Moorfield accelerates BTR ambition with launch of More.
-Follows opening of latest 270-apartment Manchester scheme this week-
Moorfield, the UK real estate private equity fund manager, has launched its Build to Rent (“BTR”) brand, More. to consolidate its extensive expertise within the sector into a distinct platform. Moorfield has developed and operated c.1,400 BTR apartments since 2012 and intends to continue investing in the sector through the new More. platform. The most recent scheme to launch is Duet, in Salford Quays, adjacent to MediaCityUK and offering 270 apartments.
More. will complement Moorfield’s activities in the student accommodation sector, where 6,800 beds have been delivered under the Domain platform since 1998, and in the senior living sector, where Moorfield has been an investor since 2008 through Audley, which now has 2,000 units in its platform.
Moorfield will continue to promote schemes with strong local brand names, using the successful ‘Superenting’ campaign, to appeal to local customers. More. will be the umbrella brand for all Moorfield’s BTR activities to consolidate and help it communicate its overall sector activities to its stakeholders in the business community.
The More. brand will initially comprise three schemes, totalling 785 apartments: Duet and The Trilogy in Manchester and The Forge in Newcastle. They provide a mix of one, two and three bedroom apartments, fully kitted out with state-of-the-art appliances and designed to optimise space with market leading on-site amenities, including extensive shared resident facilities specifically curated to support co-working, wellness and socialising. Each scheme also benefits from ultrafast fibre broadband, strong transport links and a wide range of local amenities in close proximity.
All More. residents have access to on-site concierge teams, dedicated cycle storage, automated parcel lockers, electronic key security software for authorised visitors and a residents’ app designed to allow hassle free reporting of maintenance issues. Residents can also take advantage of residents only social events including movies nights, homework evenings, gaming or dinner parties.
Sadie Malim, Head of Special Projects at Moorfield Group, said: “The More. branding encapsulates the work we have done to date across all the BTR schemes we manage to build rental offerings for the modern ‘Superenter’. Our brand standards ensure that each scheme is designed both aesthetically and technically to appeal to the discerning and tech savvy customer with a strong focus on community and engagement.
“We have been investors in “beds” since entering the PBSA market in 1998 and have consistently led the market in identifying the needs of customers across the residential spectrum and innovating to fill the gaps. The More. brand will help us communicate our experience and intentions in the BTR sector, one where we have significant near-term growth ambitions.
“Duet is our second BTR scheme in the Manchester area and we are excited to welcome our first customers this week.”
Duet is located adjacent to the bustling MediaCityUK, which is home to the BBC, ITV, University of Salford and more than 250 smaller creative and digital businesses, in a prominent position on the waterfront in Salford Quays, Manchester. Residents at the scheme will benefit from direct access to Harbour City station, which connects to the Manchester Metrolink system, as well as the strong existing local amenities near the site including 15 bars/restaurants, four shopping outlets, six leisure facilities, a cinema, a theatre, and a nursery.
The other BTR schemes operating under the More. brand are The Forge (Newcastle), which launched in November 2018, and The Trilogy (Manchester), launched in April this year and which is close to fully let.
Heiko Figge, Head of Operational Asset Management at Moorfield Group, commented:
“We’re excited to now have over 500 BTR units operational in Manchester. With The Trilogy almost fully let less than seven months after opening, we are confident that Duet will also let up swiftly. The scheme is perfectly located to benefit from the growing prominence of MediaCityUK as a hub of technology, innovation and creativity, with over 200 businesses now calling it home.”
All More. schemes are operated by Allsop Letting and Management. For further information, please visit https://more.superenting.co.uk/
Moorfield Group Limited are asset managers of the More. schemes listed, which are owned by special purpose vehicles in MREF III or MREF IV, both of which are Funds backed by international institutional investors and which are managed by Moorfield Group Limited or affiliates.
Moorfield Foundation makes social impact investment with residential acquisition in Manchester
Moorfield Foundation, the charitable arm of UK real estate private equity fund manager Moorfield Group, is pleased to announce the acquisition of a residential property in Manchester, which has been leased to Bridge-It Housing, a registered landlord and charity which provides temporary housing for homeless people. It represents the Moorfield Foundation’s first dedicated social impact investment, a key tenet within its increasingly prominent Corporate Social Responsibility (CSR) programme.
Located in Clayton, a suburb three miles east of Manchester’s city centre, the property is now providing a home to four otherwise homeless people. Bricks & Soul, Moorfield’s local Manchester partner who focus on bringing empty homes back into use with full and inspiring refurbishment methods, using local tradespeople and products, were responsible for finding, refurbishing and delivering the property.
Bridge-It Housing works with a wide range of people who find themselves suddenly without a permanent home for a number of different reasons – often loss of employment, relationship breakdown or refugee status. The charity also provides additional support through counselling, life skills training, CV assistance and employment search support, with a view to moving the residents into permanent social housing. In the last year it has provided support to over 1000 people through its various initiatives.
