“The tenant schedule was decimated,” says Rahim Virani, managing director of Cygnet Properties & Leisure, looking over his shoulder at a sizeable chunk of down-at-heel real estate.
He could be talking about any number of secondary regional shopping centres across the UK, which have been blighted by the last recession, shifting consumer habits and outdated retailers.
So why, then, did Rahim, his brother Karim and their father Nazmu decide to buy this one, the Callendar Square shopping centre in Falkirk, in the central lowlands of Scotland?
The short answer is price: Cygnet picked up the 125,000 sq ft centre with 500-space multi-storey car park for just £1m at the Acuitus sale in October 2017. With income of £620,000 (albeit largely short-term), that’s a yield of 62%. The capital value works out at £8 per sq ft.
“That catches the eye,” says Rahim.
“You can’t buy industrial or vacant land with contamination for that,” adds Karim.
“But that obviously tells us it may not be everyone’s cup of tea: it requires an investor who is prepared to roll up their sleeves; it requires a cash buyer.”
Which is where the longer answer comes in: the brothers believe they can turn this neglected asset around using the skills they have honed building up a £63m portfolio with their father, often targeting neglected office blocks and reinventing them as viable business centres.
Callendar Square certainly needs reinventing. Twelve years ago, it was valued at £26m when it was part of a £920m refinancing for then-owner Glenn Maud’s Propinvest.
Fast-forward through the recession and subsequent collapse of Propinvest and the centre was packaged up in a portfolio of 24 assets – mainly shopping centres – sold for £310m in 2015 to private equity giant Colony Northstar.
By this point, Callendar Square had lost fashion retailer TK Maxx to Falkirk’s Central Retail Park, leaving a 24,000 sq ft void.
A year after the sale to Colony, anchor tenant BHS closed the doors on its 28,000 sq ft unit, having fallen into administration.
By the time it went to auction, Callendar Square had the highest vacancy rate of any shopping centre in Scotland – 64.9% according to the Local Data Company. The perception was that the landlord was more interested in a development play than in finding new tenants.
More than 75% of the income was secured from Falkirk Council, which operates a One Stop Shop at the centre, Iceland Frozen Foods and Wright Leisure. The latter took on the TK Maxx unit in 2014 with an Xercise4less gym.
“It was valued at £26m in 2006 because it had the full range of top covenants,” says Rahim. “Gradually that was eroded. You are left with the gym and the council on very soft deals.
“We needed to do two things quickly: increase the rental role and decrease expenses to get it on an even keel.”
After a six-week completion, the acquisition was signed on 1 December. But Cygnet had already been hard at work on the asset: just 48 hours after completion, it threw a huge Christmas party at Callendar Square.
“The security staff said they had never seen so many people in the centre before,” says Karim.
The brothers moved quickly to bring a local agent in-house. “We want to get under the skin of the town. You are not going to sell shop fronts here from Edinburgh,” explains Karim.
So who do they hope to attract?
“We live in the real world,” says Rahim. “Triple A covenants aren’t going to come to a centre in decline. We are not aiming for top covenants. We want to keep existing tenants happy and go for local, independent stores.”
There are already signs their hard graft and the flexible approach learnt through their multilet business centre operation is paying off: Cygnet has secured no fewer than 12 new tenants since taking over.
These include new café Corinne’s Cabin, family owned dancewear supplier ID Dancewear & Studio, a nail bar, florist, hair salon and prom dress shop.
“What we are bringing to the table is ultimate flexibility,” says Karim.
“We are saying, come in and take the first couple of months rent-free and see what happens. Let’s try for 6-12 months and see. If you give people that flexibility they will say ‘why not?’”
“The world is changing,” says Rahim. “Flexible, short-term leases are ideal for a lot of people.”
Another crucial factor in securing new tenants is a significant recent business rates reduction for the centre, after Cygnet took forward an appeal triggered by the previous owners.
“We have also cut some double units down to single units – you can keep a tenant by reducing their business rates and space. It’s good for morale – if a tenant is straight out of the door that doesn’t set a good example for others,” says Rahim.
They are also working to bring down the service charge by looking at security, cleaning and insurance costs.
