A modus operandum that works

A conservative approach has paid big dividends for retail developer Modus – its MD, Brendan Flood, explains his strategy to Adrian Morrison Learning to take risks safely takes years of practice – about 10 to be precise. In that time, Brendan Flood, managing director of Manchester retail developer Modus, has expanded its investment holdings from a single let scheme to property worth a total of £135m, with a development portfolio worth a further £180m. The apparent contradiction arises from a company that differentiates itself by being young, energetic and willing to consider leftfield ideas, coupled with a risk aversion more akin to a large financial institution. Part of this may be due to Flood’s history. His career started in investment banking at Barclays, and he says he would have been happy to stay in that sector had he not been poached by a customer of the bank. The prudence of a banker has stayed with him ever since. He won’t venture into retail parks, despite a latent ambition, because the sector is too competitive, and he won’t build anything unless there is a guaranteed profit. But the dichotomy is less of an enigma than it appears at face value. The separate sides of the business – development and investment – carry very different risk profiles. Development of any type is inherently risky, while the purpose of investment is to capitalise on what is essentially a safe bet. Organic growth strategy “We don’t build anything unless we are getting a 10% return on costs, so relative to other things we do we don’t take risks on shopping centres,” says Flood. He adds that he wants to expand the company’s net assets from £135m to £300m. “If the opportunities are right we take them – we have a tick list,” he says. This is no hollow ambition. Modus has a cache of £40m in retained profits, which will rise to about £50m after a number of committed developments and investment deals come to fruition. The next stage in its game plan is an acquisition this year worth up to £50m to add to its investment portfolio. Flood’s position on the potential purchase perfectly sums up the company’s typical approach of coupling risk with an element of prudence. “We will probably pick off something between £20m and £50m, most of which will have to be shopping-centre based. We would be more involved in the retail park sector, but Pillar is too good,” chuckles Flood. The biggest – and undoubtedly riskiest – venture of its history was a plan for £500m internet distribution network, blown out of the water when the dot.com bubble burst. The idea was to build 500 collection units for goods bought on the internet, of which Flood and his backers would wholly fund the first 20 or so. This project is now on ice, but the developer is ready to act quickly when the next opportunity arises. High-pressure working style Flood runs a fairly tight ship. He freely admits he is open to the criticism of overworking his 12-strong team, operating a management strategy of keeping “communication tight to get people to work to their limits”. This is undoubtedly a euphemism for sticking his oar in at every opportunity. The 39-year-old was born in Rossendale, near Burnley in Lancashire. He started working for Barclays Bank when he was 18 and gained a good understanding of business practise. His first foray into property came when he was 26. He says: “I had no ambition to be in property. A customer of the bank poached me to help him with his business and said he would double my wage and give me a BMW. “When I was 29 I thought I could do this myself, so I set up my own business about 10 years ago, but was too ambitious at the start.” However, the ambition started to pay off after he met the two men who remain his financial backers to this day. North West entrepreneurs Martin Abramson and Aaron Wacks jointly fund most of Modus’s developments and investment deals, assuming about a third of the risk each. Most of their debt comes from CGNU, and the preferred funding structure is through limited partnerships. More recently, Modus has been granted permission to redevelop a 170,000 sq ft shopping centre in Smethwick, West Midlands. The £25m Windmill Shopping Centre is the first in what Flood hopes will be many sorties into the West Midlands. The company hopes to open an office in Birmingham next year to tap into the opportunities created by improvements to the M6. “The attitude in the Midlands is not too different from the North,” says Flood. However, he is more focused at the moment in finding a safe way into retail parks – and betrays some of his reasons when he says that working in town centres can become “a little trying”. He views the planning issues, local politics, and having to keep the world and its sister happy, as necessary evils. But he sums up his logic for enduring the burden of this kind of development succinctly: “You have to understand where you are on the ladder. We cannot compete with Peel or Castlemore, so you have to go to areas where they are not too strong.” However, he adds: “That is not to say they won’t run out of steam in five or 10 years and we will take over.” For the time being he is trying to enhance the value of Modus’s shopping centre investments with a number of initiatives to make them more profitable. He copyrighted the Shoppertainment concept in 1999, which is being adapted into Mall Theatre. This entails providing entertainment to increase the time shoppers spend in centres and encourage more impulse purchases. This builds on the trend of parents taking their children to the mall on a Sunday rather than the park. But the man who occasionally entertains risky ideas very rarely takes risks with his money. “A lot of developers have lost their way because they get their overheads too high. Development is feast or famine, but our shopping centre side means we keep our growth in balance.” Pragmatism indeed from the man who envisages his company head to head with Peel or Castlemore. Modus Properties shopping centre portfolio Modus’s investments are now worth £135m Name/location Size (sq ft) Value(£m) Status Anchor(s) Footfall(per week) Scheme agents Bay View, Colwyn Bay, North Wales 70,000 20 Permission for 60,000 sq ft extension Safeway/ Iceland/ Dorothy Perkins 110,000 Tushingham Moore/ Legat Owen Boscomoor Centre, Penkridge, Staffs 20,000 2.3 – Kwik Save/ Alldays – Louis Taylor& Co Castle Dene, Peterlee, County Durham 400,000 50 Provisional planning obtained for East Durham Retail Park ASDA/Boots/ Safeway 110,000 Tushingham Moore/ Simon Lyons Centenary Point, Rochdale, Lancashire – 14 Consent for 240,000 sq ft of high-bay warehousing – – – Cromwell Park, Preston, Lancashire 22 acres 19 – – – Littler & Associates/ NAI Gooch Webster Grand Arcade, Wigan, Lancashire 350,000 85 Consent granted Debenhams(70,000 sq ft) – Smith Young Moorhouse Wright/ Lunson Mitchenall Huyton Place, Huyton, Merseyside 51,500(20 units) 7.5 – – 50,000 Pendle Rise, Nelson, Lancashire 138,000(60 units) 11 – Home Bargains 65,000 Tushingham Moore/Bennett Princes Street, Stafford, Staffordshire 27,000(8 units) 4.5 – Home Bargains – – Safeway House, Burnley, Lancashire 25,000 – – – – Morgan Martin Thornton Centre, Blackpool, Lancashire 19,000 2.1 – Kwik Save – Morgan Martin/ NHR Windmill Centre, Smethwick, West Mids 170,000 25 Permission for £18m redevelopment Iceland/ Netto – Mason & Partners Winsford Cross, Winsford, Cheshire 230,000(80 units) 30 Permission for car park and 40,000 sq ft of retail ASDA 100,000 Tushingham Moore/ Robin Greenway Source: Modus