Sadie Malim, Head of Special Projects at Moorfield Group, commented: “Our first social impact investment in Manchester, supporting a charity which is providing much needed services and support to those at risk of homelessness, is a significant milestone. We have invested in Manchester for many years and we are excited to showcase how we plan to invest in social projects that support our values in those cities where we are commercially active.
“This investment also represents the first step towards creating a more sustainable Charitable Foundation that progresses beyond a simple donations model and which we aspire to build into a meaningful long-term foundation.
“We loved the work that Tors Sinclair at Bricks & Soul was doing in Manchester to bring unloved terraced houses back to life through community focused refurbishment projects. We shared a common belief that all homes should be inspiring and uplifting spaces and in particular our aim was deliver such homes for the exclusive use of charitable housing providers.”
One of the Bridge-it clients stated: “I have been living in the Clayton house for 5 months and I’m absolutely in love with it. It is a 5-star house for me, we have all the facilities we need and the decoration is amazing. This house is better than the house I grew up in, I am so thankful to Bridge-it Housing for their help.”
The Clayton Street investment is the latest milestone for Moorfield in its CSR roadmap. Having created its first Sustainability Statement and Action Framework in 2009 and established a Sustainability Committee in 2015, published its third annual Corporate Sustainability Report outlining the progress made across the business in 2018, with highlights including:
- Reduced energy consumption across its portfolio by 13%, exceeding its longer term target of a 12% reduction from 2016 to 2020.
- Reduced scope 1 and scope 2 greenhouse gas emissions by 63% in absolute terms and 38% on a like for like basis across MREFIII and MREFIV funds, when compared to the 2016 base year.
- Increased its recycling performance to 61% at monitored properties.
UK real estate, Brexit and bond yields By Charles Ferguson Davie
The last time government bond yields were this low, the UK had just voted to leave the EU. Moorfield’s CIO considers what this means for UK real estate
Ten-year UK gilt yields are now around 0.5% in the UK (approximately 1.5% in the US, negative 0.7% in Germany and negative 0.3% in Japan). The key driver for global bond yields falling in recent months has been blamed on the trade war between the US and China and related fears of recession that in turn has prompted a shift back to base rate cuts and more quantitative easing (QE).
However, it is striking that the last time yields were at this level in the UK, US and Japan it was at the time of the Brexit referendum in the summer of 2016. Surely this can’t be a coincidence now that we are fast approaching another Brexit deadline? Is it really because of the fear of a no-deal ‘hard’ Brexit that global bond yields have plummeted?
German bond yields are even lower now than in 2016 as more QE has been launched by the European Central Bank and rates lowered yet again amid growing concerns of recession risk in Germany.
There are different forces at play now compared to the summer of 2016; Trump hadn’t even been elected and we had no idea of the tariff dispute to come. Perhaps investors are now equally worried about inflation/growth prospects, but for different reasons. Nevertheless, I find it hard to ignore the correlation between the key Brexit dates.
After the direction of Brexit has been settled we could see yields rise again, as they did in 2016, and one way or another the path ahead should be clearer. If we see some inflation emerging then this could happen quite quickly – indeed the latest release showed the employment rate at the highest level ever in the UK; unemployment is only 3.8% and annual wage growth is running at 4% versus inflation at 2%.
Low bond yields should be helpful to real estate valuations from a relative value perspective, but if the low yield levels reflect a fear of recession with lower corporate and consumer earnings, then rents are also going to come under pressure. Equity markets and real estate valuations don’t currently appear to be pricing in this risk and so who is right?
Should we assume that these very low levels of yields are here to stay? Perhaps the level of global savings looking for a home due to monetary measures, emerging markets’ economic growth and ageing populations will have a structural effect of keeping yields low – and at the same time, globalisation and technology will also keep inflation at bay. Certainly, very high levels of employment have not yet produced the wage inflation and resultant interest-rate rises normally associated.
I am reluctant to take too much comfort from a longer-term low-yield environment, as it implies that growth is expected to be constrained. Yields will also remain at risk of normalising and rising again; if global market expectations of rising yields can be reversed in the space of a few months then the same is true now the other way around.
It is also the case that, while wage inflation has been low, asset price inflation has been very high, boosted by low rates and QE. This has resulted in the wealth gap widening and made it harder for younger generations to access the housing market and save adequately. This inequality is becoming increasingly political and real estate will continue to be at risk of higher taxes and other initiatives such as rent controls that try to address the imbalances (even if they have the undesired effect of reducing supply and increasing house prices and rents).
The other important factor to take into account is how different subsectors are faring. Transaction volumes are down overall because of Brexit concerns, but real estate yields remain generally low overall – and assets with long-term leases with bond-like characteristics especially so. However, where there is any doubt about rental resilience, which is especially the case for the retail sector, yields have risen markedly and values have fallen substantially to the point where many retail assets are almost unsaleable in the current environment.
We see capital continuing to be allocated to the more defensive, demographically supported sectors such as residential for rent, student accommodation and senior living, alongside ongoing demand for logistics.