“People have this bottled-up resentment of Callendar Square. The turnaround won’t happen overnight. We are asking people to be patient with us. Slowly we are putting the capex in,” says Karim.
The brothers are confident they can retain Iceland, which has a lease expiry in 2019. Talks are under way with the gym, which has a rent review next year, while laser tag centre Wee Heroes, which occupies a 5000 sq ft former shop, could soon be ready to take more space for an “escape room” concept.
But they know it will take more than a few new lettings and lease renewals to reinvent Callendar Square.
Everything is being looked at – from how gym members can be attracted into the rest of the centre, to sorting out the unreliable lift, to working with Falkirk Delivers, the town’s Business Improvement District, on plans to have a Changing Places toilet installed for visitors who cannot use standard accessible toilets.
They plan to capitalise on the centre’s glass-roofed atrium by bringing in restaurants that could benefit from an alfresco concept. They are also looking at dessert lounges, which have taken off in cities across the UK, and perhaps a shisha café.
“People are travelling into Edinburgh and Glasgow to get those things. We want to provide the things people want and need here.
“We might bring in an amusement arcade and we might invest in the gear ourselves. It’s about creating a location,” says Rahim.
At the core of their strategy to turn Callendar Square into a commercial success is a drive to turn it into a community success too.
A schedule of events is already building up to increase footfall: an Easter fun day was put on with children’s entertainment and, more recently, a circus show from not-for-profit environmental education group Rowanbank. Also under way since May is a monthly market, including childrens’ entertainment and a craft fair.
They are helped in this by longstanding family friend, Muna Ausat, who moved from London to Falkirk four years ago and became involved in initiatives to regenerate a town shaped by the rise and decline of its iron works.
She describes herself as a social activist and has taken on the unofficial role of ambassador for Callendar Square.
She is focusing on supporting ethical and inclusive traders, start-ups and social enterprises. With her encouragement, an empty unit has been given to charity Re-Act, which collects and transports clothing and other essentials to refugees at home and abroad.
Now she is in the process of developing a community hub and arts centre in another empty unit. Local women who worked at the Wrangler jeans factory in Falkirk, which closed in 1999, are joining with recent immigrants from countries including Syria and Namibia to form a sewing cooperative.
Ausat is also looking at the idea of a crèche, offering holiday provision for tenants of the centre and others working in the area, and a Saturday morning music school.
“I think, ultimately, what will make Callendar Square successful is a mix of retail, leisure and then these charities and cooperatives,” she says.
She believes Rahim and Karim are uniquely placed to deliver this. They understand the benefits of mentoring tenants in their office buildings and they have grown up in a supportive Asian culture that values social responsibility alongside business success.
We are not bringing in the bulldozers and knocking it down to build lots of flats. That’s everyone’s concern. We are two brown-skinned chaps from London. People inevitably asked: ‘What are you doing?’ We had to convince people
“Karim, Rahim and I have all learnt from our parents: my father was an accountant and their father is a property owner and developer,” says Ausat. “Having achieved so much success, it’s about giving something back – but also having a thriving business.”
The town hosts its Eid in the Park fun day on 24 June, marking the Muslim festival of Eid ul Fitr, and Cygnet has stepped up as sponsor.
“We have got to be up here and convince people we are taking the centre forward,” says Rahim.
“We are not bringing in the bulldozers and knocking it down to build lots of flats. That’s everyone’s concern. We are two brown-skinned chaps from London. People inevitably asked: ‘What are you doing?’ We had to convince people.”
“We see good growth here,” adds Karim. “We are not expecting to get debt on this in the short term. We are liquid enough that we don’t have to go to a bridging lender. But it will be fundable… when we are at the right stage and we have got it in shape, we will go out to fund it.”
They know they have their work cut out: Falkirk is one of the areas set to lose its Marks & Spencer store as the retail giant cuts back. Not Callendar Square’s problem this time, but it means more retail space on the market in the town.
But if they can make it work, the brothers could well blaze a trail for other private propcos if they are brave enough to pick up one of the next secondary regional shopping centres to go under the hammer.
To send feedback, e-mail julia.cahill@egi.co.uk or tweet @egjuliac or @estatesgazette
