by Michael Foster
1987 was a roller coaster year for the property company world. At its height we saw City rents over £60, the FT property share index up 570 points at 1375 in seven months and the appointment of ex-property man Lord Young as Trade and Industry Secretary.
Surging share prices meant that small, active property vehicles could use their highly priced shares to pay full prices for real estate and asset-rich companies. When Randsworth tied up a £70m takeover of London & Provincial Shop Centre, LPSC boss Ron Gerrard was quick to confess that he could not believe his luck.
Small private property companies with limited balance sheet worth could transform their fortunes by coming to the stock market. Alan Coutts, for example, had a private company with balance sheet worth of £100 under two years ago; by injecting it into Regentcrest and doing some shrewd deals he was able to make it worth the equivalent of £24m in Regentcrest shares (at 273p) by mid-1987.
But the stock market crash of mid-October had the City’s yuppies on the run, and fears multiplied that real estate values would be hit in its wake. Asking the stock market for support to pull off mega takeovers became just about as pointless as going to a fringe bank for development finance in 1974. Randsworth shares fell back to 95p against a year’s high of 301p; Regentcrest’s crashed back to 50p. The FT Property Shares Index was just 888 — practically where it had started the year — by mid-December. Property companies keen to buy back their own shares seemed to be about the only people ready to go back in the market, as its turnover fell right off. To cap it all, the Prince of Wales gave a vote of no-confidence to London’s top developers.
The property company keenest to exploit both bull and bear markets to pull off deals in 1987 was Mountleigh, the property dealer run by Tony Clegg and consultant-cum-undischarged bankrupt Paul Bloomfield.
Early in the year it was selling off properties within its United Real portfolio to the likes of Robert Maxwell at a rate of knots. Profits of £9.25m in 1985-86 were transformed into £33.5m in 1986-87. Then Mountleigh snapped up Stockley, the property company run by Michael Broke, Elliott Bernerd, Roger Seelig and Stuart Lipton. It bought a yacht club in the Antibes from arms dealer Adnan Khassoghi and set up a subsidiary in Rotterdam and a shipping fleet to minimise tax liabilities.
Mountleigh briefly considered putting in an offer for the Hilton hotel chain (eventually bought by Ladbroke). It charged into top offers for the Pension Fund Property Unit Trust (advised by Elliot Bernerd’s Morgan Grenfell Laurie) from Trafalgar House and TOPS Estates, and Martin Landau’s Rivlin narrowly decided against entering the fray.
Then Mountleigh, after prompting from the Takeover Panel, confirmed an interest in taking over Storehouse. From the start it never aimed to mount a contested bid — perhaps fearing the flak that would follow — and withdrew when Storehouse boss Sir Terence Conran spurned an informal offer of around £1.8bn (445p a share). Robert Maxwell bought a few Storehouse shares as Mountleigh’s interest waned; then Egyptian financier Ashraf Marwan and Andrew Millar’s Benlox Group mounted a bid to break up Storehouse.
Mountleigh had rebuilt a stake of around 3% in Storehouse towards the end of the year. It bought a Spanish department store chain from a group of Venezuelans, negotiating the price down after the stock market crash. Then it took an option to buy control of the troubled empire run by Norweigan Niels Bugge, whose valuation assumptions looked full, to say the least, after the crash. This option potentially gave Mountleigh control of another UK quoted property company called Jacksons Bourne End which Mr Bugge had intended to get motoring before the crash.
Towards the end of the year, Mr Clegg was publicly more ebullient over prospects than ever, despite the decision of BP pension fund to pull out of the purchase of part of the PFPUT portfolio. Negotiations to sell Stockley Park to John Duggan’s Phoenix Properties & Finance were still proceeding, with potential help from institutional finance.
Phoenix Properties, in fact, emerged as something of a mini-Mountleigh during the year. Mr Duggan had recently taken over management of the group from Damian Aspinall (himself advised by a controversial Dane called Jan Bunde Nielsen), and entered into the purchase of a housing site at Hounslow jobbed on to Crest Nicholson and Mountleigh. He tried, and failed, to negotiate the takeover of Allied London, but eventually pulled off the purchase of the Irish Rohan group with the help of massive backing from the stock market.