Moorfield launches 290 bed student accommodation development in the heart of Birmingham
Fully let to a mix of domestic and international students-
Moorfield, a leading boutique UK real estate private equity fund manager, on behalf of Moorfield Real Estate Fund IV, announces the practical completion of Toybox, the latest purpose built student accommodation (“PBSA”) development it has delivered in the UK.
The forward funded 290 bed scheme, in central Birmingham, was developed by the Torsion Group, a privately-owned independent development and construction company covering the student accommodation, care to residential and housing sectors.
Comprising 151 studio apartments and 139 en-suite cluster bedrooms spread across a 15 storey building, Toybox boasts best in class amenities including stylish communal spaces designed to optimize effective studying. Students moving in will also have access to a fully equipped onsite gym and wellness studio, a private courtyard garden, automated parcel lockers and ultrafast fibre optic Wi-Fi. The property is already 100% let for the beginning of the 2019/2020 academic year.
Located on Bishopsgate Street in the city centre, Toybox is close to all of the four major Birmingham Universities, collectively home to over 79,000* students. The City’s main shopping district, including the Bullring shopping centre, as well as a range of popular student bars and restaurants are located within a 15-minute walk, with a wide range of leisure facilities and amenities also in proximity.
Charles Ferguson-Davie, CIO at Moorfield Group, commented: “As one of the pioneers in the PBSA sector and an active current investor, we have been able to use our experiences from previous projects, including Hox Park, which services Royal Holloway University and opened last year. This ensured we delivered a scheme that is of a high-quality with impeccable interior design and stylish communal facilities focused on enhancing the students’ university experience as well as support their wellbeing.
“The letting success at the Toybox reinforces our belief that a British university education continues to be of particular appeal to overseas students, who expect more from their university experience than ever before – and the quality of their accommodation plays a major role in that experience.”
Moorfield started investing in the student accommodation sector in 1998, in response to the significant gap in the market for affordable student accommodation. Since then, the company has developed and managed over 6,000 student accommodation beds across the UK, including Printworks in Exeter and Century Sq. in Sheffield.
Moorfield continues logistics push with Milton Keynes and Felixstowe acquisitions, for £14 million
-Targeting UK portfolio in excess of 1 million sq ft by end of 2020-
Moorfield, a leading boutique UK real estate private equity fund manager, on behalf of Moorfield Real Estate Fund IV (MREF IV), announces that it has acquired two logistics assets, in separate transactions, for £14 million, reflecting a blended net initial yield of 7.7%.
Having successfully executed a logistics investment strategy for MREFIII, Moorfield is now rebuilding a portfolio for MREFIV with a target of investing in locations set to benefit from population increases and infrastructure improvements. Moorfield’s strategy is to identify real estate supply / demand imbalances and is targeting sectors benefitting from societal shifts. Logistics continues to benefit from the growth of online retailing and the strategy sits alongside a focus on student accommodation, Build to Rent and senior living.
In Milton Keynes, Moorfield has acquired a 129,076 sq ft warehouse from Aberdeen Standard Investments. The property is let off a reversionary rent to Bong UK Limited, one of Europe’s largest producers of speciality packaging and envelopes, on a 12 year lease with 6.5 years remaining, and serves as its UK headquarters. Milton Keynes is the key South East and M1 corridor distribution location, midway between the UK’s two most populous cites, London and Birmingham.
Milton Keynes is also located in the middle of the Oxford–Cambridge growth corridor; an area undergoing substantial economic and population growth. This and the associated infrastructure improvements are expected to translate into longer-term increases in land values and industrial requirements in the region.
In a second transaction, Moorfield has purchased, via sale and leaseback, a single-let 111,000 sq ft distribution warehouse in Felixstowe, from Indo European Foods. A new 20 year lease has been agreed with the tenant, one of the UK’s largest suppliers of rice, who has occupied the site for 15 years.
Felixstowe has a favorable supply / demand dynamic with almost no vacancy. Its appeal as a logistics hub is growing, due to its close proximity to London and lower congestion, labour costs and rents. Adjoining the Port of Felixstowe, the United Kingdom’s busiest container port which is set to benefit from existing and future investment, the property is less than half a mile from the A14, which connects Felixstowe to the national motorway network.
Charles Ferguson-Davie, Chief Investment Officer at Moorfield Group, commented: “These acquisitions fit with our investment strategy of acquiring c. £5m-£15m, single-let logistics assets in undersupplied locations, which offer significant reversionary potential through a range of asset management initiatives. Our ambition is to build a portfolio in excess of 1 million sq ft of logistics assets by the end of 2020.”
Moorfield was represented by Fineman Ross and WBD in both transactions. Knight Frank acted for Aberdeen Standard Investments on Milton Keynes and CBRE acted for Indo European Foods on Felixstowe.
Contemplation of PERE By Marc Gilbard
In the 23 years I have been CEO of Moorfield we have shape-shifted from public company to private company to private equity fund manager. We have also moved between the real estate asset classes, due primarily to the fundamental driver of supply versus demand but also taking account of; (i) economic and sector cyclicality, and/or (ii) our recognition of an emerging asset class or the material disruption to an existing one. Through all of this exhilarating, self-imposed corporate and asset revolution we have always operated under the private equity investment model, as that has been our ‘raison d’etre’.
