsite construction?

Bill Hughes

Well, it’s happening, it’s happening as we speak, I think the pace of change is escalating.  Right now I’d say there’s half a dozen credible operations out there with ambition who are building credibility and beginning to ramp up.  I think L&G is in the leading part of that group so, you know, within a small number of years, there’ll be real volume being produced so, it’s not a question of if but when and I think we’re, it feels to me that we’re at an inflexion point right now in terms of the acknowledgement of that as an approach, the engagement with that approach by Government, for example you know the idea of offsite construction is receiving positive support from the likes of Homes England now in a way that it wasn’t five years ago.  So that is happening to some extent with Government intervention although we, you know at L&G we’ve been for some time committed to doing that as a private investor, believing that that has got to be a big part of the future but there’s some funny things to happen in the market though, Susan, as you will appreciate, you know the cost of materials in recent times, partly because of the pandemic, partly because of Brexit have been vacillating significantly.  Actually, I think that’s probably been more of a challenge in some ways for traditional builds that are more about stop-start and not quite sure what their future order book looks like and what we’re doing at L&G is, as we build the order book with more predictability then you can get ahead of ordering materials, you can deal with either hedging or at least abating the volatility that you see in the supply chain.  It’s a more, once you’ve got it up and running and of scale, it’s a more resilient way of building housing than the traditional method. 

Susan Freeman

And just turning to build to rent, it’s about ten years now since the athletes village, East Village, was retrofitted as a rental scheme and it was the first largescale rental scheme for decades and it just seems that it’s taken a long time for build to rent to take off and to be accepted by the institutions as something they should, you know they want to invest in.  What was the tipping point on that?

Bill Hughes

Yes, it’s an interesting question.  The reason it has taken a long time is because it was a sector of the market where there was not purpose built real estate and I think a realisation point was that you can’t convert build to sell into build to rent and expect it to be good enough.  So, once you realise you have to build it, purpose build it, that limits the number of organisations that can participate because not everyone’s got the risk appetite or skillset to find land and design, build, let and then produce a stable source of income.  That’s what, that’s what we’ve done at L&G, I’m delighted by the progress we’ve made in the last six or seven years but clearly your pace to growth is determined to some extent by how quickly you can build and going back to the point I made earlier, you need to be building to high quality, you can’t be rushing it.  There would have been another part of the approach to residential that’s changed in terms of tipping points.  One, is the recognition that investors should contemplate short-term income as part of their investment portfolio and through the past decade or so institutional investors have become necessarily less fixated by a long-term safe, secure income because it doesn’t exist in the way that it did, so you have to find other ways and operational real estate where you are taking responsibility for retention or reletting is much, a much bigger part of the equation and somewhere in all of that as well, concerns over rent control has abated.  Now, you know who can tell what the future holds in terms of rent controls but the idea of rent controls emerging I think was one of the reasons why institutional investment was relatively absent in the UK for some time.  In the end, I think the forces of diminishing length of leases elsewhere, acknowledgement you’ve got to be operational in your real estate, the massive and obvious supply-demand imbalance meant that we got about building and we had to find out how could we learn the best lessons from around the world and build, create a build to rent sector in the UK and actually if you look at what we’ve got now compared to when you and I were probably talking about it ten years ago, actually I think it’s pretty impressive, most cities have got some very credible buildings, mostly been performing well, very resilient by the way to the pandemic in terms of income resilience, build to rent performed better than anything so, it’s come of age and it will continue to grow and at some point in the next ten years we’ll end up with a secondary market in this space where assets are transacted more visibly on the open market and then we’ll get into second generation where buildings start to be refurbished and retrofitted thereafter.  So, I’m pretty excited by what’s been achieved there from really a standing start ten years ago there was no purpose built, you are probably right, the you know the 2021 athletes village, which was ten years ago, took a while to convert and that was the single, biggest early scheme so, it’s all happened since then. 

Susan Freeman

Yes but just looking at the numbers, I mean I was actually quite surprised, I expected it to be more but I think the number of units built and in the pipeline in the UK is still on 200,000 so there’s a lot of room for growth. 

Bill Hughes

Yeah, there is.  There’s a lot of room for growth.  Most of what’s happened to date has been what you call urban build to rent and the other part of this, which has not been addressed at all, is what I would call suburban build to rent but actually L&G has a business doing that at the moment and I think if you look at the US as an example of how things can evolve, not necessarily saying that’s exactly what will happen but the suburban build to rent market will be part of the growth going forward as well and I think others are tuned into that sector as being one of the most obvious next logical things to happen in the UK.  Whether or not you take the view that the pandemic has caused more people to think about non-city living or not is a question you know you could ruminate on but I do think the capacity for the rental model to emerge in non-urban locations is very real. 

