It was about 5.30pm on a fine Saturday afternoon on July 1 1989. Charles Church was at home on his 1,000-acre Roundwood estate at Micheldever, Hampshire, discussing with his agents, James Harris of Winchester, the sale of 1,500 acres of his neighbouring Steventon estate when they heard a Spitfire coming in to land at Popham Airfield, the private airstrip on his estate.
It was one of Charles Church’s own collection of second world war aeroplanes returning from giving a display at an air show at RAF Dunsfold in Surrey. A fanatical collector, Charles Church owned no fewer than seven Spitfires in various stages of repair, as well as a Hurricane, a Mustang, a Messerschmitt and a Lancaster bomber.
“I’ll just take it up for a spin,” said Church to his agents. “I won’t be long.” That was the last they saw of him, for shortly after 7pm that same Spitfire crashed in flames at Hartley Wintney and Charles was killed. He was only 46.
His widow Suzie took over the chairmanship of Charles Church Developments and struggled to keep the company going. But housebuilding was already in decline, and Charles Church had known it. When he went public in April 1987 Charles Church Developments had been valued at £103.7m. In 1988 it had made pre-tax profits of £18.5m by building 557 houses, but in the year to August 31 1989, when it built a record 742 houses, its pretax profits had fallen to £11.9m.
Three months before his untimely death, disenchanted with the performance of the stock market, Charles had taken his company back into private ownership. But to do so he had to borrow £33m of mezzanine finance from a consortium of bankers, which cost the company £11m in capital and interest repayments in the first year alone.
In the year ended August 31, 1990, Charles Church Developments made pre-tax losses of £50.3m and was on the point of being placed in receivership. After long negotiations with its bankers, a financial restructuring was finally agreed on August 30 1991 that has enabled Charles Church to survive against all the odds. This is the remarkable but as-yet little-understood story of that survival.
Born in 1943, Charles Church had come from humble origins. His father (also called Charles) was a farm labourer. His mother, Fuensanta, is Spanish.
Charles went from school to Regent Street Polytechnic in London, where he studied civil engineering. He then joined Turriff, but he wanted to be his own boss and his chance came in 1965 when he and his wife built their first house — a bungalow at Camberley — largely by themselves. Then (in the way that is an inspiration for all budding property millionaires) they sold the bungalow at a profit and used the money to buy a nearby site where they built four houses for sale.
Their housebuilding company grew slowly, specialising in upmarket five-bedroom houses, which was how it managed to avoid the 1974 crash. By 1975, when he was still only building 30 houses a year, Charles Church formed a joint venture, Ritzdale, with an old friend, Martin Grant, and together they grew rapidly.
By 1979, when they decided to go their own separate ways amicably, Charles Church was building 300 houses a year and starting to show an interest in commercial development. However, he failed to get a High Court injunction preventing the sale of Paul Getty’s 1,055-acre Sutton Place estate in Surrey for £7.75m in 1980, even though claiming he had a prior agreement to buy. Its attraction was 66 acres of offlying land that was later sold for more than £6m for the development of 500 houses and a Sainsbury superstore.
Although Suzie Church became chairman on her husband’s death, the managing director since 1985 had been Nicholas King, a chartered accountant who had joined the company in 1976, becoming finance director in 1978. King saw that a financial restructuring was necessary, but when he tried to introduce a consortium of venture capitalists led by Electra Trust, Mrs Church took exception to the proposed terms and dismissed him peremptorily.
For six weeks Charles Church was “like a rudderless ship floating around and waiting to hit an iceberg”, as one banker put it. Then Suzie Church took over as chief executive as well as chairman while a search was made for a new chief executive. Stewart Baseley was invited to apply for the job.
Having worked for Gascoigne-Pees for five years, Baseley had joined Crest Homes Thamesvale in 1983 as a land buyer, rising to land and sales director. In 1986 he won a contract race in Hounslow against Charles Church, who persuaded him to join the company in July 1987. Within weeks, Baseley had become executive director for the Southern, South East and Kent areas. On August 3 1989, a month after Charles Church’s death, he joined the main board as deputy land director, and a year later he was land director.