Mr Duggan did not proceed with an option to buy a slug of Wembley Stadium (controlled by Mountleigh and Brian Wolfson, possibly with the help of Jan Bunde Nielsen). Later in the year, Wembley was injected into the GRA dog racing company, and the combined group aims to get going in the leisure world. The leisure element of a Mountleigh scheme in London’s Docklands may be injected into it. But it is sad to relate that the share price of GRA post-crash is down at 68p against an earlier level of 165p, while Mountleigh is 143p (against 322p) as the market struggles to keep up with events.
Mountleigh apart, the fastest moving property company of 1987 was Randsworth, formerly a tiny plant hire group called Jayplant which barrister David Holland and Andrew Nichols (ex-Brixton Estate) took by the scruff of its neck in late 1986. A deal to develop an office block close to Rosehaugh’s Broadgate scheme proved well timed, and Randsworth used stock market backing to buy London & Provincial Shop Centres, Apex Properties and heaps of property from the likes of Fisons pension fund, Mountleigh and British Land. It snapped up a big stake in Lynton Property & Reversionary as part of its philosophy that the West End would become a boom location in the wake of the city.
In the wake of the crash, Randsworth’s gearing was around 120% and various property sales were on the stocks. All credit to Mr Holland and his able team in managing to build up net assets from nearly nothing to £90m (187p a share) in little more than a year. But its share price was half net assets by mid-December, giving envious rivals a chance to gloat.
Martin Landau may well be even more frustrated with Rivlin’s share price of 75p, against a high of 267p, by mid-December. During the year he injected his City Merchant Developers group into Rivlin and also took over Sidney Corob’s Mayfair & City. He teamed up with a Japanese company called Nissho-Iwai, and proceeded with an impressive development of London’s old Royal Mint site. It is precisely because he is a London developer that investors took a harsh view of his shares; the City is one area where tenant demand is being affected by the crash.
London & Edinburgh, which has worked with Mr Landau in the past, also saw its share price slaughtered from a high of 212p to 90p. During the year it floated a Hong Kong quoted offshoot and got control of London’s Spitalfields development site. Sister company London & Metropolitan, run by David Lewis, made a serious attempt to get control of County Hall in partnership with a newcomer called New England, whose new boss, David Jackson, is a whizz at the theory of property unitisation (so far only tried with any degree of success in Belgium). It bought some properties from Jacob Rothschild — Stockley’s former backer — in mid-year.
Among the other active developers, Martin Myers completed the merger of his Arbuthnot Properties with a portfolio of assets from Boots pension fund and Imry, the old-established group run by Arnold Lee. He recruited David Davies (ex-MEPC and Hongkong Land) as chairman, though more of Mr Davies’ time is now taken up with merchant bank Hill Samuel, which has just been taken over by the TSB. Imry is still working away on its St George’s hospital development site in London; David Llewelyn (ex-English Property Corporation and Greengarden) acted as consultant on the site.
Rosehaugh kept whizzing around picking up development sites around the country, while chairman Godfrey Bradman hit the headlines by donating £2m to people fighting the Opren drug case against Eli Lilley. Rosehaugh’s shares speeded higher and higher to a record £11.75 until October when they crashed to around 400p on fears for the City property outlook. Rosehaugh’s long-standing partner Stuart Lipton took his Stanhope property outfit to the stock market just before the crash at 250p; a few weeks later they were nearer 140p. To add insult to injury, the Prince of Wales popped up to blow raspberries at Mr Lipton’s plan to redevelop Paternoster Square on behalf of a Mountleigh consortium, describing developers as being worse than the German Luftwaffe. Refusing to be downcast, Rosehaugh Stanhope fought for the right to redevelop a 120-acre site at King’s Cross with Greycoat, Speyhawk and London & Edinburgh.
