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Trust Insider: Maxing out the property recovery

by James Carthew on Jul 01, 2014 at 00:01

Trust Insider: Maxing out the property recovery

I thought this week I would have a look at Max Property as it celebrates its fifth birthday. It listed in May 2009, raising £200 million from investors, with the objective of exploiting the problems the property market found itself in as the credit bubble burst. Max boosted its firepower by securing co-investment in projects by Prestbury and Och-Ziff (a founding shareholder in Max Property).

It wasn’t easy to attract finance for anything at the time but Max probably succeeded thanks to the reputation of its fund manager – Prestbury Investments LLP, managed by Nick Leslau and Mike Brown.

No doubt it helped that they and Leslau’s long-time business partner, Nigel Wray, invested £25 million of their own money into the company. Another thing that probably endeared itself to investors was its promise to return cash from successful ventures with the aim of winding up by the autumn of 2016.

Investing in a downturn requires some nerve and Prestbury made some pretty conservative assumptions about the likely returns from the property it acquired to ensure the investment ideas stacked up; in practice including assuming rents didn’t rise, tenants left at the first chance they could and that it was unlikely that they would be able to re-let vacant space.

Leslau’s reputation came from his tenure as chief executive of Burford, where he achieved 34% compound annual returns over 10 years. Brown’s track record prior to Prestbury was established at Helical Bar and Threadneedle Property .

Their ambition for Max Property was illustrated by the design of the performance fee (which rewards them if they achieve returns in excess of 11% per annum).

The first deal they did was to buy a portfolio of multi-let industrial estates for £244 million, equivalent to a gross initial yield of 12.7%. This had been valued at circa £700 million at the top of the market.

They set to work to reduce the 20% vacancy rate in that portfolio and made progress on that front quite quickly but, notably, they also sold property for £40 million that they had paid £30 million for – they were off to a flying start.

They then acquired 21 provincial office buildings, covering 760,000 sq ft, for £39 million. At the time, they reckoned these would have cost £180 million to replace but almost half of the space was vacant. Again, they sold part of the portfolio quite quickly – getting £5.8 million for a building they had paid £4.2 million for.

They then went into a joint venture with Lloyds, paying £31.6 million for a 45% interest in four hospitals let to BMI Healthcare. This was followed by a deal with Enterprise Inns whereby Max bought 29 London pubs for £42.6 million, selling one (the Rose & Crown in Chelsea) at a 41% profit soon after. Next, it did a deal where it bought 14 nightclubs leased to Atmosphere Bars & Clubs, selling a couple of them at a decent mark-up.

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