Although he was not officially appointed chief executive of Charles Church Developments until January 1 1991, Stewart Baseley spent from December 19 1990 to January 29 1991 in putting together a business plan, which he had to present to no fewer than 65 representatives of the banks, who were owed nearly £130m. The options were to liquidate the company, sell it or restructure it.
Baseley was given the chance of restructuring the company, and spent six months working on the detailed proposals with the help of Touche Ross. When these were approved by the shareholders on August 30 1991 they resulted in the Church family giving up all their shares in return for all their loans being written off by the banks.
In turn the banks swapped all their loans for equity. The 11 international banks which had made a multiple-option facility of £100m available to Charles Church Developments in 1989 ended up with 51% of the equity, with £20m of subordinated loan stock repayable in 2006 and 2008, plus £30m of medium-term loan repayable in three tranches in 1995, 1996 and 1997. In addition, the banks have provided a working-capital facility of £33m which is committed until August 1999.
The consortium of mezzanine banks which had provided £33m of finance for the Charles Church family’s buy-out of his shares agreed to convert this into 31% of the new equity and also new preference shares. The former £1 preference shareholders were offered new 50p preference shares or cash; about half took the cash, leaving the rest with 8% of the new equity.
Stewart Baseley and his new team (finance director Paul Bak, land and planning director Nick Scregg and deputy chief executive John Wood) were given 10.5% of the equity, with the prospect of a further 15% if they achieved certain financial targets.
Surprisingly, the banks have not put their own representative on the board, though Touche Ross nominated Dr John Roberts, former chairman of Ruberoid, as the new chairman. Suzie Church remains on the board as a non-executive director, along with an independent director, Lord Marsh.
“I was not interested in having a short-term solution,” explains Stewart Baseley. “I wanted the banks to become shareholders in the company — and to act like shareholders, taking a medium-term view.”
The banks were warned that this was not a one-or two-year solution, nor a controlled liquidation. “For the first two years, the banks are potentially worse off, because the value of our assets will be lower, but we have the working capital to create more assets. Traditional bankers have therefore become venture capitalists,” he says.
“We expect to return to profitability some time in 1993 and then see growth in the next five years. By the year 2000, the banks will be able to look for an exit, either by selling out their stakes or by seeking a stock market quotation for the company.”
During the past two years, the number of staff has been cut from 350 to about 100, and all the regional offices have been closed. But Charles Church still has its large land bank of 10,000 plots (including options) of which some 700 have planning consent, while a further 4,000 to 5,000 are expected to receive planning consent.
Having made provisions of £44m in August 1990 against this land bank and work in progress, Stewart Baseley is satisfied that “a lot of it is looking very good, and most of it is now in the books at much less than current market values. Our land bank is our investment in the future”.
A further small provision (less than £3m) is expected in the accounts for the year to August 31 1991, and there will be a hefty charge for professional fees incurred in connection with the financial restructuring (which had already amounted to £982,000 at the interim stage at February 28 1991).
“Our image is of upmarket expensive houses, and we are proud of that image because it attracts buyers to our smaller houses and also ensures them good resale values, but we do not believe in niche markets. Fewer than 15% of our production is five-bedroom houses now, and more than 60% is three-bedroom or smaller — 20% is one-bedroom starter homes.”
Charles Church is now building on 21 sites in the South of England, from Colchester to Exeter, preferring to operate within an hour’s drive of its head offices at Camberley. The company is now actively buying land again, though it prefers to exercise its options and not to pay for the land until building work has started.
Last summer it bought sites at Cove and Bentley in Hampshire, and at East Molesey in Surrey, and the first houses are now being offered for sale. Where average selling prices were £154,000 in 1988, they are now £120,000 and are likely to fall to £110,000 or less. At Cove, for example, prices are from £49,950 for a studio flat up to £149,450 for a four-bed house.
At these prices, however, there is no compromise on quality. Many of the smaller houses have flint elevations, and all have the same quality of kitchen and bathroom fittings.
Still only 33, Stewart Baseley has been given considerable freedom by the banks to run the company and restore it to profitability. He lives in a Charles Church house at Windsor: “Three of the four executive directors live in Charles Church houses, as do a lot of our staff,” he says.