Moorfield operates under an investment and asset management structure that allows us to be a fully vertically integrated asset manager to the assets invested in, but we are also a capital allocator using strategic outsourcing with proven operational/development partners – with our highly informed oversight and rigorous control on the business plan implementation. So we are always on the lookout for good partners.
Over these last 23 years Moorfield has invested in the Traditional real estate asset classes (retail/office/industrial) and in many of the Alternative real estate asset classes (Student/BTR/Retirement/Hotels/Hostels/Pubs/Residential/Car parks). We have been a pioneer of UK investment in student accommodation (Domain), limited service hotels (Kew Green), BTR (More.), retirement living (Audley) and logistics (MLP). We were also one of the first to focus on Regional Offices post the global financial crisis (MREFII/MREFIII), where we were able to achieve above target returns. Moorfield’s investment themes are currently almost exclusively based on the undersupply caused by needs and demand driven societal shifts seen most clearly in the Alternative real estate asset classes – and indeed this has been our focus for the last few years.
You can see from the above commentary that we are continually exploring the optimal position for Moorfield. One of the benefits of being a smaller company is that change has material impact on results for all stakeholders in Moorfield and its funds. This year has been no different and we have been exploring what the future may hold considering the political challenges the UK continues to face and also the shifting nature of the private equity real estate industry. PERE is no longer solely the domain of opportunistic and value-add funds, as it substantially was at the outset 25 years ago, but now includes core-plus and core i.e. more ‘institutional’ in the offering, meaning lower cost capital, lower risk and hence acceptably lower returns. In fact, the reality is that this PERE product extension is directly competing with what has historically been offered by Institutional real estate fund management. Fortunately, there is plenty of room for both investor types (and others!) in the market – even if it results in there being similar products competing at the lower risk end of the investment return spectrum.
My view on this PERE evolution is that the emergence of a spectrum of risk/return funds within a PERE fund manager is good for both the fund manager and the investor/LP. I value the efficiency of it for all involved – the LP can choose from a number of risk/return profiles and the fund manager can enable its origination team to be much more effective and efficient in the investment opportunities originated i.e. good real estate investment opportunities are likely to find a risk/return based home rather than the waste bin.
Another important strategic consideration, allied to the above risk/return range, is around the territory and asset class covered by a fund. If all a GP manages is a Country specific fund or a very narrowly defined (re asset class) fund, there can be concern from the LPs over the investment behaviour of the GP when the Country or asset class risk moves out of balance with the returns expected. We know what the appropriate GP response from this should be of course, but can the GP really afford to behave accordingly if that is its life blood? To mitigate this concern, as much as possible, my belief has always been that it is best to have either; (i) an appropriately broad asset class range in a relatively narrow territory, or (ii) a wider territory in which to invest in a narrower asset class range. As such, I don’t believe in trying to be an expert in multiple asset classes across multiple territories, unless the size of the fund manager enables what is essentially multiple funds with multiple strategies – each with their own appropriately incentivised specialist team – thereby effectively enabling (i) & (ii) above to be achieved under the same roof. Moorfield has chosen in the past to be (i) above, with my mantra being my desire to remain the special forces of PERE investment in the UK with researched and focused investment themes and not attempt to be the army with multiple battalions on multiple fronts.
Relevant also is fund size. LPs are generally looking to reduce the number of GPs they invest with, but this coincides with the amount of capital to be allocated to GPs materially increasing. As a result, the big GPs are getting bigger and their offerings are getting broader. As I have said above, the breadth of offering is something I support if there is appropriate GP/LP alignment and incentivization, but logic would tell you that the larger the funds under management become the greater the need to originate investable deal flow and the larger those deals are likely to be – and I question whether this scale is in the best interests of the investor….? Time will tell.
The secret to Moorfield’s successful, value-add office strategy
Earlier this month we announced that Sage, the software company with an £8bn market value, had agreed leases on 203,728 sq ft, across two adjacent buildings, at Cobalt Business Park in Newcastle, representing the largest ever letting in the North East office market.
It was the latest milestone of our successful value-add office strategy, during which, on behalf of three different funds, we have acquired, refurbished and leased some 3 million sq ft of office space in London, Manchester, Birmingham, Leeds, Newcastle, Glasgow and Edinburgh. Furthermore, other than the building now let to Sage, we have sold all of our office investments over recent years for a combined c.£1bn, generating significantly above the target returns for our investors.
Moorfield’s team has been successfully investing in the UK, across a range of diverse asset classes, going back 23 years to 1996. This extensive track record and broad expertise has allowed us to originate, both on and off market, a range of commercial office assets that includes distressed or under managed buildings, those requiring significant capex, or those with upcoming material lease expires.
Following acquisition, we have undertaken substantial refurbishment programmes, often on vacant or near vacant buildings, then secured strong new occupational covenants on investment grade long-term leases before disposing of the assets on completion of the business plan at suitably lower yields.
