Seeking asylum from recession
Copyright: David Lawson
Published Property Week 2009
Mental health was badly misunderstood a century ago, leaving a legacy of magnificent but mouldering former mental asylums scattered across the UK. Stumbling across one in London’s northern commuterland is like stepping into a Victorian Versailles – around 200,000 sq ft of endless red brick gables, castellated towers and formal gardens. It even has a built-in church and clock tower.
‘Tudorbeathan,’ says proud owner Tim Sargeant. ‘Isn’t it wonderful?’ He has a passion for this kind of relic, now renamed The Galleries, seeing the potential to create apartments which take full advantage of Victorian grandeur. But surely anyone considering such a project might aptly be considered mad in the depths of recession?
Sargeant could prove an exception. He had the sense to pocket a cool £6m by selling one site at the peak of the boom in 2007 and sees current economic woes as an opportunity to spend those millions snapping up bargains. This is evidence that developers old enough to have survived previous recessions could now elbow aside recent stars.
Sargeant is only in his early forties but has seen highs and lows while working his way up from site labourer to chief executive of City & Country, a small group well known in East Anglia for taking on historic property too difficult for mainstream developers. Finding stock has been tough over the last few years as speculative investors paid ludicrous prices for anything with a roof. Sargeant has bought nothing since 2005 but can now revel in an expected orgy of distressed sales. City & Country is negotiating an increase in credit facilities and aims to quadruple its balance sheet to more than £100m in five years.
Who has such loose purse strings when money is so tight? No private jets have swept in from the Middle East to land at Stansted Airport, near the firm’s HQ. No limousines have been spotted on the short trip up from the City of London. One clue is a lunch Sargeant has booked with his bank manager to celebrate being a customer for 40 years. Loyalty pays dividends.
This long relationship developed as the firm evolved from a local building contractor set up by Sargeant’s father and uncle in 1962 into a multi-million-pound specialist in heritage development. It survived two recessions by never over-reaching. Even now only a fraction of existing credit facilities have been used and gearing is a mere 5%.
The founders are still shareholders but a new generation of three brothers and a cousin now run the quintessential family firm. Inevitably, comparisons were made with another pair of famous property brothers when City & Country bid for £10m in the Bank of Scotland Property Entrepreneur Search run with Property Week. The London-based Candys shot to fame with up-market sites like Chelsea Barracks and Middlesex Hospital.
Sargeant sees some similarity in turning historic assets into swish new apartments but balks at being tagged the ‘Essex Candys’ because of a vital difference in the business model. The firm has an abhorrence of ‘hot’ money which can evaporate as fast as it appears. ‘We also like to keep control,’ says Sargeant, explaining why the firm never went public during the golden years.
All the Sargeants are passionate about using the right materials and designs to ensure authentic, high-quality renovations, which can add 25% to costs. Using family resources means never having to squeeze out the maximum profit.
It wasn’t always like this. For more than 30 years the firm was a conventional developer called Sarbir involved in commercial property, contracting and plant hire. The last recession changed all that, when Sargeant switched direction to high-value residential. A brother and cousin had already set up a company converting old barns, so their skills were invaluable renovating property such as a tranche of historic buildings bought from Hertfordshire County Council. The relationship was formalised when Sarbir became City & Country in 2002.
Since then the family has never looked back – other than to recall the principles that proved a saviour in recession. ‘There will always be home buyers no matter what the economic problems,’ says Sargeant. ‘But to get them you have to offer something different and special.’
He does not boast immunity to downturn. Prices and sales have dropped by 20-25% in the last year and he is exploring renting out apartments rather than fighting for sales at any price. But this is a minor irritant compared with opportunities the firm expects to open up.
After pretty well exhausting what East Anglia has to offer, this regiment of Sargeants is arming to invade foreign parts. Bids are in place for major developments around the M25 in Kent and Sussex. Forays have been made outside familiar territory. The firm bid for Woolwich Military Academy but lost out to Durkan Homes. These expeditions failed because City & Country would not pay silly prices. Now it expects a clearer field, fuelled by the £6m raised from last year’s hot deal and a bank confident enough to extend development capital.
Invading London would be the ultimate accolade. Sargeant may shy away from comparison with the Candys but he would have had no qualms about taking on sites like Middlesex Hospital after handling enormous challenges like The Galleries. Forming partnerships with volume builders is one option. Many are stuck with ‘difficult’ assets which are meat and drink to the Essex renovators. Universities, local authorities and health bodies are also loaded with heritage buildings they anticipated would raise funds but now face a bleak future.
CITY & COUNTRY
Chief Executive: Tim Sargeant, 43
Chairman: Neil Sargeant, 49
Development Director: David Sargeant, 41
Corporate Director: Andy Sargent, 37
1962– Sarbir founded as contractor and developer
1970s – Expanded into commercial development and plant hire. Experienced its first recession
1980s – Focus moved to high quality residential development in association with restoration specialist Castleprime, also run by family members. Quickly became the most profitable division
1990s – Further concentration of heritage restoration as plant hire sold to combat second recession
2002– Operations unified as City & Country as founders give way to new generation of Sargeants
Potential for more than 1,500 new homes on current sites
Up to 5,000 homes on other sites under consideration
The Galleries, Brentwood, Essex
Conversion of the 190,000 sq ft Grade II former Warley Hospital into luxury apartments. Dating from the 1850s, it includes three water towers, an integral church and a clock tower.
The Manor at Herringswell, Suffolk
A listed house set in almost 8.5 acres near Newmarket, Suffolk, being converted in four phases into 53 apartments and cottages.
Passion for historic property extends into the home life of the Sargeant clan. Back in 1999 the brothers fell so much in love with the Grade 1 listed St Osyth Priory, near Colchester, which dates back as far as the 13th century, that they kept part of it for themselves. When the working day ends, they continue the long task renovating their own piece of history, which is now the family home for 14 Sargeants spread across three generations.