Copyright: David Lawson- Property Week 1999Home page
Only a year old and Nick Leslau is already winding up the big boys in the playground. Little Nick has no fear. The property industry is 'lazy and feudal', he shouts. It deserves its low reputation among investors because by producing 'appalling' returns it has short-changed shareholders. Landlords are dreadful at handling their customers, he adds. And it may be time to break up giant companies.
Nothing new here, then. Except that this is not some cynical fund manager or City analyst railing about the state of the industry. Nick Leslau is among the elite: a property millionaire in his twenties, he helped build Burford into a £450m giant before moving on to new pastures. 'Nick the Mouth is back,' sneers one rival. 'He's just promoting his new firm.'
There is a grain of truth here. The youngest veteran in the sector, still only 39, is celebrating the first birthday of Prestbury, his new vehicle. Not surprisingly, Leslau sees it as the antithesis of the tired old companies currently running the sector.
The AIM-listed newcomer is small, tenant-focused, small, management-oriented, small, obsessive about shareholder value, parsimonious about debt - and, of course, small. The City seems to approve, as it is one of a mere handful whose shares are rated at a premium to net assets.
But the City has always liked Leslau, who with Nigel Wray built Burford into a giant. Even the wobble over the Trocadero, a deal too far for many, has not tainted his lustre with supporters like Mercury Asset Management, Schroders and Legal & General, who were happy enough with their Burford stake to back Prestbury.
Leslau is now determined to remain small. 'You lose touch with your customers when you disappear up a management pyramid,' he says.
That is one reason why he suggests the giants might be broken up. The other is that they have less incentive to work their assets to maximum efficiency. Squeezing extra performance out of a development has minimal impact on a giant portfolio, he says. Market trends are the powerful factor, and developers can have little influence on the way the rents are moving.
In fact, there is a case for property companies owning no assets, says Leslau. The skill lies in managing the tenants within. Institutions have the financial clout to own buildings; they are just not very good at managing the occupiers.
Small is not necessarily good, however. Leslau believes many of the minor players deserve their hefty share discounts because they are even more lazy and guilty of not sweating assets.
Changes in finance could be quietly tolling the death knell for property companies anyway, he believes. Funding is swinging towards non-recourse loans. 'These are essentially mortgages lent against buildings, not the people who own them. It does not matter whether they are owned by a huge company or a private investor,' says Leslau.
The future will also be fraught because of changes in relationships with occupiers. The long-lease is dead. That means landlords must relate to their tenants rather than ignore them, or they will disappear at the first break.
'It is common sense that if you treat tenants well, they will want to stay. They will not begrudge the next rent increase. They will recommend you to their associates.'
He picks a Prestbury example. INTEC business park in Basingstoke was producing just over a million pounds in rents when bought for 13.25m in December 1997. Spending 2m pounds on facilities like a health centre, wine bar and parking helped let around two-thirds of the available 8365 sq m (90000 sq ft) within 20 weeks. Net rents are now around 2m pounds - with more to come from reviews.
'This is not rocket science,' says Leslau. Indeed not, but it is obviously beyond many landlords.
'A lazy and feudal property investment industry has been built on the rock of the long lease,' he says. This will be increasingly rare. Landlords are going to have to learn to look after their customers.'
By implication, that could mean passing assets to specialists like Prestbury. But not to managing agents: 'It is amazing that you can have a ś30m shopping centre run by agents who have no training in running a business. Imagine a listed company worth 30m with no board and no financial director.'
That will only happen if smaller firms can show results. Leslau is punting Prestbury but admits it is still early days. In the first full year since Leslau and Wray raised 20m of equity to create the new property player, the firm has grown a 95m pound portfolio from scratch.
The most significant deal was probably the 103m acquisition of an MEPC portfolio, funded by SocGen and a 50m pound share placing. Ironically, the property giant had been mooted as a reverse takeover by Burford in 1997. Yet MEPC insisted on taking an 8% share stake in Prestbury as part of the price.
So not all property giants are evil? Leslau smiles: 'They are lovely people,' he says. 'It is understandable that they want a slice of any improvements.'
Individual sales from this portfolio - and another bought from Glaxo for more than 50m pounds in January are bringing in profits. It is a combination of spotting under-valued property, massaging and selling on, the classic trader's skill. Yet Leslau insists that Prestbury is no classic trader, as the uplift at INTEC shows.
With almost 40m in cash he can gear up to a further 200m of purchases to prove his point. The debt will continue to be non-recourse, as protecting shareholders' funds is top priority, he says. Another couple of Glaxo-type deals are in the pipeline.
But size is no longer the driving force. Things went wrong at Burford when it got so large that his stake fell to around 1%. He and Wray have no intention of allowing their 34% holding in Prestbury to be diluted further. But it is unlikely that will stop Little Nick shouting at the big boys. Will they listen?