Underpinning this successful strategy has been the ability to identify those sub-markets in major conurbations where there has been a significant undersupply of flexible, Grade-A office space and/or where there has been significant infrastructure investment underway, such as Crossrail, to improve the area’s desirability thereby driving up both rental growth and capital values.
Prior to capital expenditure we take the time to understand what the occupational demand is asking for. We then take a very active and engaged approach during the refurbishment stage to take advantage of our long-dated experience of developing and operating in the different, more operationally intensive, assets classes such as in the Build-to-Rent, Purpose Built Student Accommodation, Senior Living or Hotel sectors to benefit our occupiers with a more consumer facing approach. Our most recent objective has been to meet the emerging needs of occupiers for greater space adaptability, higher productivity, quality design, buildings with character, engaged occupational services and employee satisfaction. Hence our buildings have been designed to appeal to a broad range of occupiers, offering extensive amenities and spaces for meeting as well as shared work environments.
A good and recent example of our approach has been in Glasgow, where in 2017 we successfully repositioned three substantial office buildings at Atlantic Quay after identifying a lack of large floor plates in the area. We refurbished and relet 80,000 sq ft to the Department of Works and Pensions on a 15 year lease and 82,000 sq ft to Scottish Courts and Tribunal Services for a term of 25 years. We not only completed the Grade A refurbishment of both buildings but also undertook substantial grade B fit out works upon behalf of both occupiers.
At Salisbury House, Finsbury Circus, adjacent to Crossrail and comprising of 220,000 sq ft of offices with A3 retail and leisure at ground floor level on London wall, we significantly improved the reception areas bringing in natural light with contemporary finishes, refurbished the offices to improve the net lettable office space and created modern workspaces, as well as introducing amenities to the building and concierge services to look after the 60 occupiers. Major leasing deals included securing the law firm Druces on a 10 year lease and FBN Bank on a 15 year lease. This investment was sold in a portfolio that included, amongst other assets; Brindleyplace in Birmingham, Skypark in Glasgow, Pinnacle in Leeds and Towers business park near Manchester.
Other particularly successful office investments include those we developed at Quartermile in Edinburgh (203,000 sq ft) and The Shipping Building in Hayes, London (98,400 sq ft).
Our investment strategy at Moorfield is underpinned by a focus on the shifting societal trends and in recent times we have been focused more towards the needs-based and demographically-led ‘alternatives’ sectors. We have been early investors, perhaps you might even say pioneering, in Student Accommodation (since 1997), Senior Living (since 2008 through Audley, the leading retirement village developer and operator) and in Build to Rent (since 2012). We think that these sectors, and others outside the ‘traditional’ asset classes, currently offer more opportunity for growth but that they are also more defensive, which is especially relevant as the economic and political outlook is so uncertain at the moment.
Highbridge And Moorfield Sign-Up Sage To Cobalt Business Park, Newcastle
Leading UK commercial developer Highbridge Properties, and Moorfield, the UK real estate private equity fund manager, have secured Sage, the UK’s largest technology company, as a new tenant at Cobalt 23, at Cobalt Business Park, Newcastle upon Tyne.
Representing the largest letting in the North East office market, Sage has agreed new leases on 203,728 sq ft, across two adjacent buildings, Cobalt 22 and 23, the latter of which is also known as the Zeta building, and was acquired by Highbridge Properties and funds under management by Moorfield in 2017. Sage has agreed a 15 year lease with a 10-year break clause on Cobalt 23. Sage will invest in a complete re-fit, providing a world class office experience for employees, customers and partners.
Sage will move its flagship offices from Great North Park, Newcastle upon Tyne, where it located to in 2003, to Cobalt Business Park in 2020. Circa 2000 Sage colleagues and all new hires will benefit from the newly refurbished technology hub.
Guy Marsden, director of Highbridge Properties, developers and part-owners of Cobalt Park, said: “This letting is a massive endorsement of the quality and strength of the Cobalt brand. We are pleased to secure the letting of such a high-profile employer and the benefits this will bring to the Newcastle region.”
Charles Ferguson Davie, Chief Investment Officer of Moorfield Group, added:
“We identified this building, in partnership with Highbridge, as an opportunity to provide high quality office space in a desirable location and that is benefitting from substantial local infrastructure improvement. The decision by Sage to relocate its office to Cobalt Park supports the original strategy and will encourage continued growth in the area.”
Highbridge’s Cobalt Park is the largest office park in the UK. It employs over 14,000 people and is home to numerous global brands including Accenture, Siemens, DXC and Proctor & Gamble.
Aidan Baker from BNP Paribas Real Estate added: “The letting of Cobalt 22 and 23 is hugely significant for Cobalt Park, not only is the deal the largest out of town letting ever recorded in the north east market, but marks the disposal of the final new fully fitted building on site in Cobalt 23. These lettings will return occupancy on the whole of Cobalt Park to 87% and continues to illustrate the demand for high quality sustainable office buildings with excellent amenities and car parking.”
Highbridge and Moorfield were advised on the transaction by Aidan Baker at BNP Paribas Real Estate and Alex Hailey at CBRE.