Among the smaller scale developers, Waterglade came to the stock market early in the year and were later rumoured to be buyers of a massive site in Chiswick from London Regional Transport. Peter Levy brought Shaftesbury to market just before the crash; he was able to get a full listing thanks to the fact that, as a subsidiary of his old company Stock Conversion, Shaftesbury had a trading record of longer than five years. Arlington, where Robert Maxwell sold his stake early this year, raised £52m from a rights issue and bought ESN’s Aztec West hi-tech site. Regentcrest, backed by Black Country twins Roy and Don Richardson, motored into development syndication under Alan Coutts.
At Helical Bar, Michael Slade became the second best paid man in Britain (on £1.1m) and volunteered to take a pay cut next time; he had the luck to announce a share issue just before the crash, but also the misfortune of seeing BP sell-on his Chiswell Street office scheme to the Japanese at a profit. Brookmount bought a big portfolio of assets from Trafalgar House (which also took a 5 1/2% stake in Costain) as well as City agents Wright Oliphant.
Even before the crash, the news was not all good for certain property tycoons. Harry Hyams, for example, had the bad luck to see his Oldham Estate sold from under him by 68% shareholder the Co-operative Insurance Society. MEPC bought the Co-op’s stake, and promptly bid £510m for Oldham, subject to a valuation by Debenham Tewson & Chinnocks. Their eventual estimate was vastly lower than a value reached by Oldham’s agents Bernard Thorpe and led to a debate within the RICS on valuation methods, which has not, as yet, led to much practical change. As an adjunct to this debate, the RICS has lately demanded the right to inspect company documents prior to publication from the Stock Exchange, owing to its dislike of the way in which some valuations have been presented.
None of this has done Harry Hyams any good. Post-crash he is still sitting on a big tranche of MEPC shares, waiting for his chance to sell. Perhaps he will spare a thought for Anthony Bodie of Herring Son & Daw who helped him build Oldham (along with his brother John Bodie of D E & J Levy) and has now moved into a property shell called Oakwood.
In 1987 we also saw the sad death of Lord Samuel, former chairman of Land Securities. Peter Linacre, new boss at A Caird property group, is now having his past share dealings at Merrill Lynch investigated by the Department of Trade. Gerald Ronson, of Heron International, was arrested in connection with the Guinness affair, as was Roger Seelig (ex-Morgan Grenfell and Stockley). Elliott Bernerd left Morgan Grenfell Laurie, and successfully dealt away in a private capacity ahead of the crash. G Ware Travelstead failed to come up with the finance for his Canary Wharf project in London’s Docklands and had to hand the show over to Canada’s Olympia & York. The Coal Board pension fund had to cancel its plans to float off its Pan-American property arm in the USA in the wake of the Wall Street crash. David Parkes lost his job as chairman of Westminster & Country after a boardroom wrangle.
The bevy of Australasian businessmen which made waves over here in 1986 and pre-October 1987 had a difficult time after the crash. Robert Holmes a Court, for example, bought and sold a stake in Peachey in late summer and later had to sell a large number of assets to keep his empire financially stable. Chase Corporation of New Zealand saw its share price crash; speculation followed that it would sell its quoted UK arm (formerly Wingate, under the control of Patrick Garner) to raise funds to privatise itself. Meanwhile, Chase (UK) put £90m of the properties it acquired with Property Holding & Investment Trust on the market, and suffered criticism for buying City property at the top of the market.
Markheath shares fell from a high of 180p to under 60p. Their rise and fall was thanks to the backing of Australia’s Adelaide Steamship, run by John Spalvins, who, some months before the crash, became known as a “raging bear in a bull market”. Unfortunately, some weeks before the crash he took large positions in various banks and insurance companies and his tangled empire Down Under saw its market value plummet.
Pennant, the construction and property group from Australia, took control of Country & New Town just ahead of the crash following its purchase of a 40% stake from John Gunn’s British & Commonwealth. Expect the rationalisation of C&NT’s assets, and expansion news from property tiddler Jermyn where C&NT’s old boss, Gerald Newton, is still in the saddle.
