In a world that has changed considerably over the past 20 years I wonder if the archaic view of the rapacious landlord, sitting in his ivory tower, has moved on?
At the London Movers & Shakers breakfast a couple of weeks ago, EG editor Damian Wild put the panel under pressure by asking them to respond to Russell Brand’s take on the world of property and rapacious landlords. The comedian-turned-social activist had of course just triumphed with residents of the New Era estate in Hackney in a high-profile campaign that prompted US private equity firm Westbrook Partners to abandon plans to redevelop the estate. Brand described this as a victory over “lazy government and greedy corporations”.
As you may expect from an articulate, polished panel of property chief executives, there was a convincing rebuttal – long-term vision, placemaking, and enlightened self interest featuring strongly. Therefore, it was interesting to get some more, direct feedback from occupiers at the jointly held Property Finance Forum and Association of Property Lenders breakfast last week.
William Newsom, head of valuations at Savills, opened the debate with a strong statement that “occupiers are at the top of the food chain”. After all, without occupiers, there would be no income stream and so no value (and no job).
It transpires that occupiers don’t necessarily agree with him, or at least do not feel particularly valued. Philip Bier, managing director of Tiger, gave us his perspective as a retailer: “It’s my customers who are top of the food chain.” It was difficult to argue with his stance that in creating successful locations, it is critical for occupiers and landlords to work in tandem. Rather disappointingly then, his own experience of landlords has been a lack of co-operation and engagement. He raised an issue that I have seen played out in property company boardrooms. “Obsession with value is one of the biggest issues getting in the way of regeneration.”
It is easy to castigate property companies for not taking the long-term view on value creation, but one has to be mindful of their motivations. First of all if they require debt funding, a move away from long leases to good covenants, in favour of interesting, vibrant start-up operations, is generally not an option. Secondly, they have to respond to stakeholders, in particular the fund managers which own their shares and are measured by quarterly or monthly performance – not quite in keeping with the long-term view of regeneration. And whose money are these fund managers investing… ours. Behaviours will only change if we vote with our feet. Maybe Earls Court or Ebbsfleet should be funded via a “with profits zero coupon” retail bond?
On with the breakfast and it turns out it’s not just the small retailers like Tiger which do not see themselves at the top of the food chain. One big four accountancy firm described its view of landlord attitudes as “give us your money and go away”. It had never had a landlord knock on its door and offer to save it money. As to service charge, its opinion was that its assets were badly run with the managing agents “at the bottom of the food chain”. True to form, from one of the world’s pre-eminent consultancy businesses, the advice is to move from relationships based on confrontation to one based on collaboration. Its recommendation is the incorporation of service level agreements into leases, as it does with its own clients.
Business having to be ever more aware of customer and employee needs, in order to remain competitive, will have a knock-on impact on real estate, as we are called upon to create places that are attractive for people to both work in and spend leisure time. It is easy to think the industry is doing a good job when looking at Argent’s and Hermes’ regeneration project at King’s Cross or the Crown Estate’s and Norges’s facelift of Regent Street, but speaking with occupiers it seems, unfortunately, this remains the exception.
In testing responsiveness to occupiers needs, survey rates were 45% positive. The school report says ‘could do better.’ So while Russell Brand’s comments may appear extreme, it seems as an industry we still have a long way to go to bring the world of real estate into the 21st century.
Rebecca Worthington, chief executive, Lodestone Capital