Susan Freeman

And do you think we’ll also follow the US model of having developers and operators separated whereas I mean the UK developers also operating, as we stand at the moment?

Bill Hughes

Yeah, I think as the sector develops, I think it’s likely that there’ll be more clear delineation between develop and operate, I call it own.  In my mind, they are already separate to an extent anyway.  We’ve got a business that develops assets, the skillset there is planning, design, construction and then letting and then we’ve got buildings that are income producing and that’s more about, use your word again, operating the building, making sure the customer’s tenants are engaged, retained, use technology to keep them happy, think about onsite amenity services and so on.  So, it’s all been happening, to some extent I already see it as being two separate activities.  We happen to engage in both of those things in our company but not everyone does. 

Susan Freeman

And do you think we’re going to see a similar growth in senior living accommodation because it’s always seemed to me strange, we have an aging population, a demographic timebomb and yet we seem to have been quite slow to focus on providing accommodation for older people. 

Bill Hughes

Yeah, it’s a tricky question that.  I think on the one had the industry has been slow to provide appropriately specified accommodation and so it’s partly driven by scarcity of supply but we have, as you point out Susan, we have got a senior living business and one of the things that you encounter there is that there is a lot of friction in later life individuals being willing to move out of the house that they’ve owned, even though it’s not fit for purpose, it’s likely to be the wrong size, wrong location and not near facilities that make life easy, that there is a lot of stick in it so people, the conversion rate between viewings and transactions is astonishingly low so, the number of viewings that turn into actual transactions in the late living space is at this point in time low and actually we need to find ways and maybe the Government can help with this, find ways for, to encourage individuals who have got a lot of wealth stored in the asset they live in, which is not the right asset to be in, to encourage them to think about selling and moving on and that might be to do with targeted transactional leniency, you know it would be easy to think about stamp duty as being a mechanism for helping with that.  So, it will grow but I don’t, I don’t think it’s as easy to execute there as some people think. 

Susan Freeman

Yes, and just turning to the Property Industry Alliance, you took over as Chair in 2016 and I know one of the things that you spoke about then was the cross sector synergies between real estate and investment in infrastructure and I just wondered in the, whether you have been able to make any progress there?

Bill Hughes

There’s more to do.  I mean, I think my role in the Property Industry Alliance has really been about trying to corral various industry bodies to work together or acknowledge what each other are up to around the issues of the day and you know since 2016 there has been lots of issues that needed to be addressed.  One of them, certainly is the relationship between economic infrastructure and real estate and one critical part of that which people talk about is transportational but the other critical part of that that’s not talked about quite so much is renewable energy.  So there’s more to be done there, Susan, really in terms of getting an acknowledgement that the totality of the built environment needs to be thought of as a whole rather than individual parts of it but that said, I think there are more organisations now that actively think of the universe of real estate and infrastructure as being connected, there are more organisations now than there were five years ago, six years ago, doing that but on the other hand I would say that the real estate industry itself, as say manifested by the British Property Federation, is not sufficiently engaged in widening its thinking to all forms of infrastructure and how that relates to real estate but it’s made some progress, it’s made some progress. 

Susan Freeman

And how easy has it been to corral the various real estate groupings?

Bill Hughes

So I think it’s been good and bad really, I mean on the one hand it is a little bit like herding cats because every industry body has got its own items to prioritise and its own agenda and the overlapping areas are not always so obvious but I would also say that particularly in the pandemic, which has created an environment which is you know clearly unique and I hope not to be repeated, it has forced organisations to communicate quickly and more fulsomely than perhaps was ever the case and you know it happens to be the case that we’ve been having weekly meetings within the PIA, actually sometimes more frequently than that but we’ve you know we’ve been getting together weekly you know since March of 2020 so, there’s been, there’s been some good things that have come out of the pandemic in terms of trust and interactivity and focus and willingness to work together, through adversity really.

Susan Freeman

So, there have been some positives that have come through the pandemic and I just wondered to what extent you think real estate as an investment asset class is going to be permanently changed by what we’ve experienced over the last couple of years?

