Urban & Civic: first interview with the hunting partners

In May 2014, Urban & Civic shocked the industry by pulling off a reverse takeover of regional developer Terrace Hill. In their first interview since the merger, EG finds out how the all-star team will now apply their transformation of London to the regions

Nigel Hugill believes in a well-cut suit. And, over the past year, the executive director of developer Urban & Civic has shown that decent tailoring really does go a long way.

Project Huntsman was the codename given to the process that led to his company’s eventual, and already exceptionally fruitful, takeover of Terrace Hill. The codename was adopted in honour of his Savile Row tailor.

Now, the man as renowned for city-changing regeneration projects – White City, Stratford, Greenwich Peninsula – as his impeccable dress sense, is ready to give his first interview as he gears up for 2015 and beyond. And it is likely not to be a minute too soon for regional developers, many of whom have reacted with mild horror at how quickly the combined outfit has muscled in on the most hotly contested regional projects in the UK.

Indeed, Hugill and managing director Robin Butler have launched something of a surprise attack on the regional development market.

Sitting in the group’s Regus offices on Manchester’s Fountain Street, Hugill – fittingly wearing both a suit and overcoat “made bespoke for me at Huntsman” – and property director and former Terrace Hill chief executive Philip Leech talk about the year of the Huntsman and reveal their future plans.

Merger

Six years ago Hugill said that he planned to use Urban & Civic – the development vehicle he set up with fellow Chelsfield and Lend Lease director Butler a year earlier – to work up consents on half a dozen major residential sites across the UK before floating the business and building them out.

Hugill’s intention, after a career that had encompassed projects all over the country, was to replicate his game-changing London schemes in a regional setting, where prime large-scale development opportunities still existed.

In December 2013, the firm gained consent for 6,200 new homes on the former BT Radio Station site in Rugby, before gaining outline permission in January 2014 for 5,000 more homes at Alconbury Weald in Cambridgeshire.

Then Project Huntsman was set in motion. In May 2014, after a nine-month process Hugill describes as a “middle-aged wedding” – one preceded by a respectable courtship period – Urban & Civic joined forces with regional developer Terrace Hill.

The PLC offspring of the reverse takeover quickly turned shareholder heads, raising £170m the next day in a doubly oversubscribed placing – thanks largely to former Chelsfield colleagues. But few bystanders expected the new outfit, with its modest £23.2m group revenue, to become a heavyweight so quickly.

Within months, Urban & Civic had seen off housing giant Taylor Wimpey to develop the Defence Infrastructure Organisation’s 6,500-home Waterbeach Barracks site, worth £2.2bn – control tower and all. And then, in November, the firm was chosen by Morgan Stanley Real Estate Finance to take on Manchester’s Origin and Ramada sites for £22.5m – widely billed as the best development land in the North West.

Opening plays

The beauty of both deals is that neither Urban & Civic or Terrace Hill could have realistically bid for the sites alone, yet both have major exposure to their markets. The private equity-backed firm had hefty strategic consents and large-scale development and planning expertise that made it far better placed to raise public capital than the AIM-listed Terrace Hill. But it needed the latter’s local office network, regional presence and project management know-how to be a credible bidder on city centre projects.

As Leech says: “At Terrace Hill we would have dearly loved to have acquired these sites, but we wouldn’t have had the cash ourselves, we’d have had to find a financial partner. MSREF wouldn’t have hung around – combining meant we were a part of a group that could raise capital and be a cash buyer. That plays to our strengths, with our regional office network being able to spot those opportunities.”

Likewise, Hugill believes the synergies of the new public company were vital in securing the Waterbeach mandate. “Taylor Wimpey was 10 times our size. We certainly wouldn’t have invested the time, money and effort had we been a private company, because I wouldn’t have been confident. It would have been an incredibly tough decision for the MoD to make that selection.

“We have shown that we can effectively compete against the largest companies. We are able to punch above our weight in that regard,” he adds.

He isn’t the only one who believes the pairing has proven to be more than the sum of its parts. JP Morgan Cazenove head of real estate Robert Fowlds calls Hugill and Butler “the best developers of their generation”, because of their consistent record of delivering for their shareholders.

“They bring amazing planning skills to the table, they are highly innovative, their delivery track record is excellent. And the idea of the merger has got off to a dream start,” he says.

Future plans

What those shellshocked developers on the receiving end of this early onslaught will be asking now is just what Hugill and Leech are planning next.

The duo seem confident that it won’t be long before they announce their next major strategic development site. In fact, they still want to hit their target of six, having meticulously calculated that London is coming to the peak of an eight-year-down/eight-year-up cycle of house prices in relation to the regions.

Only time will tell if the recovery pans out as Urban & Civic expects. JLL is forecasting 22.2% growth in house prices across the North West between now and 2019, along with 25.8% in the East of England and 20.5% in the West Midlands. London’s 29.4% growth prediction doesn’t quite tally with Urban & Civic’s view that the regions will close the gap, but its spread of major housing sites still looks like a good bet.

Its good fortune comes by chance as well as design – serendipitous policy twists such as stamp duty reform and the mooted mansion tax will drive buyers out of London – and the team can be confident the current political momentum around garden cities and urban extensions will prove to be a fillip for their projects.

The group has designs to amplify Terrace Hill’s operations too. Armed with the share placing funds plus about £10m in change from disposals, it wants to snap up residential, student housing and regional city centre leisure projects to capitalise on the beginnings of a revival in consumer spending power, driven by real wage growth and a drop in oil prices.

The regional cycle

Coming from a man of Hugill’s experience, such plans carry significant weight.

“We have been through cycles enough times to know that property follows economic cycles,” he explains. “One of the history lessons in provincial development is you want to start early in the recovery cycle, which is where I see Manchester at the moment.”

Leech, too, is keen to talk up leisure development in the regions. “Commercial and town centre leisure will be a really strong push for us,” he says. “It’s consumer-facing, and they are great assets to
hold on to, be that for five years or until rents start to grow on the back of the consumer recovery.”

Urban & Civic is less bullish on the more volatile regional office markets. Indeed, it expects to revise the existing Origin consent in Manchester’s Piccadilly away from office use to accommodate a three-phase scheme of around 250 flats and a hotel, rebranding the site and “softening” its angular pre-recession design in the process, before a potential start on site this year. As ever, the first step will be to consult city hall.

Ramada in Deansgate, which is leased to Marriott Hotels until November 2017, will be the subject of an international design competition, with a five-phase plan totalling 550 units the likely outcome. Together, the sites will see around £300m of development.

It is these two sites which are best placed to quench Hugill’s thirst for city-changing projects that grip local imagination. The lack of activity on the ex-Nama sites has been the source of some controversy – Origin has been branded an “eyesore” by local petitioners and Ramada is the site of a major proposed retail scheme.

Much of Origin’s infrastructure has already been taken care of, including three levels of car parking and the riverside site’s retaining walls.

The importance of the sites is not lost on Hugill who, in his Lend Lease days, developed the site opposite Ramada. “These are key sites for Manchester – just as Stratford, Paddington Basin and Greenwich Peninsula were key pieces for London. For us it’s no different.”

Moving in

Despite all this, it is worth noting the embryonic nature of the alliance between Urban & Civic and Terrace Hill. The newlyweds are yet to even move in together – a June date has been set to occupy their new West End HQ at 50 New Bond Street, W1.

There will be plenty of people watching to see what they can do once they get their feet under the desk, but given the pedigree of those involved, nobody is calling the group’s early wins beginner’s luck.