Lendlease Europe boss commits to UK projects

As news broke in Australia that development and construction giant Lendlease was restructuring its business and selling off its international construction arm, EG sat down with European chief executive Andrea Ruckstuhl to understand the implications for the UK business. Ruckstuhl was emphatic that the business would remain committed to its current projects across both the UK and Europe and was focused on delivery, with core competences around development and construction retained in-house. “We are definitely not exiting Europe. We’re here for the long term,” said Ruckstuhl. “Yes, we are divesting from construction but that will happen over time with no rush. And in no instance are we considering rounding the business down.” That statement came after the leadership in Australia said it was simplifying its organisational structure and right-sizing its cost base through a restructure that will see it focus on its Australian business and international investments platform, recycle A$4.5bn (£2.3bn) of capital by completing deals already  announced and underway, exiting its international construction business and “accelerating capital release” from its offshore development projects and assets. For the European business, including the UK, this means that development projects traditionally funded from Lendlease’s balance sheet will now be brought forward through partnerships. The group said the complexity and timescales involved with large urban regeneration meant that the balance sheet-funded model was “not sustainable” at the scale at which it operates. The new third-party partnership plan will enable the group to reduce its reliance on its balance sheet and accelerate delivery of its pipeline, said Lendlease. The firm said it would work out ways “to best maximise” projects on which it was master developer, which could include land sales to bring in other developers to help build plots out. Ruckstuhl said the business remained fully committed to its projects in the UK, including its project at Euston station where it is master developer for the proposed 60-acre scheme and the £1.9bn Smithfield development in Birmingham. “We want to get going on Euston,” said Ruckstuhl. “We strongly believe this aligns with our investment strategy on the sectors we’re keen to move forward with – the living sector and science and technology. We are committed to get to the point where the project is ready to be taken forward. At that point we will work to find the right capital partner to take that forward into vertical development.” The same approach will be taken in Birmingham where Ruckstuhl said Lendlease would keep pushing the Smithfield scheme to a “value stage”, making it an investible project for capital to come in on. “We are not stepping away from any of our projects in Europe,” he said. “It is not about stopping. Looking forward we will be more focused on capital recycling and on how we take historical capital in the project out and how we align with third-party capital to find a solution for projects. “In some instances that might mean we are going to sell some of the plots,” he added. “We are going to look at all the options to optimise that return.” Ruckstuhl said Lendlease was still committed to some level of investment, but this was likely to top out at about 25% instead of the 100% it had been investing. “We are still committed to invest to get the projects to a point of value creation where they are ready to be vertically developed, or at the point at which we have an investor who can take with us – or take directly – some of the parts forward.” He added: “The nuance of the change is that there will be no new development on balance sheet. Lendlease is not going to acquire another large project 100% ourselves but we are definitely working with capital partners on our strategy, which is sustainable offices, BTR and science and life sciences.” And Ruckstuhl is pretty confident that capital partners wanting to invest in its major developments across Europe are out there. “Europe is where global capital is going to be most interested over the next five years and we are ramping up our relationships and organisation to serve that capital,” he said. “It has been a very difficult two years in the capital markets, but I am really hopeful that we will start seeing interest rate cuts pre or post summer. “We are hopeful that over the next 12 months we will see a shift in interest and Europe is one of the markets which I would bet on in terms of attraction of capital.” The restructuring of the business follows a tough four years of trading for the Lendlease business that has seen its stock price fall by around 50%. Its most recent interim results, reported in February, saw the business post a A$136m loss. Photo © Lendlease