Bill Hughes

Yeah, I know people say this a lot but I do subscribe to the view that the pandemic has accelerated to a large extent what was already happening, so the demise of retailers that haven’t adapted, the importance of ecommerce, the extent to which investors really must think about the operators and the occupiers of the buildings that they’re there to provide the agenda around transition to net zero and being economical with energy.  All of those things have significantly accelerated but they were happening before March 2020, it’s just refocussed on issues and advanced our thinking and the imperative to be thinking about those things in a significant way but I mean I would say from L&G perspective, I think we were in a pretty good place on all of those issues before the pandemic and therefore I think we’ve been able to handle what’s been put in front of us and all of the challenges, I think we’ve handled pretty well under the circumstances but that’s because we were on the path anyway but seem to, was relevant and helpful to the circumstance that we faced.  So, yeah, I’m not fixated by the fact that the pandemic has totally changed anything really but I do think it’s accelerated.  Actually, you say that about the flexible workforce, people are talking about hybrid working as if it’s new.  Well, it wasn’t really new, for  many companies, there was some, some work done from home, there was a dialogue going on with many employees around elements of flexibility, again, that’s just all formalised and accelerated and it’s much more open and available to discuss, it’s not new, it’s, I think that’s a mistake to think about it in those terms.  

Susan Freeman

No, I agree with you and I always quote Mark Dixon as telling us like, was it thirty years ago, twenty five years ago, that we actually didn’t need to commute, we could actually plug into a local business centre and we just carried on commuting so, it’s not new.  One of the, one of the positives that came out of Covid is the Musicians and Artists Exchange, which I know you’ve been involved in.  How did you get together with them and how did you use musicians to energise your buildings during lockdown?

Bill Hughes

So the story is, two things really, we were doing some work with a company called Sound Diplomacy several years ago because we felt that music was one of the things that could help to revitalise real estate and connect with customers and just part of the how do you make real estate more appealing?  So we were doing some work around that anyway and then when the pandemic hit and when the lockdown happened, I got talking to a professional opera singer, actually a counter tenor, who had a connection of musicians who were progressively finding the pandemic environment harder and harder, you know they could no longer perform, they could no longer travel, with also many of them with an agenda of connecting with communities and making sure that music was a part of education and by the way if you don’t know that the compulsory agenda around music education has eroded significantly in recent decades and so we got talking about it and decided that we had at L&G, buildings with atriums and spaces in that wanted to engage with this and Max and Andrew, who’s the individual who really got behind it, had a network of contacts who were dying to get into some sort of creative performance going to revitalise, thinking really more of a community level approach to that and so you put those two things together and we started to organise some events, centred on our building down at 245 Hammersmith where we had a sequence of events earlier this year and it was really exciting and we’ve decided that it was a successful experiment and we’re going to revisit that and we’ve got in early planning, a sequence of additional events and we’re thinking about other buildings and other projects, just to bring arts, creativity and musical performance into buildings that would benefit from it. 

Susan Freeman

That’s a really good idea and I like the way you described it as blending the built environment for the benefit of the community and I think that’s a really good way of putting it.  And just, I mean talking about our post-Covid world, you’ve recently sold Central Saint Giles to Google for a billion pounds, I mean that does look like a real vote of faith in the post-Covid London office market?

Bill Hughes

Yeah.  Well, just to correct you slightly, it was a billion dollars but yeah, look, I think it’s a really interesting barometer of how different organisations feel about offices and I can’t, I can’t speak for Google but they’ve been in occupation in that building now for round about a decade but not fully occupying the building and the fact that they decided for that office, in that environment, in that part of London, they wanted to make a permanent commitment to it, I think tells you something about their belief in the role of offices in their company going forward.  So I thought it was very exciting that the chose to step forward and buy the asset from us, from our point of view it’s been a wholehearted success from developing the building, to letting it and now selling it but yeah, I think it's for anyone who thinks the office is dead, I think there are some very good reasons to think that’s not true. 

Susan Freeman

No, that’s very positive and what sort of assets are you focussing on?  Has there been a change of focus following the events of the last couple of years?

