Despite the collapse in 2008 of its financial backer Lehman Brothers, Chancerygate is now on the road to a £100m push into the regions. Noella Pio Kivlehan speaks to managing director Eddie Cook about the plans for expansion
Ouch may be a small, harmless word, but it summed up a major incident in the lives of those working at Chancerygate in 2008.
The South East-based industrial developer and investor had, as it turned out, the misfortune of being backed by the bank Lehman Brothers.
What was a good move in 2007 when the bank came on board with an injection of cash by buying a 42% share in the business, suddenly turned sour a few months later.
When Lehman filled for bankruptcy in September 2008, it left Chancerygate in a quandary. “Bearing in mind we had a number of development sites coming out of the ground at that particular point in time, it was very much ‘ouch, what happens here?’. So we stopped and thought about what we were going to do,” says Eddie Cook, Chancerygate’s managing director.
“We had a number of schemes that were part-finished. These were largely being built for the freehold disposable market, with units sold to foreign occupiers, which is the base of the model. And the market wasn’t there.”
A solution, says Cook, was to start letting units on step rental deals to reduce the void. At the lowest point for the company, it had 220 vacant units out of a total portfolio of 600.
But six years later, and having bought out the bank’s shares in 2011 to be wholly owned by founder and chairman Andrew Johnson, and its director, general counsel Peter Lee, those woes are long gone.
In July, Chancerygate announced it was going to spend £100m on a major push into the regions in order to boost its portfolio. Proving how serious the firm is about the regions, it is opening a Manchester office to facilitate the expansion plan, which will be funded from its own resources.
“We really see value in the regions on the back of the UK’s economic recovery,” says Cook.
Since being founded in 1996 by Andrew Johnson, Chancerygate has completed more than 80 developments across the country, from 12,000 sq ft up to 400,000 sq ft, totalling 6m sq ft. It has 400,000 sq ft on site or in planning, and is looking for up to 15 sites over the next 12 months for speculative development.
But it is in the South East where the company has really established itself. Johnson had already completed his first industrial development in London’s Park Royal in 1994, but he really raised the bar when he set up Chancerygate and embarked on more development and purchasing. In 1999, Johnson established a Chancerygate asset management arm.
Cook joined in 2000 from Liverpool Victoria, following in the footsteps of his LV boss, Richard Melhuish.
“Richard and I worked together for 35 years until last year, when he retired. Richard joined Chancerygate when Andrew asked him to expand the business from being a development property company dealing with industrial development in Park Royal and to create an asset management investment arm,” says Cook. Johnson’s relationship with the two LV employees – Melhuish and Cook – started when LV financially backed that first Park Royal scheme in 1994.
Cook explains: “The thinking was, if we had an asset management investment arm, there would be a steady fee income coming through and it would give another stream, another strand to the business.
“Andrew was very right in his vision, he took the opportunity to create… the business at a time in the market where investments were constantly going up. We were able to buy and sell products, asset manage them, and make good profits for ourselves and our investors along the way.”
The first major deal was in 2001, when Chancerygate bought a £115m portfolio from Antler Properties. Several big deals and developments followed, such as the completion of the one millionth square foot in Park Royal.
In 2006 Chancerygate did something that, in retrospect, was a very good move: it sold a lot of investment stock two years before the recession hit. “We probably traded close to £560m in the space of six years. In 2006, we saw an opportunity, maybe some would say it was probably one year too early, but we sold quite a lot of our investment stock. And thank God we did,” says Cook.
He adds: “We felt the market was probably getting overheated at that time. There was, as I said, still some legs in it, but we got out a little bit earlier and we were happy to do that. We did streamline the portfolio purely because we thought it right for ourselves and for the investors as well, and then we thought we’d wait until the market was right to start buying again.”
That right time was in 2010. Even with the problems the Lehman collapse heaped on Chancerygate, the company did not stand still. It continued to build and buy portfolios and enter into new markets, such as a JV with Bridges Ventures in 2010 to develop student housing in east London.
Cook admits that when the company did start buying it was getting some good bargains. “[We were] looking for the bargains and taking the opportunity and time to do that. But certainly since the crash, the company’s focus has been, and is very much, on development, which is where it’s all really started from.”
The £100m thrust into the regions is testament to the company going back to its grass roots. Cook confirms the majority of the developments will be speculative build – in 2011 Chancerygate was the first company to spec build in west London since the financial crisis, when it completed the 80,000 sq ft 4-40 Link Project in Southall.
While being in the regions is not a new thing for the business – as it has previously developed in Birmingham, Milton Keynes, and Stockport – it has upped the ante.
Cook says: “I would say certainly in the past three to four years we’ve started saying we’ve got to think about outside London, purely because in the London market you chase sites and it is overheated. It’s hard to acquire sites at levels that we know should be sustainable to build out.”
The money is coming from backers, as well as Chancerygate leveraging up the firm’s balance sheet and entering into JVs with institutions.
Talking about the institutional market, Cook says: “This time last year I can safely say I was knocking on the doors of a lot of fund managers, saying, ‘come and chat to us about the spec development; there’s a dearth of supply out there’. You know, you build it and it will work, even if you do it on a lease sub-basis.
“But they were putting their hands up and showing me the door, basically saying, ‘no, now’s not the right time’. That sentiment’s changed since just before Christmas, and people are knocking on our door saying, ‘bring us products, we want to do spec development’.”
Areas targeted are Manchester, because, according to Cook “it has a great hub with the motorway networks”, Liverpool, because “there’s a fantastic growth, with the deep port that’s coming on board, and the effect is rippling out”, and the traditional areas in the Golden Triangle such as the East and West Midlands.
Cook says: “We will be competing with the likes of Prologis and Gazeley, which are in a very different market from what we’re doing. We’ll be more than happy to go back into building big boxes, but at the moment our focus is very much at the smaller to medium-size end.”
Even with this regional slant, Cook says Chancerygate will not forget its beloved, albeit expensive, South East. “Our focus will always be on London and the South East because that’s where there is supply and demand. But we do see prospects in the regions and we do see the fact that there hasn’t been a great deal of development, certainly since the downturn.
“Creating the right sort of product in those regions I think will go very well.”
