Copyright: David Lawson appeared Property Week May 1998Home Page
A leading developer shook his head in despair a couple of years ago after hearing that two traditional pillars of the property industry were collapsing. Erdmans and Clive Lewis were big hitters before merging, and had added an international connection with Colliers to form what appeared an industry-beating combination.
'If they can go belly-up, others had better start worrying as well,' he said. But this gloom failed to take account of one peculiar facet of the property industry: the dead can rise again.
Two and a half years after being rescued by Conrad Ritblat, Colliers Erdman Lewis (CEL) is very much alive. And despite all the mutterings, gossip and foreboding, the firm appears very happy under the umbrella of Milner Group, the parent company's new name.
'We are not bossed around. There are no plans to merge with Conrad Ritblat. There are no plans to float off as a separate company.' In almost a single breath, operations board chairman Chris Pieroni dismisses most of the accepted wisdom touted around the dining tables of competitors.
Andre James, CEL head of investment, adds a final barb for doubters who point out the firm lost 6m in 1996 before collapsing into receivership. 'We have been profitable ever since,' he says.
He obviously wants to say more but this is 'closed season' for Milner insiders - the period leading up to financial results when the Stock Exchange threatens fire and brimstone on firms leaking information. By implication, however, CEL should improve on fees of almost 12m earned last year,. as new business flows in.
That may be only half the pre-takeover income but staff has also halved to around 200. Overheads like marketing, IT and human resources are now shared with Conrad Ritblat. Milner chief executive Philip Lewis said the doubling of parent group profits to 2.75m in the six months to last November had much to do with the resulting cost-saving. If, as seems likely, CEL reflects Milner philosophy, operating profits per head will be way ahead of the rest of the sector. Last year, these were around 17%.
The 400,000 it cost to take over CEL in early 1996 is beginning to look like another of John Ritblat's inspired investments. Perhaps it was his role as head of British Land rather than Conrad Ritblat that inspired the move. As a developer, he knew that clients bet on people rather than reputation. Almost all CEL's top staff remained through the troubles, with the cuts mainly hitting in the regions.
'We did not lose a single major client,' says Pieroni. 'In fact, we have gained some, such as Microsoft and Cisco.'
That attempts to answer another dire warning from critics. Some forecast that investors would not want advice from a firm which was part of a competing investment group. Nor would they look kindly when a consultant in the same group might be acting for a competitor.
That all seems so flawed today. Co-investment with clients is the newly discovered path to light, and Milner was one of the pioneers as a combined investor-consultant.
Globalisation is another trend now seen as essential for survival. CEL chose this route back in the Eighties when Erdman Lewis linked with Colliers. The fact that the international network's name went first on the logo shows how important it was seen to link with more than 200 offices around the world.
Colliers generates around 10% of CEL turnover, says Pieroni. The US connection was crucial in winning contracts to handle property consultancy, particularly in the IT sector.
It is difficult to see how this relationship works in practical terms. The setup is more than a loose association but less than co-ownership. How does this sit with the authority of Milner? Who runs things?
'We do,' says Pieroni. In fact, that applies within Milner, as well. Lewis, group financial director Tom Tidy and consultancy businesses MD David Pickard, sit on the management board, but it is packed with CEL directors and chaired by Pieroni. He insists that Milner is very much an arms-length owner.
The real test, some say, will come when CEL and Conrad Ritblat go head to head on a pitch for new business. Or perhaps when they sit each side of the table representing different clients.
Pieroni feels no pressure, however. He points out that other sectors have competing firms working under the same umbrella. Saatchi, for instance, owns several advertising agencies. He is too polite to mention multiple competing newspaper ownerships to a journalist.
It is an eclectic view which, perhaps, should be expected of a former Cambridge Don and management consultant who does not fit the conventional pattern of property consultancy chiefs. He joined CEL as group economist five years ago and rather than blasting to the top by outselling other agency hotshots, he is head of research.
A PhD in property economics can be a hefty attraction nowadays, with clients looking for a more cerebral approach to asset allocation. But he is quick to point out that rebuilding CEL is very much a team operation, shared among operational heads of departments and directors rather than a single power in the driving seat. 'Branding,' interrupts Andre James. 'CEL and Conrad Ritblat are different products with their own brands. We are strong in retail and the international scene.'
Conflicts are unlikely to arise - and even if they did, it would not be a problem. 'It is in Milner's interests that people compete,' he says.
For the moment, however, CEL is more interested in adding to CEL's armoury. Corporate services are motoring after winning contracts to provide fast-expanding Microsoft and Cisco with advice on European property strategy.
New staff are joining - a sure sign of confidence in the future. Jonathan Conlon and Nick Giraudeau[CORRECT] have come from Savills and Chesterton respectively to strengthen corporate services. In-town retail has attracted Kevin Farrow and Chris Lea. Jeremy Lovell has joined the investment department from Healey & Baker. Peter Foy has come from Allsop & Co to out-of-town retail.
'We now have the advantage of a young team mixed with sound experience,' says James, picking out the track record of group consultancy managing director David Pickard. He points out that the management board is almost completely transformed. Only Colin Knott remains from the old CEL setup.
Building a big staff to compete with the giants is not the key to the future, however. Milner has the financial strength but Pieroni says there is no dash for growth. 'We aim to be a Rothschilds rather than a Goldman Sachs,' he says.
That has not prevented CEL poaching Richard Stanley from Grimley to set up a new department, specialising in insolvency. Pieroni insists he is not forecasting a property crash. 'It is just more advantageous to get into this area at this stage of the cycle, when property is worth more,' he says. The firm has already won three receivership instructions.
It might seem ironic that a firm which came so close to the brink should plan to profit from others' potential demise. But perhaps clients should take comfort from the fact that CEL has proved the Lazarus principle that the dead can rise again.