The modern property industry started in the 1950s and 1960s, continued to build up through the 1970s and took off in the 1980s. Here, Derek Penfold gives a personal view of some of the people who shaped events and made history
Today’s property people see themselves as the highest evolutionary form their calling has reached, but that image has more to do with the technology they use and the complexity of modern economies and business, of which they are part. Their image, their perceptions of their skills and their place in the natural order of things, as principals or agents, has hardly moved on for centuries.
Visiting the grander and grandest in the land, they should still call at the back door, address their client while standing, hat off, and not expect to join the client’s innermost business or social circles. The RICS’s oft-repeated call for property people to take their rightful place in every boardroom in the land, because property is central to every business, has yet to be heeded.
Property is only a means to an end – a practicality for housing people and businesses, and a source of income for those who own more than their own strict requirement of it; a store of wealth in the same way, but not so transportable, or flame-proof, as gold bullion.
The now highly regulated process of property development has only become more subtle, and the wild swings of the market in which it has to survive have always been with us. The impact of speculation in tulip bulbs hit occupier and owner confidence and the availability of steady finance just as much as any 20th century financial crisis.
And the emergence and disappearance of favoured business and residential locations is nothing new either; the City of London property market has barely recovered from the flight west, in the 17th century, after the Great Fire. Canary Wharves were popping up all over the place to the consternation of City aldermen and the owners, who found that City freeholds were much more inflexible than gold bars.
So, there’s nothing new in property. It gets more slick and clever, and there are more noughts in the numbers.There are rogues and brave entrepreneurs, enlightened patrons and the originals of all today’s personalities, running back centuries.
So, if there’s nothing really new, what at least has been happening in modern times? The greatest breakthrough has been in sources of finance, as pension funds and insurance companies arose and grew, laid off their liabilities through investments, and after the second world war made their switch from safe but hopeless government securities to equities and then to financing property development and to other financial instruments.
The switch came slowly, and George Ross Goobey (the father of today’s head of Hermes, Alastair Ross Goobey), who ran the Imperial Tobacco pension fund, is widely recognised as the man who led the way. Incidentally Alastair’s 1992 book, Bricks & Mortals, chronicles the 1980s – the sexiest years of the modern property industry – and gives some continuity to Oliver Marriott’s The Property Boom, published in 1967 and covering the period from the war. I should credit both authors for some of the thoughts I have taken up here.
The switch to equities came about through the weight of money the institutions were amassing, and the relatively poor returns gilts were giving. The further switch, to property financing, was not really commonplace until the 1960s, when portfolio diversification and renewed quests for superior returns drew the institutions into direct development and funding other people, creating the stable financing platform that increasingly took over from the previous bank lending.
The modern property industry could be dated to the 1950s and 1960s. The end to postwar restrictions on building materials and the brightening economic outlook encouraged businesses to physically expand, and entrepreneurs were at work creating new business premises.
And what awful buildings, by and large, were created. They drew, often cackhandedly, on more inspired Modern Movement originals on the Continent or even in the US, and exploited concrete as much as possible.
This was also the time of the comprehensive development area and the compulsory purchase order. Local authorities worked closely with the private developer and the institutional backer to create what today we see as achingly boring shopping centres and housing estates, and clever exploiters of the planning system (the architect Colonel Richard Seifert is perhaps the best example) designed monsters appealing to clients, monsters that are still with us today.
Developers’ architects have tougher times today, with a public (and catty professional colleagues) more aware of their powers to protest; the “comprehensive” treatment and the necessary CPO have almost passed into history.
These were the glory days of Land Securities and its subsidiary Ravenseft, Hammerson and funds like the Coal Board. I left Estates Gazette in the mid-1980s to work in stockbroking; my boss, the head of the property team at Laing & Cruickshank, was Chris Turner, who now runs the property subsidiary of Henderson Investors.
Among the many wise things he taught me were “Old men never borrow money” – there were a lot of old men running property companies then – and “Lending money to property developers is like giving whisky to Red Indians”. They may still be true today; they were certainly true in the 1960s and 1970s.