Aurora, a property group backed by Equiticorp of New Zealand, was generous enough to buy control of Hampton Trust from David Lewis just before share prices fell out of bed, though Hampton’s shares were holding up well at 92p against a recent high of 130p in mid-December. The Kiwis took control after bidding 120p for partial control. This is second time lucky for Mr Lewis: he managed to get out of Cavendish Land by selling out to Legal & General just before the 1974 crash, although his private assets did not go unscathed.
Kupe, which made a bid for PHIT ahead of Chase last year, was dragged down by the near-collapse of Bruce Judge’s antipodean empire. Australian Asset Management staked out Sibec in early October. Elders was under-bidder for London’s Trocadero to Brent Walker’s successful £90m takeover; its cash flow from companies like Courage is helping it weather the storm better than most.
Garry Carter’s Australian empire hit problems long before the rest owing to his pointless battle against the Melbourne establishment for the Humes building materials group of Australia. Mr Carter sold control of his New Cavendish shell to a Dutch group run by John van Vlissingen (who also owns a big stake in the Calor gas group) in October. Mr van Vlissingen’s new partner, Peter Jones (ex-Trust Securities), took a seat in the New Cavendish board room; its shares actually went up during the week following Black Monday in the market.
Mr Jones was not the only property man to make a comeback in 1987. Willie Stern, by all accounts, is the man behind Dollar Land, which bought Cumbernauld New Town from the Scottish New Towns agency. David Heimann (ex-Morris Wigram fringe bank and the South African Schlesinger family’s attempt to expand in UK finance and property in the 1970s) became head of Marina Developments, the yacht harbour and leisure group, in partnership with Local London. Michael Kent (ex-MP Kent, now part of C H Beazer) won control of Olives Paper Mill after a battle with businessman Nathu Puri. David Pickford, former chairman of Haslemere, became chairman of Robert Nadler’s Compco. David (“Spotty”) Rowland, the former controversial boss of the former Williams Hudsons company, moved into the oil stock turned property company Inoco.
Various other newcomers were dealing and developing aggressively ahead of the crash. Simon Fussell’s Priest Marians nearly took over GRA; bought a massive property portfolio from the Water Authorities pension fund; dreamed of merging with Great Portland; took a stake in Marler Estates; and judiciously wound down its property dealing portfolio by early autumn. Local London took over Standard Securities, quite apart from getting involved with Marina Developments and expanding its small business office suites. Local London also had some abortive bid negotiations with Asda Securities, run by Manny Davidson. Southend Stadium had a big rights issue, and ‘staked out House Property Company of London under the new leadership of David Landau (the shell specialist, which also runs a little quoted property company called Baldwin).
John Whittaker’s private interests finally won control of the Manchester Ship Canal Company after a tedious battle with the management. His public company, Peel Holdings, made a bid for the Mersey docks company. Former Peel lieutenant Peter Jevans came back into the limelight as boss of Merlin, a quoted company also backed by the Rouse family, of US shopping centre fame.
David Pearl’s London Securities had a rights issue and very nearly made a bid for Estates Property Investment Co, where it retains a big stake. Its little sister company, Property Trust, saw its share price whisk up from the equivalent of a halfpenny to 13 1/2p for very little reason, and managed to make a rights issue near the top of the market (the shares are now more sensibly priced at 3p, given the vast numbers of them in issue).
David Bullstrode became chairman of QPR football club. His and Bob Noonan’s Marler Estates kept working on the potential redevelopment or resale of the Chelsea and Fulham football club grounds. David Thompson (founder of Hillsdown) took a big stake in Marler Estates, but merger talks between Marler and the Meehan brothers’ Berkley House group fell flat. Mr Thompson also staked out the Glentree estate agency group, but big corporate moves from that direction have yet to occur.
Mr Bulstrode’s other vehicles include BOM (which bought the Cornish village of Charlestown and soon started to break it up), and Bob Noonan helped out with the reconstruction of Ecobric, the building company best known for its failed attempt to demolish a tower block in Hackney some years ago.
Peter de Savary, the yacht-racing tycoon, bought Land’s End from Regalian’s David Goldstone through a company called Alfred Walker (later renamed Landleisure), and the Aspinall casino operation. Nazmu Virani got motoring with Control Securities and prevailed upon Mountleigh, London & Edinburgh and Heron to take Control shares for some unwanted assets; it remains to be seen how long they hold them.
