Brendan Flood, Burnley FC director and founder of collapsed developer Modus Ventures, knows a lot about the highs and lows of the beautiful game – and the world of property. Here, he speaks about his plans for a property comeback. And in extracts from his recently published book, Big Club, Small Town and Me, Flood recalls his best and worst moments so far
“I’m slightly bruised but still alive,” says Brendan Flood, the man behind Manchester-based developer Modus and operational director at Burnley Football Club.
Flood has certainly had a roller-coaster couple of months. In May, his development business Modus Ventures collapsed into administration, leaving £4.5bn of retail development schemes hanging in limbo. At the same time, Burnley FC, the club he has supported since boyhood, and in which he has invested millions of pounds, was promoted back to the top flight after 30 years in the wilderness. And to cap it all, he has just published a book documenting his experiences.
The next few months are set to be challenging too. After a lacklustre start to the season, losing 2-0 against Stoke last week, and with games coming up against Manchester United, Everton and Chelsea this month, Burnley’s chances of staying up are looking shaky. Off the pitch, Flood plans to reform a pared-down development company with eight of his former directors to buy back around 15 of the 40 Modus Ventures vehicles from administrator KPMG.
“I have no interest in doing large-scale development – it’s too dangerous and far too scary,” says Flood. “You’ll see a less courageous Brendan Flood going forward. It’s back to the boring days. A lot of developers will need a good decade of forgetting.”
Flood is in discussions with a property company partner to back him. If this comes off, he intends to concentrate on delivering large-format food stores and small office developments.
“I have no idea what companies I’ll be bidding against [to buy back the vehicles],” he concedes. “There aren’t many developers left. A lot of guys like me have been either wiped out completely or have lost their courage, so there’s a good reason for trying to stay in the development market.”
FLOOD ON: Quitting Barclays Bank in 1988 to go into property
I’d been asked to go on the annual management development programme down in London. It was a three-day assessment which involved a series of psychometric tests and an interview with the main board directors. I’d done well to get on the programme as I was one of only 12 internal graduates and 12 graduates, mostly from Oxford and Cambridge. The three days went well. And it was challenging stuff, as the successful candidates were to go on a fast-track programme with the aim of reaching the main board. In all honesty, I was flattered to be nominated.
A few weeks later, I went to see the personnel manager in Preston. And in true HR tradition, he bludgeoned me with a ‘praise sandwich’: “Right Brendan, we’ve got the results of your MDP assessments. You did really well at the psychometric tests and scored very highly indeed,” but “the interview comments were that you hide your light under a bushel.” Ah. “But on the whole, you gave an excellent account of yourself and can be pleased that you got that far.”
So I hadn’t been selected then. It seemed to me that I hadn’t boasted enough. That’s what I noticed about the public school lads who had come through. They had come out of university with a false bravado that I hadn’t learnt. I’ve learnt it now!
It might have been belligerent pride that pushed me, but that very moment made me want to show that I was capable of being a board director at Barclays. And if I wasn’t going to do it there, I’d just go and do it somewhere else.
So I went to see a chap called Martin Barlow who owned Laud Estates, a housebuilding business based in Bolton. I’d known Martin for years, and had recently done business with him, and we’d always got on well. When I told him that I was getting itchy feet he suggested that I go and work with him. He offered to double my wages at the bank and give me a BMW.
The foundation of Modus in 1991 andgetting his first deal with Matalan
I set up my business in the back bedroom of our home in Monton, a suburb of Manchester. I was acutely aware that I was starting up in a recession, but in every downturn there are winners and losers, and I was starting with a clean slate. So clean, in fact, that I didn’t have any business lined up. I wanted to find some high-value property deals, but was pragmatic enough to know that I’d have to take what I could get.
But I quickly discovered that being self-employed is incredibly hard. As a newcomer in town, I was getting no favours from professionals or entrepreneurs in the city, and in many ways it was quite lonely.
I decided that I needed to diversify. I thought I could get a bit of steady income by investing in two day nurseries with my sister Colette, one in Stockport and one in Altrincham. Ellen [Flood’s wife] agreed for us to remortgage our house with the Yorkshire Building Society, and I put £20,000 in which helped me to establish Modus and put capital into the day nurseries.
But before long, both of the nurseries were struggling. They had needed more capital than we had budgeted for, and we’d underestimated the fierce nature of competition in that sector. Add to that the recession reducing parents’ spending power, and we were in a mess.
I had quickly learnt that diversification doesn’t pay, ultimately at the cost of £70,000 once we had sold off the nurseries. So I found myself at the beginning of 1993 with no business in the pipeline, no equity in my house and stacked-out credit cards. I had nothing to cover my overheads and was running out of time.
I sat down and worked out that I had a maximum of five months to survive.
I’d been working for a while on a potential development site on Tonge Moor Road in Bolton. Before Christmas, I had paid a £1,000 fee for a 12-month option to buy the site for £1m.
By the end of February I was getting worried. Then I received a call from an agent based in Manchester who asked me if I was interested in talking to JH Holdings, who were looking for a suitable location in Bolton. I’d never heard of JH Holdings, but I later found out that they were the owners of the retailer brand Matalan. So I did some due diligence on Matalan and went to the meeting well-equipped to be able to sell the location if the numbers stacked up.
Putting millions of pounds into Burnley FC after joining the board for £500,000 in December 2006
Barry [Kidby, club chairman] had started to talk about the club’s wage bill. The players’ wages running at £4.5m, which in [manager] Steve Cotterill’s estimation was too low to sustain a team in the Championship. And he was probably right. In football, you get what you pay for, more often than not.
But to my utter amazement the consensus among the directors was that we’d have to get the wage bill down to £2.5m by the end of the season. As someone who had just handed over a cheque [of £500,000 to get on the board], I was trying to take it all in.
