Three years ago, Mark Kildea took on his biggest role in a decades-long real estate career when he was named interim chief executive of the 92-acre Howard de Walden Estate in Marylebone, NW1. It was during the depths of the pandemic – people were forbidden from venturing into the office, collaboration came via cyberspace and no one knew what the future of life, let alone the built environment, would be.
Kildea says the company has overcome its pandemic-era struggles but if he thought his first spell as a CEO would calm down, the market had other plans. Today the estate faces myriad new challenges, including falling property values, economic uncertainty and ever-growing competition for the best and brightest talent.
It’s serious business. And for Kildea the reality and responsibility of being in the C-suite’s hot seat is too often glossed over by corporate bosses who seem more interested in making an impression than making an impact.
“Some leaders say they’re up at 4am, they bake bread, they go for a 10-mile run, then they’re at the office by 7am and they’re out every evening and you’re thinking, ‘who does that?’” he says.
As Kildea marks his third year in the role, permanent since 2021, he sits down with EG to discuss the shifting market, views on values – of property and people – and what it all means for the estate’s strategy.
Don’t fear the fall
Kildea speaks with EG as the historic estate, which spans Marylebone and includes Harley Street, publishes its 2023 annual report. It recorded a pretax loss of more than £102.3m over the year to 31 March due to falling real estate values – a stark contrast to 2022 when it recorded a profit of £199.8m. The portfolio value was down by 4% at £4.45bn.
Rental income, however, rose by almost 10%, and with valuation movements excluded, revenue profit before tax was up by 16.7% to £74.9m. Offices and residential led the growth, followed by healthcare assets and retail. Chairman Sir William Proby and Kildea each wrote in the annual report of a post-pandemic revival for the estate. Now it is time to future-proof the business.
When it comes to weathering the current storm of economic uncertainty, business model and financial stability are key to maintaining course, says Kildea, who has been at Howard de Walden for 13 years. Prior to that he spent 16 years as group treasurer of Capital Shopping Centres, the REIT that later became intu.
The duality of lower values and higher demand “is not an issue” for the business, he says. “I would take a market where the demand is strong and values decline slightly. It’s a lot easier for us.”
Bold though his statement may be, Kildea and colleagues are able to take a flexible, long-term view towards the ebb and flow of values in uncertain market conditions. For them, unlike listed REITs, there are no sinking share prices or shareholder mutiny over strategy. That leaves Kildea able to look to the horizon.
“Values fall for a reason and in the long term they’re underpinned by rents and rental growth, so to the extent that you deliver rental growth, maintain your assets and invest in them, then those asset values will [ultimately] increase because the rent will underpin them,” Kildea says.
Ultimately, nothing can quite beat cold, hard cash when it comes to business stability, and although the estate has shown resilience in rental income, Kildea knows he cannot take any rate of growth for granted. “The challenge will be maintaining that into 2024 and beyond,” he says.
One way to maintain resilience is to cut back on dividends, he adds. Taking on more leverage is also an option. “Our business has always had a modest amount of debt, so we’ve got a huge amount of capacity to borrow more if we need to, and to me that’s your greatest capacity in the downturn,” he says.
Shoring up the balance sheet has meant pausing purchases – the estate made no acquisitions during the year. “It’s all about timing,” says Kildea, adding that the company will be patient in its acquisition strategy. The current market slump could provide opportunities for deals, he says, once the gap between the pricing expectations of buyers and sellers narrows.
“There is a mismatch between price expectations, between buyers and sellers, and until that’s resolved it makes it very difficult for us to play in that market,” Kildea adds. “But with interest rates being high, there will inevitably be somebody who has to sell because they’ve got a financing requirement, and we should be looking at those opportunities on our estate or buildings we don’t own nearby.”
For now, the focus is on existing stock. As the age-old adage goes, you have to spend money to make money, and whether due to market demand or legal requirements, the estate is ploughing capital into making its portfolio fit for exacting occupier wants in terms of sustainability credentials. Obsolescence is an ever-present threat, Kildea says, and so the estate is “investing money to make sure that our buildings can continue to be rented at market rates”.
