Top UK business park developer steers new course under US ownership

Copyright: David Lawson– first appeared Property Week 1999

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Patrick Deigman is missing.  Arlington's chief executive  should be at PRICOA's offices, a modest cluster of rooms near Victoria Station that belie the US group's billion-dollar power. His PA, back home  in the Thames Valley insists: the London receptionist looks bemused. A flurry of mobile phone calls and he emerges smiling from an unmarked office downstairs.

 It is not surprising that the US owners of Britain's biggest business park developer are still coming to terms with their new acquisition.  Arlington is like an oil tanker that has chugged steadily along the same course for years, producing around 12m sq ft of space on 18 parks. It takes time changing direction from a trader  to investor.

  On the surface, little appears to have happened  in the five months since Deigman confirmed the market's worst-kept secret - that Arlington had been sold by BAe to PRICOA Asset Investment Managers.  Underneath, however, the wheels are turning.

 The firm has been split into five operating divisions - development, investment, services, management and international. The first, headed by Nick Murray, now has the freedom to plan beyond the year-on-year cash generation demanded by the old owner. That means around 250,000 sq ft of speculative development is being planned in the next 12 months.

 That is one reason for  Deigman's broad smile. He has never been  a gloomy character, but at last he has escaped the stultifying role of a cash generator. Life is exciting again.

  'We can look five years ahead. It is an enormous relief from the frustrations of seeing the potential for development but being unable to go forward,' he says.

  Two landmark lettings have just been tied up which demonstrate the change of approach. At Theale in Berkshire, a Shell/Exxon joint venture have signed up for a five-year lease at more than 50pounds/sq ft. The huge rent reflects a new kind of approach, under which services such as security, power and receptionists are wrapped up in a quarterly charge. Volvo has come to a similar arrangement at Solent Park in Hampshire.

  Deigman was preaching this kind of 'total service' deal long before US investors jetted in with the idea. Under the old regime it was limited to buying in utilities like power and telephones for business park tenants. Now  he has the backing of  PRICOA, funded  by Prudential of America and the Abu Dhabi Investment Authority. The new owners chose Arlington in a deal worth  around 300m pounds  precisely because of this new kind of approach.

  Initially, short leases  will be limited to innovation centres. He says the funding market is still not there for all-inclusive service leases on larger buildings - but it will come. 'Investors will adjust,' says Deigman. 'They have never had this kind of product in the past.'

 In the meantime, he is concentrating on expanding innovation centres on half a dozen parks.   A lot more will be required to meet PRICOA's targets, however. The investment division will have to motor if it is going to double the portfolio to around 600m pounds ready for a public listing.

 Deigman shows no fears about finding the product. About half the current asset base is undeveloped land, which will make up the bulk of the expansion. And he shows little concern that tougher planning rules will allow further activity.

 'The government is not opposed to out-of-town development,' he insists. 'It just has to be  in strategic locations.'

  As the land bank starts to dwindle, he sees the need for new parks emerging in areas like Birmingham, the A40 and Thames Valley, which are already nudging capacity. Nor is he averse to buying investments. Aptly, it was Pillar, run by the original Arlington founders who provided a line to the first acquisition.

  An office block was bought  from AMP at Capability Green in Hertfordshire because Deigman saw the potential for an uplift in value once Pillar took over the moribund business park.

  Mainland Europe also beckons. 'We can export the Arlington brand,' he says. 'A lot of our US customers are saying they  have grown to big to run all of Europe from the UK.'

  But he insists he will not move quickly just for the sake of a presence in Europe, recognizing how many have come back in the past with their fingers burned. Any scheme would depend on  a local partner taking at least 15% of the action to ensure expertise in these markets. The new owners are quite content expanding in the UK rather than rushing across the Channel, he said.

  They are also keen on cashflow, which is where the other new divisions come in. Howard Bibby is in charge of developing the serviced office concept, although Regus is understood to be setting up a joint venture to feed in its expertise.

  The development management division aims to see its skills flowing in the other direction to enhance earnings. Arlington beat off several contenders to win a contract with McLaren for a 500,000 sq ft greenfield development in Woking.

 Deigman sees a rich potential for similar projects. 'We have 18 years' experience dealing with big sites,' he says.