Bruntwood SciTech was founded in 2018 as a joint venture between Manchester-based developer Bruntwood and UK insurer Legal & General. It develops and manages UK science and technology property, including a focus on life sciences.
Its 2.4 million square foot portfolio comprises 10 campuses, including the UK’s largest single-site life sciences campus, Alderley Park in Cheshire. Melbourn Science Park near Cambridge, acquired by Bruntwood SciTech in March 2021, marked its entry into the UK life sciences ‘golden triangle’ of London, Oxford and Cambridge.
Since the start of the pandemic, its financing deals have included a £95 million (€111 million) sustainability-linked loan from a banking consortium formed of NatWest, Lloyds, Santander and HSBC UK to fund development and acquisitions, which is extending a 2018 loan; a £44 million loan from OakNorth Bank to develop office and lab space in Birmingham; and a £16 million loan from the North West Evergreen Fund to finance a development at Manchester Science Park.
Real Estate Capital caught up with chief executive Kate Lawlor to discuss the impact of covid on life sciences real estate financing.
How available is finance for life sciences properties?
Historically, it had been tough to source finance for such properties because most lenders did not fully understand them. They perceived them as risky due to their complexity, their high operating costs and the high levels of investment required to service customer needs.
More recently, through the pandemic, lenders’ attitudes towards the sector have changed significantly, with a growing number of debt providers willing to fund it. Covid has shown them that, by funding the sector, they can de-risk their loan portfolios by supporting real estate targeted towards sectors that are now at the forefront of UK economic growth. Particularly now that the office sector is challenged by the pandemic, financing properties combining workspace with lab space is perceived by more lenders as a way to de-risk.
What type of lenders are most willing to fund your projects?
It depends on the project. Our banking club has heavily supported us since we formed in 2018, by focusing on our core income-generating investment properties with an element of development and refurbishment overlaid. However, our growth trajectory means we have had to source development finance from alternative debt providers, given the clearing banks’ risk parameters steer them away from this type of higher risk lending.
We also source finance from local authorities, including the North West Evergreen Fund in Manchester, a public sector-owned fund, managed by consultant CBRE, with which we have developed a strong relationship over the years. We are now beginning to see an increasing number of local authorities looking to fund our target sectors.
What debt terms are on offer?
This varies depending on the lender. But for our income-generating investment assets we are typically seeing leverage at around 55 percent loan-to-value with development finance originated at around 60 percent loan-to-cost.
Since the pandemic outbreak, margins have moved out slightly, reflecting the current heightened risk in the broader economy.
But we are not really seeing a difference in pricing between lending targeted at life sciences assets versus traditional commercial property, nor the requirement for additional protections, due to the perception that, as an asset class, life sciences-focused assets are becoming less risky, given the sector’s growth.
How have you incorporated sustainability into borrowing?
We are committed to be net-zero-carbon by 2030, so we are actively reviewing all our assets and initiatives to ensure we hit that. To improve the sustainability credentials of our life sciences properties is challenging, as the occupiers are pretty intensive energy users, so the ball is in our court to encourage initiatives like renewables procurement to drive sustainability.
Sustainability is a huge focus for us now, and our ability to secure the £95 million loan extension in May on green terms was a great achievement. Some KPIs around carbon intensity, waste and recycling, green energy and renewable procurements were set up with a margin discount pegged to their fulfilment. Should those metrics not be hit, that margin saving would be fed into a charitable donation supporting sustainability initiatives. We found particularly attractive the potential for that ‘penalty’ to feed back into the local communities where we are embedded, given the wider purpose of our JV’s shareholders, who are committed to creating thriving cities and urban regeneration.
Can life sciences financing promote societal impact?
Lenders can help drive societal change and contribute to a healthier population. A lot of the activities performed by our customers within our portfolio are targeted towards improving the physical and mental wellbeing of the UK population. Funding the creation of thriving and successful life sciences ecosystems, within which activity is carried out that has a direct impact on improving the health and wellbeing of those local communities, can have a huge impact on the promotion of societal change.