This is money well spent, even as values drop, as far as Kildea is concerned. The former finance director predicts that although market-wide prices will continue to fall in the next six months, Marylebone will prove its strength. “Marylebone won’t fall as far as other areas because it’s a bit more resilient in terms of its diversity and mixture of assets and appeal,” he says.
Stay or go
Like most businesses, the estate has suffered casualties in the war for talent. What it calls “voluntary employee turnover” hit 15.5% over the past year, up from 13% a year earlier and reaching a five-year high. In its annual report, the company acknowledged a “higher level of turnover than normal”.
Asked about the scale of departures, Kildea appears uncomfortable for the first time. “There’s a lot of demand for property management and property surveyors. It’s a buoyant market and we lost people because if somebody’s offered 20% more to do the same job elsewhere, you can’t just say yes as that causes problems for our business,” he says.
This “phenomenon” is not unique to Howard de Walden, Kildea is keen to add, and is a struggle faced by many types of business. “There was a real shortage of property management skills, but that seems to be getting a little bit easier,” he says. “We suffered like anybody who has managed this type of business during this period, it was a common discussion point.”
Kildea suggests the estate has been unable to keep up with the kind of pay packets offered by rivals – and that he believes some former colleagues may have made the wrong choice.
“A lot of people [are] forced to move because they get called up by a recruiter saying they could get more [money], but sometimes you’ve got to think ‘is that right for your career trajectory?’ You can make a short-term move to get paid more money but sometimes, in the long run, that might not be the best decision for you to take,” he says.
The company has made a flurry of senior hires since Kildea took up his post. Suzanne Tomlinson moved across from Bonhill Group to become chief people officer; head of sustainability Simon Tranter joined from Willmott Dixon; Guy Cochrane moved from Daniel Watney to become head of commercial portfolio management; Sabrina Christie joined from the Arch Company as asset manager; and Victoria Anderson moved from BMO Real Estate Partners as retail and leisure asset manager.
“We recruited well and we’ve been quite pleased with it,” he says. “It’s always good for people to leave because you get new people coming in with fresh ideas, different approaches, seeing life slightly through a different lens, which I think is a good thing. In any business if you just stay and work with the same people for 15 years, it would probably be very miserable.”
Wake-up call
Thinking about people is important for Kildea. During our conversation, he brings up his last meeting with EG, when we discussed diversity and inclusion at Real Estate Balance’s annual conference in May. The organisation, of which the estate is a corporate member, hosted an on-stage interview with Dan Labbad, chief executive of the Crown Estate, who described how he “woke up” to the importance of cultivating D&I as a corporate leader and warned peers that by avoiding honest conversations they could risk losing talent.
The topic is close to Kildea’s heart, and he speaks of taking inspiration from the way his industry peers have tackled the topic. He says Labbad “spoke with real authenticity” at the event and made him reevaluate his own leadership and D&I strategy.
“The bit that stuck with me was that Dan said, ‘As a leader, people are judging me by what I do, so it’s important for me to volunteer and to be involved.’ Rather than just saying it, ‘you have to do it’. He said, ‘I feel like I’m held to account by my staff every day’.
“He sort of made me feel like I was a pathetic chief executive,” Kildea adds. “He’s a very impressive individual.”
Kildea is arguably not giving himself enough credit. Over the past year, Howard de Walden set up scholarships for disadvantaged final-year students from the University of Westminster, also offering internships. It has donated to charities including Advance Charity to provide support for women and children in Westminster at risk of domestic abuse, and the Felix Project to provide 61,000 meals for those facing food poverty.
“Westminster has this perception of being a very exclusive, wealthy part of London but there are parts of it, believe me, that aren’t and that’s where we put our support,” says Kildea.
Such efforts are a crucial part of how Kildea now defines his – and the estate’s – success.
“I always think you have to be a successful business, you have to make a profit, you have to do all those things. But then what? What’s the purpose behind that? You have to lead by values as much as just talking about values,” he says. “I’m not perfect, I’m not the finished article, but I do try. It’s hugely important to me.”
To send feedback, e-mail chante.bohitige@eg.co.uk or tweet @bohitige or @EGPropertyNews