Bill Hughes

I think our strategy has evolved, I mean we continue to concentrate on investments that are based on need rather than, societal need rather than just the economy.  I would say we have become but we were already becoming more selective in the office space recognising that quality and being in touch with the transition to net zero subjects will become critically more and more important.  We’ve been underweight retail for some time, we continue to think that’s the right place to be but there is some retail opportunity, there are retail assets that will perform.  The residential sector, you talked about housing generally as being a big part of what we’ve done in the last six or seven years, we will continue to see that as being a priority.  Other new sectors as well, I think self-storage is very interesting, we believe selectively in hospitality and then moving away from real estate, Susan, just to you know to really make the point, as well as investing in elements of economic infrastructure that is transformational, we are major investors in renewable forms of energy, in solar, on and offshore wind, energy transition storage, that’s a bigger and bigger part of what we do. 

Susan Freeman

Interesting.  And just slightly changing tack, I just wondered what your views were on virtual real estate since we’re hearing more and more about it at the moment?

Bill Hughes

I, I’m watching and waiting and seeing how significant that is.  I think just because technology allows you do certain things doesn’t mean to say there’ll be mass adoption.  Probably, I’d say one thing that the pandemic has reminded me of is how most people want to have human interaction and want to have something that allows them to collect with other people.  So, I would be a little sceptical of virtual in so far as virtual means you know you, computer, no other people involved, I think.  I think it could be overstated so, look it may well be part of what happens in the world of, the young people gaming is evidence of fact there is a growth sector there but I do think most people want human interaction. 

Susan Freeman

No, it’s just interesting and one can’t ignore the large amounts of money that seem to be changing hands for virtual real estate at the moment but it’s pretty much early days.  And I wondered if you have a favourite project out of the many projects that you and your team are involved in?  Is there anything that’s really a favourite for you?

Bill Hughes

Ooh, choosing one is going to upset lots of people in my team.  I think the, probably the most exciting example of regeneration that has been totally transformational is what we’ve done in central Cardiff, around the station, that’s a project that we’ve been involved with for seven years and as well as getting the BBC there and some commercial offices, there’s residential now, there’s a new Welsh HQ being built for L&G and the public realm and the environment there has been totally transformed by you know our partners working together with L&G and the commitment we’ve had there.  So that’s one example of regen that I’m super excited by and I think the project that will really impress in the years ahead is our commitment to modern methods of construction, I think we will, with the benefit of hindsight, be seen to be a leader there and there will be more of that to come. 

Susan Freeman

So, I just wondered with all the things that you are involved in and responsible for, how you have any time for your leisure activities which I believe are singing and fishing, I’m sure there are others, how do you make the time?

Bill Hughes

Erm, got to have a good team around you, ruthless with delegation and make a little bit of time around work to make sure you can have some downtime because I don’t think it’s particularly helpful to be working all of the hours that we get seven days a week, so I make sure I have some time away from it but I have some great people, Susan, in the end it’s the quality of the team and the support that you have to make it happen. 

Susan Freeman

Well that’s great and I think a really good place to stop so thank you so much for your time and I hope to see in real life very soon. 

Bill Hughes

Looking forward to it.  Thanks for the time, that’s great. 

Susan Freeman

Thank you.  Thanks a lot.  Thank you, Bill Hughes, for talking so candidly about the many challenges facing the real estate sector and being honest about the failings of the past.   So, that’s it for now.  I hope you enjoyed today’s conversation.  Please join us for the next PropertyShe podcast coming very soon. 

The Propertyshe podcast is brought to you by Mishcon de Reya in association with the London Real Estate Forum and can be found at Mishcon.com/PropertyShe along with all our interviews and programme notes.  The podcasts are also available to subscribe to on your Apple podcast app and on Spotify and whatever podcast app you use.  Do continue to subscribe and let us have your feedback and comments and, most importantly, suggestions for future guests and of course you can continue to follow me on Twitter @Propertyshe and on LinkedIn for a very regular commentary on all things real estate, Prop Tech and the built environment.

Bill is Head of Real Assets at Legal & General Investment Management.

He joined Legal & General in 2007 and is responsible for transforming its UK property fund management business into a global-reaching real assets platform.  Operating in both the direct investment and lending markets, today it actively invests and manages over £35bn assets under management, providing capabilities in real estate, infrastructure and corporate debt. Bill previously held positions at RREEF, the Real Estate Fund Management business of Deutsche Bank and Schroder Property Investment Management.

Bill is currently a trustee of the UK Green Building Council and Chair of the Property Industry Alliance (PIA), bringing together the UK’s leading property bodies to give them a stronger collective voice on issues such as policy, research and best practice. Bill was a Commissioner for the Lyons Review, is a Past Chairman of the Association of Real Estate Funds (AREF) and a Past President of the British Property Federation (BPF).

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