In the current constrained lending environment, pension funds could hold the key to reinvigorating urban investment in cities. With funding difficult to come by in ordinary commercial capital markets, cities such as Manchester have managed to develop innovative solutions to facilitate continued urban investment.
Pension fund investment traditions in Manchester
The concept of pension funds investing locally to support economic growth is nothing new to Manchester. Indeed, the Greater Manchester Pension Fund (GMPF), founded in 1986, has been investing locally for over twenty years, with the aim of helping the area prosper, while creating commercial returns.
The most successful form of local investment undertaken by the fund has been through the Greater Manchester Property Venture Fund, set up in 1990 and managed by GVA property consultants. Since its inauguration, the fund has developed over 1m sq ft of commercial buildings locally, with all them having made a profit.
In addition to the £56 million that GMPF had already invested in infrastructure by March 2011, the fund also recently invested in the first speculative office development outside London since the Financial Crisis, jointly with Argent, the property arm of BT’s pension fund.
The North West Evergreen Fund
In 2012, the newly established North West Evergreen Fund, a consortium which includes Manchester City Council, the Greater Manchester Pension Fund and CB Richard Ellis, went live in the Greater Manchester, Cheshire, Cumbria and Lancashire areas. The fund has initially been capitalised with a £30 million pool of JESSICA funding, but the Greater Manchester Pension Fund Venture Fund, the Lancashire Pension Fund and Barclays bank have all pledged to work alongside the fund, committing £50m, £50m and £300m respectively.
By providing capital for viable development projects whose risk profile might not be conducive to traditional lending sources, through predominantly mezzanine funding, the intention of the fund is to facilitate the realisation of wide ranging community benefits in this constrained lending environment. Projects will be required to not only match the fund’s investment, but must also fit within its regenerative outcome framework.
Commercial returns made from the repayment of loans will be recycled by the fund and used to develop new projects, with individual investments totaling up to £6 million per project and a focus geared towards commercial and light industrial industries.
CBRE, who are acting as General Partner Real Estate Advisor to the fund, are already considering proposals and are reportedly at an advanced stage in the decision making process with their first project.
Tony Martin, Head of Investment Advisory, CBRE, emphasised the potential impact that the fund could have on the North West of England, “The North West Evergreen Fund….will give developers the opportunity to secure much-needed finance for strategic sites that will make a significant contribution to the success of the North West’s economy.”