And yet curiously, out of the ranks of property developer stereotypes came a few more thoughtful characters.
Until the 1970s, most developers seem to have come from “the garment trade”, as Eddie Erdman called it, or were lawyers or agents or maybe builders hoping to move up the food chain. The new breed, who thankfully are today running their own companies, grew up around men like Geoffrey Wilson; the Wilson school produced Ron Spinney, now head of Hammerson; Peter Thornton, now Greycoat’s chief executive; and Stuart Lipton, now head of Stanhope.
There was a property company in the 1970s (gobbled up in the 1980s) called Haslemere, which specialised in turning tired period buildings into “des res” offices. “Doing a Haslemere”, a phrase they cutely coined, meant spending a little bit more money in restoring a building, doing a bit more than the minimum. They said that this was amply repaid in the premium rent they then got for the building. The Wilson companies, which culminated in Greycoat, felt the same about architecture at a time when most of the industry was still using uncontroversial architects that could produce designs that got planning speedily and that could squeeze as many net lettable square feet as possible out of the proposed gross area.
Richard Rogers, architect and superstar of our times, is no modern phenomenon: Wilson and Lipton were using him for their Coin Street proposals in 1980. Sadly, their way of looking at the GLC-owned site did not impress, and a sale to community housebuilders scuppered any regeneration of the South Bank as an office centre.
I still like Gavin Stamp’s quote that Rogers was “that relentlessly modish figure who now exercises more political power than any architect since Albert Speer”.
Lipton was a heretic then, and happily continues to be; developers would snort at the mention of his name, a man who understood the construction process, was interested in design and materials, treated architects as friends, and generally sold out on the rules of engagement for property development.
If you want to track the “modern” property industry, the Prudential’s activities are a fair barometer. Although it might have slightly lagged behind the direct market, at least before the 1960s and 1970s, it was a key component of the industry thereafter, as funders of developers, development partners, or direct investors.
The Pru’s own internal reports show that even in 1930 it had a respectable £13m in “ledger value” (valuations didn’t start until 1969), with residential property a significant component of the portfolio. After the war, with government restrictions on rent increases and funds being absorbed in repairing war damage, the balance started to shift away from residential, as funds overall grew – by 1950 the Pru had £48.8m in property, in 1953 £67.6m. In 1948 the running yield across the portfolio was 3.9%; it was 5.6% in 1955 – very respectable even against today’s prime rates.
The costs of repairing war damage (repair works were costing three times pre-war contractor prices), government restrictions on supplies of building materials, the national effort going into restoring the housing stock plus factory and only essential business premises, and then the landmark 1954 Landlord & Tenant Act all speeded the shift out of residential holdings. So much easier, then, to buy commercial investments.
Controls on residential rents were lifting, though, and a flat in Fountain House in Park Lane had crept up to £1,250 – that’s pa, not today’s pw. Automatic lifts were replacing porter-operated lifts, and the high price of coke meant that oil-fired conversions were under way for the central heating.
By 1960, the Pru’s ledger value for property was £143m. By 1963 it was spending as much as £1m on development and modernisation works. By 1965, the company was reporting “very heavy volumes of purchases” of commercial property, aided by the effect of the new Labour government’s squeeze on bank finance. “Very heavy” was a total of £45m – the size of one average sized deal today, but it had beaten the 1964 record of £29m.
Harold Wilson’s government was squeezing the industry and the Pru was mopping up portfolios: it bought 69 properties when it acquired Aldford House (Park Lane); 40 properties came with Second Covent Garden, and it bought Cleveland House in St James’s for just over £2m.
In the mid-1960s half of the Pru’s property holdings were in central London, and with the introduction of internal valuations in 1969, the portfolio had a market value of just under £500m. It wasn’t just buying in London though – it had a stake in the Manders shopping centre in Wolverhampton, for instance – and in 1969 it bought Manchester’s Royal Exchange and the Cunard Building in Liverpool.
