Andrew Jones, who quit British Land Co. with two colleagues to set up their own real estate investment company, is busy buying retail assets from sellers forced to raise cash to refinance bank loans.
Metric Property Investments Plc purchased three outdoor U.K. shopping centers this month from wealthy individuals and closely held property firms for 42.1 million pounds ($66.6 million), said Jones, its chief executive officer. It will probably spend most of the 190 million pounds raised in an initial share sale in March within its first year as a public company, he said.
More than 90 billion pounds of U.K. commercial real estate loans and commercial mortgage-backed securities fall due for repayment or refinancing by the end of 2011, according to a survey of lenders by De Montfort University. A slump in property values in the past three years left many borrowers unable to repay loans and opened up opportunities for investors like Metric that have cash.
“All of these were motivated sales,” Jones, 42, said in an interview last week in his office in London’s West End. “That trajectory is continuing as leases get shorter and refinancing gets closer.”
The five acquisitions Metric has made so far, at a total cost of about 90 million pounds, were “off-market” deals with private investors. Sellers either came directly to Metric or were urged to do so by their lenders, Jones said.
“The deal flow has been terrific; we don’t have to go out searching,” he said.
Retail property values are 36 percent less than their peak in May 2007, according to Investment Property Databank Ltd.
The average size of Metric’s purchases has been smaller than the company envisaged, Jones said. Rents are also lower than expected. Metric is in talks for three more acquisitions and is looking at details of other potential assets, including some that have gone into receivership, he said.
One challenge is dealing with heavily indebted owners who are attached to their properties, he said. Pressure from lenders makes it easier to negotiate a price, he said, without elaborating.
“We get better value, but you do take on additional risk when you negotiate with a private investor,” Jones said. “They are so emotionally attached and the quality of information is not what you want, so things take longer.”
By the end of this year, Metric will have negotiated a loan facility with Royal Bank of Scotland Group Plc similar in size to what it raised in the IPO so it can make more acquisitions, Jones said.
Metric’s strategy is to buy retail parks where it can increase rents after making some improvements that the current owners can’t afford, Jones said. It also looks for properties with unexpired leases that are longer than average, and which face little competition from nearby superstores operated by retailers such as Tesco Plc. At parks Metric has bought, rents average about 13 pounds a square foot, leases typically have about 12 years to run and units are 97 percent occupied.
“One of the secret disciplines we have in the selection process is high occupier contentment,” Jones said. Conditions for retailers are “going to be very challenging for the next 12 to 18 months. The outlook for growth is pretty dull.”
As a main tenant, Metric prefers retailers such as Marks & Spencer Group Plc, the U.K.’s largest clothing chain; Next Plc, the second-largest clothing retailer; DFS Furniture Co.; and Currys, a unit of Dixons Retail Plc, Britain’s biggest consumer- electronics retailer.
“You need one or two high priests of retailing,” Jones said.
Jones has worked with Metric’s co-founders, Valentine Beresford and Mark Stirling, for about 15 years. They were together at Pillar Property Plc before the company -- which also focused on retail parks and was founded by Raymond Mould and Patrick Vaughan -- got bought by British Land in 2005.
Jones was head of retail property at British Land when the three quit last year. He said he prefers the opportunities available in a smaller company over working in a larger business.
“I enjoy the fact that the results of what you do are more visible,” he said. “With the size of our capital base, when you make money you move the needle. You can move it about more easily when you are in a speedboat rather than an oil tanker.”
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