I had obviously pitched in at a very bad time, which wasn’t absolutely clear to me at the point when I handed my cheque over. The reality of my situation was becoming rapidly and alarmingly obvious to me. I thought, ‘We’re going to go down here. I’ve just paid half-a-million quid and we’re bloody well going to go down!’ I could have just kept my seat in the Bob Lane Stand and saved myself the worry.
To my abject horror, everyone around the room seemed to be in agreement. I hadn’t intended to shout up too much in my first meeting, but I couldn’t stay quiet any longer:
“Excuse me, gentlemen. I’ve just put half-a-million pounds in because I thought we were going to push up the league, and not vote for mediocrity.”
The mood in the meeting was really sombre as we continued to discuss the proposed wage cuts. As a fan, I couldn’t face the prospect of relegation. I looked around the hushed room with a measure of disbelief. I made what can only be described as a quick decision, almost an impulse. To be honest, I couldn’t think what else to do so I put my cards on the table: “Okay, I’ll tell you what we’ll do. I’ll put in another two million during the next week and we’ll go the other way.”
Building Modus into a national developer
Over time we became a sought-after development team. We were innovative and more entrepreneurial than the London-based public companies, and that gave us a real edge in the market.
We were realising profits well in excess of my budgets, which then encouraged me to diversify more because property has its ups and downs.
We went on to make four investments in other sectors, including Passion for Perfume, a retail business I was keen to grow. We were scaling a lot of sectors, and our brand was becoming nationally stronger, driven by our courage and innovation.
There was an awful lot going on at that time in the business world. The last 12 months had been fantastic for us at Modus. We’d gained a lot of respect and a higher profile in the industry, and we had been put up for a couple of national awards.
In truth, there was one award that we all at Modus really wanted, the Estates Gazette Property Company of the Year. The award is the principal prize in the industry, and it’s seen as an honour for everything that you’re doing as a business. It’s very team-oriented, and we desperately wanted our team to win. When we won, I was absolutely delighted. We had a well-thought-of team at Modus with creative instinct and impressive delivery skills. They were all good with people and that gave us the edge.
The market turning in 2007
Then a funny thing happened to me on the way to the office one day in June. We had a facility agreed with the Anglo Irish Bank to fund a £170m scheme in Wakefield. It was a high-quality deal, and the proposed development was already prelet to the likes of Sainsbury’s, H&M and Debenhams. We and the vendors were happy to start drawing down the bank facility within a week when I received a call from the bank. The chief executive of Anglo Irish was coming to Manchester to meet me to talk about the Wakefield development. This was short notice to say the least.
So, a couple of hours later, I was in the boardroom of the Anglo Irish Bank on a beautiful sunny day. As I looked out at the views of the city, the chief executive sat in front of me. He wasn’t openly sharing his thoughts, but there was obviously a worry in his mind about the banking market. I could tell that the Anglo Irish had started to feel concerned about their property exposure, as he asked me for my thoughts on the market and if I believed there was any risk of us not securing enough occupiers to fill the shopping centre. At the end he said that he’d ring me soon to confirm when the first tranche of the facility could be released.
True to his word, he rang me as I walked back to the Modus offices to confirm that we could go ahead. As I carried on walking I thought: ‘That was a bit odd, and certainly unusual’. This was the largest development scheme in Yorkshire, and a huge loan in a high-quality location, and I hadn’t had a doubtful tap on the shoulder like that for over 10 years. That did give me a slight shiver.
Attempting to get a backer in the credit crunch
From the moment that I detected a change in the wind in early 2007, I had implemented a strategy at Modus to de-risk. Later that year, we were in advanced discussions with RBS Private Equity, to whom we had offered 20% of Modus Ventures, my development company, for £30m.
When RBS ultimately withdrew from the deal in January 2008, it became clear to me that the domestic banking sector was seeing some stress, and so I decided to go beyond the UK. During the summer I had a knock on the door from Macquarie. Their team in London approached us as they were interested in buying into Modus, on a similar basis to the deal we had agreed with RBS. They were keen to come to an agreement, and submitted their proposal to their investment analysts. But the response they received said as much about their company as mine. They could see the synergy, and Modus was a good fit for their business, but they had some “challenges on their own capital”.
UK institutions were out and Australia was struggling, so I went to see my South African partners in our shopping centre division. I explained to them that the market was changing at a furious pace and that we needed to degear, so they introduced me to their preferred investment partners, who happened to be Lehman Private Equity. That seemed to be a good introduction as Lehman had done a lot of big transactions and held an elevated position in the US financial sector. So we met with their team, they looked at our projects and we did a roadshow of our shopping centres. A few weeks later, they came back with a response from their investment committee, and the shiver I had felt 12 months ago became a full-on freeze. They said that there might be internal difficulties at Lehman. And six weeks later we saw the iconic images of investment bankers in London carrying their files out of the collapsed bank’s head office.
Winning the playoff final at Wembley
The final whistle went and there was bedlam. I’ve never heard a noise like it. Fans were on their phones to loved ones with not a hope in hell of hearing a word. We’d done it! We’d bloody well done it! I’d managed to get myself a pass to go down onto the pitch if we won. I had promised myself that if we were ever in that position I’d be on the pitch at full time. I wasn’t bothered about being up in the Royal Box when we received the trophy, I wanted to be down on the pitch with all the lads who’d made it happen.
Going into administration
That glorious week ended dreadfully for me as HBOS, for their own reasons, decided to appoint an administrator to my development business. It really hurt me and my senior management team, but we have battled on since to restart that division of the group. The juxtaposition of experiences could not be more extreme. But several days later, my brother Chris’s wife, Catherine, died suddenly. As a family, we were grief-stricken, and it certainly gave me a perspective on how fortunate I have been in most respects.