As the portfolio soared, residential shrank as a percentage and London blocks were being sold off as the institutions left the sector, in the Pru’s case selling largely to residents’ groups. Chunkier commercial properties emerged; in the late 1980s one of the largest properties in the Pru’s portfolio was represented by Central Cross in Tottenham Court Road in London, 230,000 sq ft of offices, jointly owned with EMI and put at £45m. Today’s biggest lot is nearer 10 times that price tag.
By 1977, the property portfolio was £1bn, 50% of it in offices and over 40% in retail; just three years later it was £2.25bn. Today, the Pru’s property assets are about £6.5bn, with over 60% of this in retailing.
In the 1960s, as the Pru fired up as a modern property investor, staff were 213 – the estates department and “the engineering and works department” – of whom 41, it was meticulously reported, “were ladies”. Today, despite the portfolio being much larger and much re-tasking and re-skilling, and the appearance of specialist research teams, demographers and the rest, staff numbers are still broadly the same. The chartered surveyors are in charge too, with Martin Moore the managing director of the property group.
If the property market was building nicely through the 1960s and 1970s, ignoring the booms and busts that were then obligatory, it was the 1980s that saw the industry really taking off.
In the window between busts, a boom developed with a rush into Stock Exchange flotations (including a few brave agents) and the emergence of what was known as the merchant developer. The glamorous, even swashbuckling tag only meant specialists in forward-funded, prelet developments, the company tucking away some development profit into an investment portfolio but generally using profits to take a bigger slice in the next scheme, buying the site but sheltering quickly in the funding institution’s arms.
The rise of the merchant developer calls to mind Trevor Osborne’s Speyhawk as the prime example, and certainly it was the first of the breed to float, through Barclays Merchant Bank, which coined the phrase. In fact, the specialism existed previously, as property companies sought the extra 0.25% yield.
London & Edinburgh Trust floated after Speyhawk, in 1983 butwas probably the earliest into the role. And there were plenty of doubters when John and Peter Beckwith launched it. They caught the tail of the preceding bust, but survived and then prospered. John Beckwith recalls the rollercoaster time, “when we were a million up, then several million down”, and, against the trend, one of their banks went bust on them. They had seen what personal guarantees had done for other developers borrowing from the banks, and never signed them.
Shareholders who had been sceptical about the LET offer and about how to value this new breed of property company were amply rewarded if they took the chance as the 1980s moved into a sunnier climate, and the brothers’ timing was perfect when, with what proved to be minutes to spare, they agreed a sale of LET in 1990 just before the shutters came down on the property market again.
If Speyhawk and Godfrey Bradman’s Rosehaugh are seen as the tragedies of the early 1990s downturn – with Osborne leaving the sale of his company too late for an exit and Rosehaugh forced into receivership – perhaps the greatest success was Mike Slade at HelicalBar. Bradman and Osborne are still active, in private companies and nothing like the old scale; John Beckwith has his diverse Pacific Investments group where property is still very important, but Slade has gone from strength to strength since the day he was put in to turn round a company that made reinforcing rods for concrete.
Slade has honed the merchant developer’s core activities: forward funding off balance sheet, and recycling profits into the next site purchase ahead of a deal with an institution. Profits are creamed off to the investment portfolio. NAV growth is important to Helical – but a ready stock of seed money to get the next scheme under way is central to the company. Today’s Helical shows how rigorous development management within funding agreements can produce serious profits for developer and fund. Helical’s legendarily incentivised team has lifted it into the top slot for company performance.
As we cross the millennium dateline, what next? Property in a time of low inflation, low interest rates and market stability does not promise much excitement. Within the constraints of Tony Blair’s nanny government, can we really only hope for more creative financial instruments and even the Holy Grail of securitisation, while uppity architects preside over the future of property development? Come back Harold Wilson, Denis Healey and all those developers Evelyn Waugh could have been describing when he said of another group, “There aren’t many of them left now, what with rising standards of education and whisky the price it is.”
Derek Penfold was the last editor of Estates Times, and is now a director of PR consultancy CMT International. His baptism in the property market was in 1973
