Yoo Capital on creating property for the people

This article is sponsored by Yoo Capital

In a major gateway city like London, shiny glass office buildings will always be a major feature. For Yoo Capital, however, London’s real estate offers much more than this. “We’ve specialized in finding hidden gems in London – the unfinished buildings, the ones that haven’t been renovated in 50 years, the forgotten heritage estates – and polishing these gems to bring them to life in a way that not only creates sustainable long-term value, but also reinforces a sense of community,” the firm’s managing partner Lloyd Lee tells PERE.

In fact, adding social value does not mean profitability must suffer; the inverse can also be true provided it’s done in the right way, argues Lee.

How can you deliver true social value and returns to investors through real estate projects?

What makes London such an attractive city is the tremendous mix of diverse people, industries and character. Those qualities make the city far more than just a financial capital.

We create real estate that speaks to multiple stakeholders: to those that have and to those that don’t; to those that need and those that need more; to those that are learning and those that are teaching; to those that are growing and those that have grown and are now giving back. When you create property that’s purposely built for the community – and we’ve seen this with our portfolio’s track record going back 11 years – investors like to buy those assets, tenants like to occupy those spaces, and people like to live and work in them. Demand goes up.

That means more returns. Rents go up, not because you’re simply charging more to everyone but because you’re adding more to the value proposition for occupiers. In fact, if done correctly, you can create higher rents by actually creating affordable office spaces, affordable housing and mixed communities of real people because these are the communities and neighborhoods that even big corporates want to live in today. When you find the corporates that, for their own people and their own ESG commitments, want to go into a neighborhood that’s mixed, open, sharing and giving, then they’re prepared to pay the rent to go there because part of that rent is viewed as an investment in the built community of which they’re now a part.

Institutional investors know that properties in these communities will be leased more often and at better rents to tenants which are more loyal because they choose to be there, rather than in another shiny office building with no amenities or community, which they are likely to leave the minute there’s a downturn.

When it comes to opportunistic strategies, is it possible to find a balance between social value and profitability?

It is possible. We’ve been doing it since inception and we think more managers should do it. But it is harder to do. For over 11 years, we’ve been delivering unlevered mid-teen returns in central London on high-quality assets. Adding back in the moderate leverage we actually used reveals top-tier opportunistic performance in central London. We’re proud that we’ve built real communities in London as part of how we generate those returns.

When investors look at our portfolio, they feel they have created real communities in line with their own ESG responsibilities and strategies. So, we’ve had a very good reception from major institutions, family offices and state and private pension funds, which are looking to combine solid returns with important social and ESG corporate responsibility measures.

Post-covid, where are the opportunities to build social impact with attractive returns?

We don’t correlate social impact with a particular exogenous event, such as covid or Brexit. And the reason is because social responsibility is 24/7, 365 days, year in and year out. You should always be socially responsible, and we always put social responsibility at the forefront.

In terms of where we think there’s great need now, as a result of covid, it’s in creating entry-level jobs with upward mobility. We’ve seen real challenges in hospitality at the basic wage level, and in the entertainment and arts industries where theatres have literally been closed for two years, and some may never come back. So, if you look at our investments, you’ll see a big focus on the creative industries, and on life sciences/healthcare.

However, it’s not just creating studio spaces or office spaces, it’s working with educational institutions, non-profit organizations, and encouraging small to medium-sized businesses to grow, innovate, raise their profile and continue to produce for the benefit of their community. We want to enable them to do this without the struggles of extraordinarily expensive real estate in London.

So, we’ve created a partnership with a major university to start a life sciences incubator space in central London as part of our commitment to create great places for everyone in sectors that the covid environment has made particularly vulnerable or particularly valuable to society.

How do you measure the social impact of real estate assets?

Measuring social impact is difficult but not impossible. In the UK, many firms try to make an impact by spending, for instance, on measures to comply with Section 106 of the Town and Country Planning Act 1990, which is a legal agreement between developers and the council, in which the former agrees to provide contributions to offset negative impacts caused by a development.

But we’ve come up with our own framework of how we measure impact. We look at the potential for transformation, partnerships and overall affordability for end users, and then consider how we can bring people along with us. We also run Equality Impact Assessments on every asset to ensure we challenge ourselves.

So, on every investment memo we write to the committee, we look not just at investment returns, but also at the impact of investments on the social fabric of a community. A third-party firm also helps us on this journey by assessing the governance, measures, reporting and maintenance of all the commitments made as a house and as a fund. They produce a report that enables investors to assess how Yoo Capital is performing in terms of E, S and G. It’s an objective view of us and it’s been well received by investors.

Is it easy to find industry partners focused on delivering social value today?

It’s becoming easier. We’ve found like-minded partners in the arts, sciences, education, corporate, entertainment, and in banking and finance. But you have to reach out and say, ‘We have more than just a building for you to take. We have a community story we want you to be a part of.’ And when we do it that way, we find that all manner of different counterparties in the industry have joined us in partnership toward the creation of these communities. That’s been very rewarding.

It’s also been rewarding for investors because they benefit from our real estate that’s built with some of the best and most financially stable names in the industry, which are all supportive of giving back to the community. It’s also benefiting other stakeholders we work with closely, which are often individuals, non-profit organizations and small to medium-sized businesses.

Asset case study: London’s Olympia redevelopment

How investors can benefit when real estate ‘speaks to people’

For Yoo Capital, true social value for the community occurs when it is built into a project from the beginning, not when it is tacked on at the end as a charitable donation, for example. It is crucial, therefore, to carry out a comprehensive consultation with all stakeholders involved in the project. The time commitment to listen to a community and engage with individuals involves effort, but it also offers advantages.

These have emerged at Yoo Capital’s Olympia project, a £1.3 billion ($1.8 billion; €1.5 billion) redevelopment to transform the venerable London venue into a new creative arts, entertainment and exhibition district.

“When we’re creating a place for a community, we have to meet its people in person, talk to them, listen to them, not once, not twice, but hundreds of times over the course of a year or two years. At Olympia, in a single year, every member of the firm participated in 66 days of consultation,” says Lloyd Lee. “And we’re still doing it four years later.”

After the consultation for Olympia’s plan, Yoo Capital got hundreds of support letters, even from stakeholders renowned for being critical, Lee notes. “They wrote letters of support for us because of the inordinate amount of work we did to build stakeholder communication and engagement. And then incorporate that engagement into our final vision.”

This way, real estate that ‘speaks to people’ can be created, while generating benefits to investors. “It means higher demand, more liquidity, greater long-term income streams,” Lee says. “At Olympia, our average lease duration, even after the pandemic, is 33 years. We even have some leases for 70 years. Occupiers anticipate their grandkids will still be part of Olympia when they hand over the business to them. And that’s because they are really committed to the vision we’re creating in the community.”