Moorfield sell Atlantic Quay, Glasgow for £22.25m – Moorfield looking for assets for new fund –
Moorfield, the UK real estate private equity fund manager, on behalf of Moorfield Real Estate Fund III (MREFIII), has sold Atlantic Quay 2 for £22.25 million to Corum XL, the French real estate investment company.
Atlantic Quay 2 is an office building at the centre of Glasgow’s International Financial Services District and comprises 77,273 sq ft of prime office space and 28 underground car parking spaces and is fully let to Lloyds Banking Group.
MREFIII acquired Atlantic Quay 1, 2 and 3, which in total encompassed 280,000 sq ft of office space, in September 2015 for c.£60 million, reflecting an initial yield of 8.5 per cent. Atlantic Quay 1 and 3 were refurbished to a ‘Grade A’ specification with new occupiers including long-term leases with the Scottish Courts and Tribunals Service and the Department of Works and Pensions. Moorfield partnered with Resonance Capital to manage and refurbish the buildings, delivering excellence-in-design and an attractive customer service offering.
Atlantic Quay 3 was sold to LGIM Real Assets (Legal & General) in January 2018 and Atlantic Quay 1 was sold to the Bank of London and the Middle East in October 2018.
Commenting on the disposal on behalf of MREFIII, Charles Ferguson-Davie, Chief Investment Officer, Moorfield, said: “We identified the Atlantic Quay buildings as prime offices at the heart of Glasgow’s International Financial Services District, in a prime riverside location and in an office-market starved of new space. They were ready for refurbishment and we are proud to have developed such a successful scheme with Resonance Capital. With the sale of Atlantic Quay 2 we have now disposed of all three buildings for c.£130 million, well ahead of the expected business plan timeframe and delivering above target returns for the investors in MREFIII.
“We have been actively selling assets from MREFIII and have sold c.£450m of properties in the last 18 months which has delivered strong returns for our investors.
“We are presently looking for new opportunities for our most recent fund, Moorfield Real Estate Fund IV. We will continue to invest in the ‘traditional’ office, retail and industrial sectors, where there are opportunities for an improvement in the location due to infrastructure investment and where we can bring to bear our experience and abilities to reposition and improve an asset.
“We will also remain focused on the ‘alternative’ sectors, especially Build to Rent, Student Accommodation and Senior Living, where we have been early investors and have accumulated a great deal of experience and knowledge. We believe that demographics and supply/demand imbalances mean that these new, emerging sectors, can offer a defensive risk profile as well as attractive growth prospects.”
The entire Atlantic Quay area comprises a unique office complex that fronts the River Clyde. It is just a short walk from Glasgow’s main shopping, leisure and entertainment districts and accessible to all major road, rail, air and bus links.
On the sale of Atlantic Quay 2 MREFIII was represented by JLL and Corum XL by Danesborough Properties.
Moorfield Group February 2019 Newsletter
Let’s wrap up 2018 and move on with 2019 By Charles Ferguson Davie
I thought it might be interesting to share some charts that I have been looking at as a reminder to see what happened in various markets in 2018. Hopefully, stepping back and seeing some of the broader trends can help us form a view on what to look out for in 2019…
I’ve pulled out below a comparison of indices over the past year for the listed UK real estate sector (black), the FTSE All Share (orange) and the top 50 Eurozone companies (red), which had all performed in line with each by the end of the year, and the S&P 500 (blue), which in dramatic fashion gave up much of its relative outperformance at the end of the year.
I was surprised to see that the listed UK real estate sector has performed in line with the top 50 Eurozone blue chips and it is remarkable how correlated these markets have been despite the added risk in the UK of Brexit.
- S&P 500: -9%, 17x p/e, 2% dividend yield
- FTSE All Share: -13%, 16x p/e, 4% dividend yield
- Euro Stoxx 50: -16% YTD, 14x p/e, 3% dividend yield
- FTSE EPRA NAREIT UK: -16% YTD, 13x p/e
On a relative basis dividend yields in the UK are now looking attractive, as is the p/e valuation metric for Europe. But what impact to expect from Brexit, ongoing issues in France and Italy, tariff disputes between China and the US, rising base rates, QE reversal, and a slowing global economy…?
From a dividend yield perspective Land Securities and British Land are now priced at almost 6% but Brexit / Corbyn fear is being compounded here by retail sector aversion.
Gold (in black below) and oil (orange) are also down over the last 12 months year but the volatility and drop in the oil price at the end of the year caught many by surprise. As fear has grown, safe havens have been in demand and gold has started to benefit.
Perhaps the most dramatic falls have been seen in the cryptocurrency world where Bitcoin alone has fallen c.80% and surrendered c.$750bn of value…
For me this embodies the change in mood that we are seeing from greed, and pursuit of growth, to fear, and protection of value, that many markets are now experiencing.
10 year government bond yields have been dropping over recent months and now stand at 2.6% in the US, 0.2% in Germany and 1.2% in the UK. Most commentators expected yields to keep rising through the year and the flattening of the yield curve is increasingly recognised to be reflecting the fear of recession in the future.