Heron also became a backer to the Shield residential property group (which bought Stickley & Kent estate agents during the year) and Irvine Sellar’s Martin Ford retail and property group. Heron presumably knew full well that the value of shares in companies which it backed would rise simply because it was prepared to back them.
Desmond Bloom’s Dwyer nearly bought a crematorium in Bristol, but did do some interesting deals with British Land, property man Harold Winton and cricketer Phil Edmonds, and David Backhouse’s Authority Investments. Sadly, Dwyer’s shares have fallen back from a peak level of 405p to 130p after the crash; shares in another former Irish shell company called Edenderry Shoe, which he backed along with Jeremy Howarth (ex-Ladbroke), have also lost speculative froth.
Property companies to come to the market in 1987 included Burford, which saw its shares placed at 80p and soon saw them rise to 495p, courtesy of its fan club and strong support from brokers Alexanders Laing & Cruickshank (who brought us Helical Bar). For a while, Burford was the best performing 1987 USM newcomer; it turns over more ground rents each year than most people would dream of owning in a lifetime. Its shares are now holding up at 155p. Kentish had a good debut courtesy of its Docklands schemes: its bosses, Kay and Keith Preston, are two of the few husband and wife teams in the property business. Brian Brownhills got the Wyndham group rolling into property, as the husband of rock singer Bonnie Tyler sold his shares. Arthur Oakes agreed to sell control of Towngrade to a couple of the chaps from Randsworth Trust. Remo Dipre, boss of the Fairbriar housebuilding group, reversed his engineering company Hawthorn Leslie into Adams Leisure.
Estate agents were not slow to come to market. Newcomers included Debenham Tewson & Chinnocks, de Morgan & Co, Sinclair Goldsmith and John D Wood. Owen Oyston used some of the money raised by selling his estate agency to Royal Insurance in an abortive attempt to save the left wing News on Sunday newspaper. Baker Harris Saunders merged with Bailey Posner and Alan G Hood. Institutions and buildings societies kept buying estate agents at a rate of knots, as did finance group Abaco, backed by British & Commonwealth. Some of the prices paid were high; after the crash estate agency shares fell heavily. British & Commonwealth saw that the writing was on the wall, and agreed to buy control of Abaco for £188m. These days it is big companies with big cash flow that tend to get backing from the few stock market investors left on the scene, rather than smaller hot stocks.
This year could well be tedious for the property sector. Cash and cash flow are king after the stock market crash and sector leaders like Land Securities, MEPC, Hammerson and British Land are likely to attract the best following.
But property, overall, is unlikely to find too much favour until the impact of the crash on tenant demand and values can be gauged. Hyperactive dealers like Mountleigh, Randsworth and Phoenix will have to fight hard to get their share ratings back.
It is just as well that the stock market crash came at a time when the property sector was showing signs of becoming overheated rather than definitely riding for a fall. The dream that Japanese investors were waiting in the wings to support property values has become illusory — particularly after building company Ohbyashi’s purchase of the Financial Times building for a fantastic £143m, which now looks way too high as a result of the Government’s decision to list the property. We may laugh at Ohbyashi’s misfortune, but it was a severe loss of face for the company, which has spread word of the unpredictable British planning system right around the Far East. Prime Minister Takehita’s attempts to control ridiculously high land prices in Japan could yet prove to sap the sentiment of its property magnates in 1988.
Many of our own institutions are reassessing their property requirements. Allocations for property are now rather higher than they were a year ago, but several fund managers are keener to look for value in the stock market than the property market, where investments can be notoriously illiquid. 1988 will be a year for everyone to tread carefully.
That said, the Water Authorities Superannuation Fund’s raid on Great Portland, to lift its stake to 15%, towards the very end of the year has helped to revive confidence in the sector for the short term. The raid could well be followed by attempts to agree a merger between Priest Marians and Great Portland, who boosted their market standing during 1987 by taking a half share in Danny Desmond’s Bride Hall group.
