Agile survivor revels in recession

Copyright: David Lawson

Published Property Week 2009

When annual profits are wiped out by valuation writedowns and shares trade at less than a tenth of the float price, most people might be inclined to call it a day. In fact, most chief executives would have little choice as investors and banks took turns to jump on their head.  Stephen Wicks does not appear to have a headache. In fact, he is remarkably chipper as he prepares the latest accounts for shareholders of Inland, a brownfield site specialist listed on the AIM.

  Perhaps that is because he has been through similar chaos before. His previous company, Country & Metropolitan, was launched in the teeth of the early Nineties recession, yet he survived to walk away with a £10m nest egg after selling out to Gladedale Holdings in 2005 just before the market went horribly wrong again.His backers – one of whom was the legendary ‘Black’ Jack Delal   - also made a packet and are convinced he can do it again with Inland.

   Wicks is no ordinary housebuilder: in fact he is not a builder at all. He gave up that part of the job with the sale of C&M and now concentrates on land dealing.  And as the adage goes, they aren’t making that any more.  ‘There will always be a role for land assembly,’ he says. ‘This is the most tightly constrained country in the world, with huge demand for land with planning permission. Our skill is getting that permission. Others can do the building.’

  Inland’s latest deal typifies the confidence that has kept shareholders on board as the market wreaks havoc. Wicks had his eye on the 32-acre RAF base at West Drayton for some time. It is one of the largest brownfield sites within the M25 and a short hop from Heathrow, so competition was intense, but he felt hopeful after working closely with the Ministry of Defence over the years.

   Inland ended up 20th on the list of bidders – an indication that he refused to pay silly prices during the boom.   The winner failed to complete, by which time the bubble had burst and Inland soared to among the top three bidders. But the site still went to a big name builder. Wicks finally got his reward when the MoD grew impatient and Inland was able to exchange within four weeks.

  This agility will be crucial in surviving the recession. It comes from decades of experience handling awkward sites – and making them pay. Even the biggest names are scraping the barrel for money but Wicks tapped one of his satisfied private investors to set up a joint venture. Inland will do the donkey work such as organising planning and then share profits.

  The MoD also had to be confident Wicks can perform, as it won’t get the bulk of its money until redevelopment is approved by local planners and sites sold on to builders.  Plans are being drawn for 850 homes plus commercial space and a nursing home. But how will Wicks make it work in the worst housing recession in living memory? A key factor is soaring demand for social housing. Wicks has never been involved in the rush to high-density flats. His speciality at C&M was homes with gardens, which is exactly what housing associations are now desperate to acquire, fuelled by the promise of millions of pounds from a government desperate for new homes.

  The site is zoned for mixed development but Inland will still spend £1m over the next couple of years employing more than 20 consultants to hammer the brief into something that will satisfy Wicks.

  It may not be an easy ride.  He hates planners with a visceral passion, which makes it all the more surprising that he set up Inland as a planning specialist following a few months of excruciating boredom after selling C&M. ‘Planning has never been as difficult,’ he says. ‘Councillors have no training and make some awful decisions.  There are also extra constraints such as ecology and archaeology, while local objectors have become more organised.’

  Reverberations are still being felt in Watford after Wicks demanded one councillor’s resignation after rejecting an application for infill housing recommended by officials. The decision was reversed on appeal and Wicks says he is determined to recover the £20,000 costs.

  This assertiveness is reflected in the fact that two-thirds of Inland’s developments are  caught up in appeals but Wicks offers no apologies, pointing out a 100% record of either winning hearings or amending plans so they are eventually approved.  It does drag out the time between acquisition and reward, however, even in the good times. Can it work in recession?

  His backers, who include the former C&M management team and private investors who nagged him into setting up Inland, certainly think so. They provided a big slug of the £60m raised in the AIM float and a subsequent oversubscribed rights issue.  This offers a significant buffer. ‘Raising equity meant proceeds from sales go straight back into the company rather than to banks,’ says Wicks.

   Some £30m of debt was part of the business plan, however.  Instead, Inland has to get by with £10m and loan-to-value ratios as low as 30%.  This has fundamentally changed the intention to accumulate a land bank, add value by winning planning permission and do a trade sale once this reached critical mass. It started well, with huge margins on early deals to finance further site purchases but more land than intended now has to be sold to raise cash, which cuts the chance of an end game within the next five years.

  The idea of selling any land when the market appears frozen seems wildly optimistic, yet Inland continues to find buyers. ‘There are lots of small builders still producing a handful of homes every year,’ says Wicks. ‘They never relied on banks so they have not been crippled.’  

  Other lifelines include £700,000 in commercial rents on property which would normally have been quickly cleared. Alternative uses such as hotels and retail are also being explored. Travel Lodge is negotiating on a site in Exeter and Wicks expects retailers such as Lidl and Aldi to become come calling across the south-east, which is his target market.

  Housing will remain a dominant interest, however.  He sees possibilities for joint ventures with housebuilders along the lines of a deal with partner Howarth Homes at Farnborough, another MoD site which signposts how West Drayton may progress. Planning negotiations have doubled the original provision for around 200 homes plus around 100,000 sq ft of commercial.

  He expects the slump to last until 2011-12 but in the meantime Inland is betting on a role as intermediary between land owners desperate to sell such as the MoD and major builders overstocked with sites, and social landlords keen to create family homes.  Funding will be critical but while banks have retreated into their shells, the prospect for a repeat of C&M’s success in weathering a recession could bring flocks of private investors looking for alternatives to low-interest cash and moribund commercial assets.

1999 – Country & Metropolitan floated to raise £6.8m

2002 – North Country Homes bought just as market recovering in the North

2005 – after rejecting numerous offers, C&M accepts a bid of £3/share from Gladedale,  almost double the market value and seven times the float price.

2005 – Inland floated on AIM, raising £60m

2008 - £4.78m writedown in land values wipes out pre-tax profits

2009 – shares trading at less than 10p compared with 50p issue price