We may also see this support the argument for real estate yields remaining lower for longer.
QE / QT:
What should we make of the tapering of QE – surely the recent withdrawal of further investment from the ECB and projected declines in US Federal Reserve holdings will have a material impact on asset pricing? Would these programmes be switched back on if real weakness emerges again?
The potential impact of QE and QE tapering is still unknown and even though bond yields have been falling recently I certainly fear real estate pricing will be negatively affected by liquidity reversals.
UK real estate market:
2018 turned out to be a better year than many expected. Investment volumes will end up being similar to 2017, despite the increased fear of a no-deal Brexit and all the political noise.
Source: Capital Economics
Office volumes and investment appetite recovered in the year and London has had another good year with take-up holding up as well. Availability / vacancy levels have not risen (yet) as high as we expected but construction activity and Brexit could still cause issues in the years ahead, particularly given the elevated rents and low yields being paid today.
Source: Capital Economics
Retail continues to suffer as industrial has benefitted from the growth in online activity and oversupply of retail space. New River (black and down 36%) and SEGRO (blue and up 3%), now the largest UK REIT by market capitalisation, illustrate the relative performance of both sectors below.
I think we can expect the retail sector to continue to suffer and we will be watching closely for the impact of weak Christmas trading on retailers. Real estate valuers have only just started to recognise retail value declines and are arguably behind where the true market price is – more CVAs will only make this worse…
We continue to see issues in the London residential market – the effect of SDLT and other tax changes are now combining with: oversupply, over-reliance on overseas investors, unaffordable price levels and political concerns to mean prices have been falling in many boroughs with the prime end of the market most affected.
The number of unsold units is now at a record level, implying that there is still room for values to fall further and it will be interesting to see if there are many debt-forced sales of land or unsold units in 2019.
No. of private sale units that are under construction but unsold:
Other parts of the UK have better prospects and I show below the effect of Savills’ regional house price forecasts on London, the North West and North East.
We are currently developing 800 units for rent in Manchester and Newcastle and from our perspective these cities have certainly been performing better than London.
So what have we been doing within this backdrop? We have been net sellers of our traditional real estate holdings and have sold c.£450m in the last 15 months from MREFIII vs committing c.£70m of equity to new investments in both MREFIV (principally in Build to Rent, Student Accommodation and Logistics) and in MAREF (Audley and Mayfield retirement villages).
So we continue to favour the alternative real estate subsectors that have demographic support but across all sectors we are looking for special situations to find opportunity and attractive enough pricing in order to be able to justify investing. Too often, in our opinion, the risks on the downside outweigh the upside potential and we will remain cautious until we see pricing corrections or investments that are especially compelling.
We expect more volatility over the course of 2019 (from Brexit, QE, retail sector issues, tariff negotiations, etc.) and whilst that may of course affect the assets that we have under our management, it may well also create opportunity for us to invest MREFIV.
I look forward to being in touch in 2019!
Moorfield sells Aurora in Ealing
We are pleased to have sold the Aurora office building in Ealing on behalf of MREFIII having achieved our business plan earlier than expected. Aurora comprises c.50,000 sq ft of grade A office space and new leases at record rents for the area were recently agreed with Spaces (Regus) and Synchronoss following a complete refurbishment carried out in partnership with XLB.
We acquired a number of assets in MREF III, including Aurora, to take advantage of major infrastructure improvements such as Crossrail and this will remain a theme for MREFIV, our latest fund that is looking for new opportunities. The other themes for MREFIV include residential Build to Rent (BTR), student accommodation, logistics and mixed-use projects.
Moorfield secure two new tenants at Aurora Ealing
Moorfield Group, the UK real estate private equity fund manager, has secured two new tenants at Aurora, the fully refurbished and striking office building in Ealing, London. The building comprises 53,000 sq ft of Grade A, contemporary and design-led office space.
IWG, who own Regus, has signed a 15-year lease on 28,684 sq ft across ground, first and second floors for Spaces, their co-working offer. This will be the workspace provider’s twenty third Spaces business club in the UK and it’s fourth in West London.
Synchronoss, a global leader in secure, white label, mobile cloud, RCS messaging and digital solutions for Service Providers and TMT’s, has signed a ten-year lease for 7,473 sq ft on the third floor.
Mark Holmes, Head of Asset Management, Moorfield Group said: “Aurora is a best in class modern office building and we are pleased that with the arrival of the Spaces business club and Synchronoss it is now 70 per cent let. There is very little good quality office supply available in Ealing. We believe that we are offering a very attractive proposition to occupiers requiring Grade-A space in a well-connected location with great amenities on hand, and at prices that are more competitive than Hammersmith and Chiswick.”
Richard Zoers of Hanover Green said: “These two lettings, both in excess of £40 per sq ft, signal the start of Ealing’s growth potential as an office location, particularly with Crossrail due for completion next year. This will mean journey times to Paddington of seven minutes, eleven minutes to Bond Street and regular trains to Heathrow in just eighteen minutes, it really is the ‘Queen of the Suburbs’.”
