Basepoint builds on charitable foundations
Copyright: David Lawson
Published in Property Week October 2008
Quarterly rents are under attack from recession-hit retailers looking for a switch to monthly charges. Office and industrial occupiers are watching closely and any sign of weakness by landlords could see traditional leasing charges slip closer to oblivion. There is little doubt which side ministers will back after their intransigence over planning charges, empty rates and HIPs. Several million occupiers outrank a few hundred investors every time.
Landlords can offer only a simple response: ‘We are not charities. We need to make a profit.’ But there is a glaring exception. One of the fastest growing managed space developers makes big profits focusing on economic regeneration and is owned by charity.
Philanthropic groups have built low-rent homes since the days of the Victorians while local authorities commonly provide subsidised workshops. But profit-driven organisations rarely manage to combine altruism and hard economics.
Basepoint develops and runs managed business, innovation and enterprise centres (MBECs) for start-ups and small tenants. It generates large profits but these flow into worthy causes rather than investors’ pockets, making up around half the £3m to £6m distributed every year by owner the ACT Foundation.
This unusual relationship stems from ACT’s origins as a social housing landlord. It diversified into commercial property more than a decade ago, taking a stake in what was then a small Hampshire developer which had built a couple of business centres. Basepoint is now a wholly-owned subsidiary with more than 20 centres across the South and plans to double that number.
Diversification was initially seen as purely an alternative income to residential, says investment adviser Derek Joseph. ACT also bought, and still holds, conventional commercial property. But an underlying charitable ethos meant managed space increased in importance because of its role in regeneration.
Basepoint centres look much like any others: normally around 25,000 sq ft on two stories, with a mix of offices and workshops. But tenancies can be as short as a two-week rolling licence. This is ideal for the average small firm, particularly when times are tough, says operations executive director Brian Andrews. It was not so palatable for investors, however. The firm grew so fast that it was floated as a public company eight years ago to raise capital. Outside shareholders wanted to impose minimum three-month terms but ACT refused to compromise. In 2005 it bought back the shares, delisted Basepoint and took full control.
That decision has proven a huge success, with centres now spreading out of home territory as far as Exeter, Ipswich and the Midlands. Plans to double the portfolio will involve filling gaps to create ‘clusters’, enabling managers to switch easily between centres in emergencies. This is critical to limit overheads, as each centre needs a large staff, says Andrews. That reflects the charitable attitude to caring for tenants, as managers are also business advisors and social workers, nursing new firms and working behind the scenes to promote personal interaction and create communities. Even the designs contribute, with centres constructed around courtyards for shared events. This ethos spreads into the wider community. Each centre is encouraged to work with a local charity with any local fund-raising up to £5,000 is matched by ACT.
. The firm is looking for new sites of 1-5 acres, mainly in mixed use schemes on the outskirts of town centres. Expansion is funded mainly by cashflow, which provides capacity for six new centres a year, says Joseph. Basepoint goes beyond its own capital capacity, however, by building and managing centres for local authorities and regional development agencies. In 2004 it was nominated as a preferred partner with SEEDA to develop and operate up to 20 additional business centres over sixteen years and is pursuing similar opportunities with other regional development agencies around the country.
Recession has had little impact so far. ‘Inquiries are down because start-ups are falling but we are seeing lot of interest from firms looking to downsize,’ says Andrews.
1995 – First business centre in Romsey, Hants
1997 – Stake bought by ACT
2000 - Floated on alternative investment market
2005 – £14m buyout by ACT subsidiary ACG Rented Properties
£63m net asset value
21 centres across southern England and West Midlands
Total of 40 centres planned by 2009
Registered charity and limited company. Group chief executive Denis Taylor is a surveyor with 25 years’ experience in commercial property.
1988 – Airways residential business expansion schemes set up. As these were sold, ACT was established to distribute profits
1993 – Diversified into commercial property
1997 – Stake taken in Basepoint
2005 – Assumed full control of Basepoint
[OPT CUT]2007 - First purchase in large workshop sector, with 16-unit Swindon development.[END OPT CUT]
£3.8m pledged to charities last year, mainly from Basepoint profits. Grants include helping build homes, schools and hospices, buying specialised equipment and other aid to assist independent living. Focus on disabled children and young adults, individual gifts and other smaller charities.