Bizspace fired by Highcross millions
Copyright: David Lawson - first published Property Week March 2007
It must be difficult to concentrate on mundane matters like collecting rent and wooing tenants amid the deafening roar of money cascading into property. Managed space has been touted as a prime target for new investors and many a landlord will be listening intently whether the chinking sound is heading in their direction.
Anticipation rose when Morgan Stanley splashed out £200m for Executive Offices in 2005 and Close Brothers set up a couple of investment funds, but the roar seems to have diminished since then. Landlords may be listening in the wrong direction, however. Big investors want big bites, and the bulk of the industry is made up of small firms. Gathering them into a significant mouthful is difficult. The few large operators prefer to set up their own centres rather than bid for a rag-bag of ‘mom and pop’ operations.
Bizspace is a shining exception. It appears to have a voracious appetite for any kind of managed space, buying almost 20 centres totalling around 1.5m sq ft in the last year alone. Nor are they swish offices in prime locations. One of the latest is a single industrial building in Bradford. Ironically, the money behind this galloping growth comes from the same sources firing top property prices. Bizspace was cherry-picked last year in a £77m takeover by fund manager Highcross to help spend around £1bn from US institutions and international private investors.
This linking of sophisticated private equity to relatively low grade property may be unique. Normally such funds concentrate on clean, high quality premises such as city centre offices and major headquarter buildings. Bizspace had already broken the mould under its former management, setting up a joint venture with investment fund Electra to create a managed workspace fund. This gave the investor a stake in high yielding property it would not normally consider. Electra put in £15m and Bizspace £1m, which was geared up to £50m.
The vehicle would have grown but Highcross came in with its own funds, says Bizspace MD Gareth Evans, who helped set up the fund while finance director. Now prospects look even brighter with the firepower of Highcross, and Evans has gone into overdrive, scouring the country for property. ‘At the takeover, the aim was to double the portfolio in three years,’ he says. ‘Now we are even more ambitious.’
Highcross sees huge potential, with less than 5% of UK commercial stock made up of managed space compared with 15% in the US. Nor is it short of resources after raising £350m in a second investment fund last year. Not all of this will go to Bizspace, as the fund manager has fingers in many property pies, but this still gives Evans a massive potential warchest. So what is he looking for? Small provincial landlords and operators will be pleased to hear that, for once, they are in the sights of a major player. Bizspace is already skewed to the north and Evans wants more of the same.
He also wants ready-made operations, unlike chains who want to establish their own. These requirements both stem from yet another irony in this link between high-level bucks and UK bricks: Bizspace is not a property company. Evans is an accountant who aims to improve the management of business centres rather than speculate on buildings. That’s not to dismiss property altogether. In fact, he focuses on freeholds because improving management raises a building’s value, and Bizspace feels it deserves to reap the reward.
Size is irrelevant. Bizspace is probably rivalled only by Workspace in its range, covering anything from a couple of units to the 250,000 sq ft Moulton Park in Northampton bought for the Electra fund and the similar sized Morelands Trading Estate in Gloucester. Age and type also fade to insignificance. Around 30 mostly modern buildings in the North East were bought in one portfolio last year, but so were a couple of old mills in Rochdale and Bolton.
‘We have covenants ranging from British Gas to Joe the plumber,’ says Evans. ‘The key fact is whether we can improve income through better management.’ That sometimes involves thinking outside the box. Highcross declared at the takeover that it would explore new kinds of service to boost income and Evans noticed one promising gap. Tenants who pare down to managed space often run out of storage, so he has created a new concept called Microstore in a couple centres. These are fully automated and available 24-hours a day via coded access. Space has already been taken up for legal archiving and by government departments
2000: floated on AIM - 11 centres worth £15.2m
2006: offered for sale after board decided ‘further gains in net asset value may be challenging to sustain’ - 60 centres worth £160m.
2006: £77m Highcross takeover and de-listing - 64 centres worth £180m
2007: 83 centres worth £280m with another 22 in the pipeline
Evolved from traditional developer into a private group of investment vehicles involved in regional offices and industry with a £1bn spending target.
Joint venture partners include Lehman Bros and Westbrook Partners. Last year closed a £325m fund for 21 partners including US institutions and international private investors.