Copyright: David Lawson - Property Week 2001
And they sort it out: a former cigarette factory, an old record-pressing works and a piece of post-war office tat are all on the way to reclassification as cutting-edge offices. ‘But do they make money? ‘queried the rival. ‘I wouldn’t like trying to get that lot past my shareholders.’
The implication is that Resolution would not survive in the public arena. Laurence can brush that aside easily, as he has far more demanding masters than a group of half-interested fund managers. Everything has been filtered through Warburg Pincus, the US venture capitalist that put up most of the £65m to set up the firm and approved geaing that took spending to almost £300m in the first year of operation. Two more American disciplinarians have just joined the monthly progress meetings as Blackstone and JER Partners put £70m into limited partnerships covering the firm’s three major assets.
Not that Laurence wants to get back into the City bearpit, despite moves to doublr assets to around £500m. It may have been a vague ambition at the start because that’s how small companies are supposed to grow. He and most of the management team learned that when they made up the core of Argent’s investment side before selling out to Hermes. But Resolution has set down a marker for a new generation of smaller companies by showing money can be raised despite a sceptical stock market.
But it needs skill, discipline and the right contacts. Ten years with Argent provided vital training. ‘We learned that you have to spot opportunities, move quickly and be flexible enough to make money at any stage of the property cycle,’ says Laurence. It was also great for making contacts. Warburg Pincus followed the team into Resolution and has stayed for longer than you would expect any venture capitalist. That lent enormous weight to attracting investors like Blackstone and JER into what might have frightened off even less demanding backers - a small start-up firm with a huge development programme.
The initial start-up record also looked hairy. Resolution spent heavily on industrial property and shopping centres in the first year before changing direction entirely within 12 months and selling out. ‘We made some wrong decisions,’ Laurence admits. ‘We thought shopping would be hit by e-commerce.’
It wasn’t – but the sale was fortuitous because market sentiment hit retailing
anyway. Now he would like to dive back in. Industrial property also turned a
profit but it was the decision to focus on office refurbishments that justified
a swift change of direction. Rents at Greater London House more than doubled
to £26/sq ft before the Camden Art Deco block was even finished and are now
around £32.50.Resolution had attempted to do a deal with Hermes to provide capital
to build out schemes like the former EMI site at Hayes, but was unable to because
of a number of factors. Hermes was busy with MEPC and Resolution was not far
enough into the development process.
Now the former Wimpey HQ in Hammersmith is showing similar potential, with rents nudging close to £40/sq ft compared with early pre-lets at half this level. With that kind of hard evidence, Resolution could tout for joint ventures rather than sell out. It certainly needed help with such a huge investment planned at Hayes which moves away from the ‘funky office’ and short-lease style created in Greater London House for the media industry to headquarter occupiers squeezed out of the Thames Valley.
Development costs range up to £80m because Resolution is not only planning a speculative 100,000 sq ft first phase but undertaking a further 400,000 sq ft in due course and completing all the landscaping. ‘There is no way the kind of corporate client we are aiming for would want a headquarters in the middle of a building site,’ says Laurence. Wrapping each scheme in a separate limited partnership proved the solution. Jones Lang LaSalle drew up a shortlist and Blackstone/JER were brought in. Deutsche Bank and Eurohypo are providing £165m of junior and senior debt.
But what is it like giving up the hard-won independence of a private company to what Laurence admits are two ‘very active’ outfits? ‘We have always worked with partners, right back through the Argent years,’ he says. ‘And we are 17 people with a big development programme. If a number of highly trained property professionals want to join the decision making, why should we mind? ‘ he says.
In fact, the new connections are already proving a bonus. Lettings in Hammersmith have come from nudges and winks by the investors to their own wide range of contacts. You get the impression Laurence also revels in their ground-floor input. Warburg Pincus, for instance, gives a non-property view of the world. It does not always work: the decision to move out of retailing to avoid an e-commerce blight came this way. But he welcomes the demands that come from dealing with minds trained in business. It means every project has to be financially immaculate. It’s not the way many veterans would work but Laurence was a barrister, then a corporate banker with Schroder before Argent, so this kind of discipline is in his blood.
Now the main assets are funded and heavily prelet, what happens next? After the last few years, perhaps it is not surprising that Resolution is set to change direction yet again. Laurence has his eyes on another kind of partnership, this time a £75m deal with an occupier interested in corporate sale-and-leasebacks. And just to take things further off the beaten track, this would be on the Continent.
That would help ease that itch every small property company feels sooner or later - a hunger for stable income. It could be the beginnings of an investment portfolio. Bank financing is being lined up and Warburg Pincus seems happy to extend its stay by feeding in yet more equity
This may be new ground for Resolution but holds no fears for a team involved in leaseback deals with Argent in the mid-Nineties. Then, as now, it seemed the right thing to do at that stage of the property cycle. UK offices are also on the agenda. But the big surprise is that the company wants to get back into retailing. Resolution still has a half-share in The Forge, Glasgow, but it seemed likely this was only because a 100,000 sq ft extension has not been finalised.
The market has over-reacted to bad news about spending and e-commerce, leaving some centres undervalued and ripe for Resolution’s ‘hands-on’ skills, says Laurence. It is searching for assets worth at least £40m because ‘it is not a good idea to have lots of small assets in a small company’.
For what seems like the hundredth time in half an hour he shrugs off any idea that the firm is striking out away from its successful niche as a developer of historic buildings. ‘We’ve done it before,’ he shrugs. Watch out for that shrug in the next couple of years. It could become a trademark as this little company punches above its weight into schemes that turn rivals’ hair grey.
Robert Laurence – chief executive
Brian Reynolds - product sourcing, asset enhancement
James Mihell – portfolio performance
Jeremy Bard – finance director
Robin Mallin – construction directorDevelopment/investment portfolio – 1.55m sq ft
Portfolio value - £225m
Annual rent income - £9.5m
Development/investment acquisitions in pipeline - £500m
Greater London House, Camden – 340,000 sq ft Art Deco former cigarette factory previously converted to offices. Remodelled to include ‘loft style’ offices as well as take advantage of large floor plates. Now 99% let to tenants including Young & Rubicam, EMAP, Thomson. Rents £15 to £32.50/sq ft
Former Wimpey HQ, Hammersmith – 210,000 sq ft redevelopment including dramatic entrance taking up 7% of first phase space to give location extra fizz. One 100,000 sq ft building pre-let on short leases. Pre-lets on another 115,000 sq ft building to MWB Business Exchange and Panasonic at up to £35/sq ft
Former EMI site, Hayes – six Wallis Gilbert designed factory buildings 10 minutes from Heathrow will be renovated to 573,000 sq ft of offices on 16-acre park. First 100,000 sq ft speculative development due on site this summer.