Buying under-rented industrial estates and then applying a hands-on work ethic has paid off handsomely for Hansteen. Alex Horne talks to its founders, Ian Watson and Morgan Jones
The story of European industrial REIT Hansteen begins, as so many business success stories do, with Margaret Thatcher. Ian Watson and Morgan Jones, the company’s founders and chief executives, set up Ashtenne, the precursor to Hansteen, in 1989 with the aim of going into development.
“We were just in time for the market to collapse and development to dry up, so we went drinking our way through Scotland,” says Jones.
While in Scotland their fortunes changed. “The beloved Mrs Thatcher decided that the government owning property wasn’t a wise thing to do and that it should sell off these assets,” Jones explains.
Seizing the opportunity, Watson and Jones bid to buy Scottish industrial estates and, having bought the assets, made an important discovery. “We found we could put work into these assets and make a big profit,” says Jones.
Following this revelation, the duo established their strategy. They set about buying industrial properties that they considered were not being well managed, off a high yield with around a 30% vacancy. “Then we would scramble like billy-o to fill up the other 30%,” says Jones. “And, quite simply, we would try to sell them for more than we bought them.”
Now, 26 years later and with a majority Conservative government back in power, the pair are still reaping the rewards.
Last week, Hansteen sold its latest industrial portfolio, HPUT II, to a fund advised by Brockton Capital for £192.1m. This deal followed the sale of HPUT I in November for £146m. The company recently reported record results: a 12% increase in net asset value over the year and a profit of £131m.
Watson has a concise explanation for their success: “Our tactic has been the same all through our history: don’t do things the lazy way.”
The industrial sector allowed the duo to play a hands-on role. They would go out and meet all the tenants, get to know their needs and understand their business. Jones says: “When they said they wanted more space, we’d say, ‘right, let’s think of the terms’. We didn’t send off a letter and take four months to get down to it.”
At the time there were easier ways to make a fast buck. Rents were rising reliably in out-of-town shopping centres, for example, but the pair did not find this sector interesting.
Watson says: “Telling our investors that we are buying this unit and are going to wait for the rent to go up just isn’t a good story. They can do that themselves.
“When we started, we didn’t have any money and were attracting money from third parties. So we had to do something that would justify our own existence and our 50% profit share. Essentially, that’s as true today as it was back then.”
The world has come a long way since the Thatcher years, but the reason things have not changed all that much for Hansteen is that there is still value to be added to properties by getting involved with occupiers.
“It boggles our minds,” says Watson. “Even today we buy portfolios and when we go around door-knocking we discover the tenants haven’t seen a landlord for months, if ever.”
For this reason, even after Watson and Jones left Ashtenne to set up Hansteen in 2005, their tactics have remained the same.
Jones recalls how he used to take advisers to visit sites and talk to tenants: “They thought we were mental. They said, ‘Why do you want to go and do that?’”
But, to the advisers’ surprise, the tenants were grateful for the visits and this willingness to get involved on sites increased the company’s profits.
Jones believes that people’s aversion to doing hands-on work benefits Hansteen. “This sector is undervalued and underplayed because it is a bit more prosaic and requires more hard work,” he says.
Hansteen’s practical approach is reflected in its recruitment process. Watson says: “When building a team, most people in property look for investment agents, a flashy crocodile-shoed type of guy. We recruit property managers who, even now, are looked down on as being a bit dull and workaday.”
They are people who, in Jones’ and Morgan’s experience, share their vision and work ethic. “These are the guys and girls who work hard, talk to the tenants and understand what is going on,” says Jones.
The two evidently take pride in the hard work they put into their jobs. They revel in recounting how they bought and sold on some estates three times because no one else could manage them with as much rigour as they could.
One notable example of this is the duo reinvesting in Ashtenne. There is a hint of pleasure when they discuss how they used money from the sale of HPUT I to buy back a stake in Ashtenne from Warner, which had gone into administration.
The sale of HPUT I was a prime example of Hansteen’s buy, work, sell approach. “For two years we invested, for two years we worked and then we sold,” says Jones. “The job was done and so it all made sense to do what we said we would always do.”
“We don’t fall in love with our assets,” says Watson.
This raises the question: how much further can the chief executives go with Hansteen? Have they done what they said they would do? Given the shifting landscape of the industrial sector, it seems it can only be a matter of time.
Recently Barwood merged with Delancey to form an industrial and logistics development joint venture called DB Symmetry, while Peel Logistics and Harworth Estates pooled their resources and Anglesea formed a logistics jv with Goodman.
The pair are tight–lipped about whether they have been approached. But when asked if they would consider selling off Hansteen or merging with another firm, they are characteristically straightforward.
“How much?” asks Morgan.
“Show me the money,” adds Jones.
Until someone does show them the money, however, Jones and Watson are committed to Hansteen. The pair have long-term incentive plans that will soon be coming to an end, but they are adamant they won’t be going anywhere.
Watson says: “We have both put a large part of the post-tax proceeds of Ashtenne back into Hansteen, so that is still every bit as significant a mover for us as the long-term incentive plan could be.”
“We are closely associated with Hansteen,” adds Jones. “When we started, it was only the two of us and we stood in front of the investors and raised the money. We have a responsibility to the company and a trust in our people.”
So, while Watson and Jones may not be in love with their assets, they have a lot of love for their company and this love shows in the continuing success of the business.
