UK social innovation charity purchases £50m London pad
A UK charity that supports the social enterprise and social impact investment sectors has purchased central London offices worth £50.95m, leading some to question the wider impact of this decision.
The announcement drew a particularly searing attack from the founder of seed stage social investor Merism Capital, Stephen Rockman, who made his views known via social media. Rockman told Pioneers Post: “You have to wonder who in their right mind thought that spending £50m on a pile of bricks was a better use of charity funds than investing in people. Yet incredibly Nesta indulges in a spot of corporate vanity without any qualms and hoping no one will notice.
“The board should be embarrassed by such rotten judgment in signing this off. Normally so acutely aware of its reputation and immodest with its PR, their failure is exacerbated by the lack of explanation.”
When asked to comment on the purchase of the building a spokesperson from Nesta responded: “The price of the building was checked with independent experts and what Nesta paid was in line with independent valuations, as is right for a charity.
“The board analysed the different options in detail and rigorous assessment convinced the board that this was a prudent investment. It is common for endowments to purchase property as part of their portfolio. Purchasing the building provides better value than renting as costs are more controlled and ultimately become capital. It will also give Nesta and the organisations that join us at 58 Victoria Embankment the stability of a permanent base.”
The new building will enable us to further this work as we bring more like minded organisations and people together.
According to Kier Property, one of the property partners that sold the building to the charity, the offices will become Nesta’s new headquarters. On the real estate company’s website it also states that the building has been “designed to exceed BREEAM’s (Building Research Establishment Environmental Assessment) Excellent sustainability rating” and “incorporates a number of ‘green’ technologies, including solar photovoltaic panels that generate power from both the top and underside of the panels”.
Nesta’s spokesperson continued: “The purchase of the building is not simply about finding office space. It is an addition to Nesta’s investment portfolio for our £380m endowment, which funds our charitable work.
“Nesta’s work is and has always been funded by an endowment, which we manage and grow through an investment portfolio. This allows us to grow our charitable work. The new building will enable us to further this work as we bring more like minded organisations and people together.”
Unimpressed by this response, Rockman concluded: “The fact remains that it is impossible to claim that Nesta’s effectiveness will be enhanced by draining funds for a property acquisition when they could quite easily be sitting in offices in Dalston or better still, being first movers in the next up and coming community."
Pioneers Post approached a number of organisations in the social investment space about the property deal, but most declined to comment. One – who wished to remain anonymous – reflected on the deeply entrenched affordable property crisis that London is currently facing: "While the investment case for purchasing property for £50m might be valid in many ways, this decision raises questions around whether Nesta is simply behaving in the same way as the big businesses and foreign investors paying extortionate prices for London property and pushing out the smaller, start-up businesses struggling to pay rent. Nesta say they 'find new models for inclusive economic growth' and 'promote fairer distribution of wealth'. On the face of it this seems to do the opposite."
One leading figure who was prepared to comment was the CEO of Social Enterprise UK (SEUK), Peter Holbrook. He told Pioneers Post: "There is an imperative on all of us within the social sector to think about how we should go about best achieving our purposes and social missions, and actually a far wider social impact and all sorts of added social value could have been achieved had they gone into an area that was in need of regeneration and stimulus.
"While going into one of the most expensive areas might be a wise financial investment, Nesta was never designed to simply create a return, it has a much wider mission and its decisions should always be taken with its mission at the forefront."
Feel the power: unintended consequences of the social innovation giants
The office purchase also raises another issue around unintended market distortion by those in the social enterprise and impact investment sector who have the luxury of vast supplies of capital from publicly funded endowments that smaller organisations, which have been built from the grassroots, simply do not have.
In a statement on its website, Nesta has written that the new office "also enables us to realise our aim of creating a hub which will house many other organisations involved in innovation as well as providing an events space for others to use".
On the surface this would appear to be a good thing – a number of social ventures will be able to rent cheap office space and work alongside colleagues in the social sector. But Holbrook believes there are inherent risks of market distortion.
This road is littered with unintended consequences.
The CEO of SEUK said: "There are already a number of providers of accommodation to the Third Sector in the marketplace – including The Hubs and CAN Mezzanine – which in most instances have had to raise capital in commercial ways because they don't have access to cheap, subsidised or free capital. Nesta along with other publicly funded or endowed agencies need to be cautious that they don’t distort the market; that they complement rather than compete.
"It’s very possible that Nesta could out-compete some of those existing social enterprises and charities in the sector that simply cannot compete with the cheapness of capital that Nesta has access to. Although it would never have been Nesta’s intention, you could end up with them having a very strong, competitive advantage against those which are organically developing in the sector, without that very clear public sector support."
Emphasising that his comments refered to a much broader debate that needed to be had in the social enterprise sector around market distortion, Holbrook concluded: "I’ve been increasingly worried about these publicly created and publicly endowed, big organisations unintentionally having a big impact in distorting the market. This road is littered with unintended consequences. What we must do is ensure market distortion is kept to an absolute minimum to avoid putting good, organic, innovation out of business."
Due to the size of its operations and the number of organisations closely affiliated with Nesta, Rockman also questions whether the organisation has become 'untouchable' as an organisation within the sector.
He concluded: “The purchase reflects badly on the social enterprise and impact sectors. All those self-proclaimed disruptors, innovators and designers of new ecosystems have been mute on this bit of good old fashioned corporate greed from one of their own. Such silent hypocrisy reinforces the feeling that too much backslapping goes on, that no one wants to rock the boat and that the handful of dominant organisations are unimpeachable.”
Nesta's new offices are currently being redeveloped and are expected to be completed in August 2016.
Photo credit: Loco Steve