Capita Real Estate doesn’t have the sexiest image. But then, “a lot of life is not very sexy,” says executive director Brian Sloggett.
“A lot of real estate is grind and day-to-day delivery; it is about looking after buildings and collecting rent; but collecting rent and looking after buildings well. A lot of planning is pretty damn tedious, I can tell you. There’s nothing sexy about that. But it has to be done. We do it.”
Estates Gazette met Sloggett and managing director Alan Dornford at Capita Real Estate’s offices in Holborn, WC1, to discuss the company’s new image and market proposition since last year’s £30m acquisition of planning, development and regeneration-focused advisory firm GL Hearn, of which Sloggett was managing director.
The acquisition was intended to accelerate the knitting together of Capita’s varied involvement with property under Capita Real Estate – the property advisory service set up by the outsourcing giant, which is involved in everything from IT service provision to helping design Crossrail tunnels.
Capita Real Estate is still something of a new kid on the block, having been founded just six years ago when Capita struck a £20m deal to buy property management specialist NB Real Estate (formerly Nelson Bakewell). But Dornford, who joined from NB, hopes buying GL Hearn, as well as other niche property firms in the future, will help to reposition the company among the top agency players.
GL Hearn reported an operating profit of £5.8m on turnover of £31.2m in its last financial year to 31 May 2015; and Capita aims to expand the business and achieve a return on capital in excess of 15%.
“Whereas out-and-out real estate consultancies have grown through bolting on pure real estate parts, we were pooling real estate activities from a much broader business,” Dornford says.
“We always knew we needed more critical mass and that we had significant service gaps. GL Hearn was a business that we saw would have that catalytic effect to accelerate the coming together of these parts of the business and fill the gaps that Capita Real Estate had.”
Well-placed
GL Hearn’s planning expertise, combined with Capita’s long-established relationship with local government (around half of the group’s business comes from government), makes Capita Real Estate well-placed to benefit from central government’s push for greater estate rationalisation in the public sector. In addition to health, Capita has a contract with the Ministry of Defence, which aims to release 30% of its estate for housing by 2020.
Barnet Council, which has a 10-year agreement with Capita to run a significant number of its services, hired Capita Real Estate to represent it in the procurement of a development partner for Brent Cross South, which led to King’s Cross developer Argent being chosen in February 2015 to deliver one of the largest regeneration schemes in Europe.
“One of the common themes we see every day in the press is, if only people could get their hands on public assets,” Sloggett says. “There’s always some resistance to it. But what we’re doing is saying it’s twofold: let’s get the revenues in and let’s make better use of the assets. It’s helping them with the much bigger issue of housing in the most populous borough in London.”
He says the company approaches business with its private sector clients (which make up about 75% of Capita Real Estate’s portfolio), in a similarly “circular” way.
If Barnet is driven by looking after its residents, council tax and revenues, then Asda, to which Capita is also contracted to deliver a range of services, is driven by low prices to serve the customer. Capita will design its real estate strategy starting from that premise, Sloggett says. “What could help them? Getting rid of stuff they don’t need. Helping them get extra value.”
The power of niche
Boom times tend to see a spike in merger and acquisition activity, and the past 12 months have been no exception. Capita Real Estate is looking to take advantage by making some more “nichey” acquisitions. It is not looking at Strutt & Parker, but won’t comment on why not. Nor is it looking at GVA. Sloggett says this is because, for Capita, the consultancy is “too dumpy and big”.
He adds: “We are talking to people; we are looking and we are in conversations with people. But not the ones you keep reading about in the papers. The nichey model works for us and is the more traditional one for Capita.”
Areas into which it is looking to expand include residential, health, facilities management, development consultancy, valuations and the regions – particularly Bristol and the Manchester and Leeds corridor.
One differential it hopes will help draw the best niche firms, is the ability of acquired firms to retain their own brands within the conglomeration.
GL Hearn, for example, has retained its brand, along with many of its people and clients. Its 120-strong development team has joined the company with Sloggett retaining his senior position, but without, he says, any of the in-fighting that can often arise between senior people after a merger.
“We came into Alan’s team and there wasn’t any overlap,” he says. “Whereas with two big teams you get elbows out, joint this and joint that. It’s a bloody nightmare.
“And all of a sudden, you know what’s going to happen. There’s going to be a massive fallout and destruction of value.”
He adds: “If you look outside real estate, at merger activity generally, what usually works is somebody coming in when there’s not a huge overlap. They’re bringing something which is really genuinely good so people are coming in and filling positions of leadership.”
It is this “power of niche” that Dornford and Sloggett agree sums up Capita Real Estate’s new market proposition.
“Especially important is this [idea of] ‘niche and beyond’ because an easy slight of any big organisation, let alone one that goes well beyond real estate, is that it’s just a big company,” says Dornford.
“And we’ve really got to get the world to recognise that we are all about a culture that is focused on niche mentality and behaviours; which is what the client wants, what makes us more successful and is where people want to work.”
Sleeping giant?
Pooling Capita’s real estate activities represents a £200m-plus business, Sloggett estimates. GL Hearn advised on more than £1bn of residential work last year in London alone, and plans to expand its transactional business. “Lots of people will talk about us in real estate terms as being a sleeping giant, because we are a big business,” Dornford says. “But six years isn’t quite long enough to really get that profile up alongside some very established players.”
For now, Dornford says, the focus is on increasing the understanding of Capita Real Estate’s breadth of service.
“Whether it’s sexy, interesting, and effective – our motivation is to get brilliant people to join and stay here, and they’ll do that because they’ll recognise it’s a force, it’s interesting, it’s a good career opportunity and it’s something genuinely different that is going to compete well.
“Whether that’s sexy? Dunno. But interesting and better understood? We can sort that out.”
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