“Spaces and Sychronoss have recognised the potential of this building and it is great that occupiers are experiencing the benefits of this location, after the residential, retail, hotel and investor markets have been so busy in Ealing over the last two years. With the current tight supply, we expect rents in the borough for Grade A accommodation to continue to move on.”
Aurora has five floors of Grade-A office space, with a large reception and atrium. It is named after the Roman goddess of dawn due to a lightwell that runs from the ground floor to the roof, flooding every floor with natural light. As well as the atrium space it has on-site parking for 77 vehicles, a roof terrace and shower facilities.
There is 13,510 sq ft remaining at Aurora – 3,661 sq ft on the third floor and just under 10,000 sq ft on the fourth, which also benefits from a roof terrace. Quoting rents are £45 per sq ft.
Aurora sits right at the epicentre of Ealing’s business district. Ealing is the well-connected West London borough currently undergoing a regeneration-driven renaissance. The local economy is attracting evermore upscale retailers, restaurants and businesses and hundreds of new homes are being built – across several different schemes – to cope with the surge in interest in the area.
Moorfield Real Estate Fund III (MREFIII) purchased Aurora from Threadneedle Investments for £22 million in December 2014.
The development managers are XLB Property.
The agents for the building are JLL and Hanover Green.
Moorfield Acquires £16.25m Distribution Centre
Moorfield Group, on behalf of Moorfield Real Estate Fund IV (MREFIV), has purchased a £16.25 million distribution warehouse in Alsager, Crewe from Lagan Developments.
The 324,000 sq ft high quality, modern distribution warehouse is fully let to Geberit, a Swiss multinational group specialising in manufacturing and supplying sanitary products, until December 2020. This is Geberit’s only distribution centre in the UK and is located near Crewe, 3 miles from Junction 16 of the M6 motorway, allowing easy access to the UK’s road distribution network.
Commenting on the acquisition on behalf of MREFIV, Charles Ferguson-Davie, Chief Investment Officer, Moorfield, said: “We established MREFIV to target investments in Build to Rent (BTR), student accommodation, logistics, mixed-use projects and infrastructure-led opportunities.
“As part of the logistics strategy we are targeting units with short to medium term lease lengths. The ambition is to build a portfolio of good quality, well located, institutional grade logistics units where we can use our asset management capabilities and experience to bring further value to each asset. This is the first investment in our industrial strategy for the fund.
“There is a shortage of good quality logistics units and strong demand from occupiers for these properties, which is supporting rental growth and yield compression in the sector. We will be looking to invest in further opportunities in locations with strong supply and demand imbalances.”
Moorfield was represented by King Street Commercial and Lagan Developments by CBRE.
Moorfield sells Atlantic Quay 1 in Glasgow for £55m
Moorfield has sold Atlantic Quay 1, a recently refurbished Grade A office comprising 121,737 sq ft in Glasgow, for £55m on behalf of MREFIII to Bank of London and the Middle East.
The entire Atlantic Quay area comprises a unique office complex in Glasgow’s financial district that fronts the River Clyde and is just a short walk from Glasgow’s main shopping, leisure and entertainment districts that is accessible to all major road, rail, air and bus links.
We acquired Atlantic Quay 1, 2 and 3 on behalf of MREFIII in September 2015 for c.£60m. Atlantic Quay 3 was let following a refurbishment to the Scottish Courts and Tribunal Services and subsequently sold to Legal and General for £50m. Atlantic Quay 1 was also refurbished and primarily let to the Department of Work and Pensions, who now occupy 85% of the building. We will now continue to work on fulfilling the potential of Atlantic Quay 2.
Moorfield has partnered with Resonance Capital to manage the three buildings.
Moorfield is now investing MREFIV, our latest fund that is targeting (i) build to rent (BTR), (ii) student accommodation, (iii) last-mile logistics, (iv) mixed-use opportunities, and (v) infrastructure-led special situations. We will continue to look for new opportunities to reposition assets through active asset management.
Moorfield sells The Keel, Queens Dock in Liverpool for £46.8 Million
Moorfield has sold The Keel, a 240 unit Build to Rent (BTR) scheme in Liverpool, on behalf of MREFIII for £46.8m to Barings Real Estate.
The Keel comprises 240 apartments, with 425 beds, across 170,500 sq ft arranged over five floors. Formerly home to HMRC, the Keel was converted in partnership with Glenbrook into one of the UKs first designed for rent residential developments. Amenities include a manned concierge operation, an on-site gym, 207 car parking spaces and coordinated activities for the residents.
Moorfield also sold adjoining consented land, which will comprise c.260 apartments and take the scheme overall to c.500 units.
The Keel was delivered in 2015 and was one of the first BTR projects delivered in the UK and we are proud to have been at the forefront of this new and emerging sector. We have learnt a great deal from operating The Keel, which we will bring to our three other BTR projects (two in Manchester known as The Trilogy and Duet and one in Newcastle known as The Forge).
We will now be looking to identify new opportunities on behalf of our new fund, MREFIV, which is targeting further investments in the BTR sector, alongside; student accommodation, logistics, mixed-use projects and infrastructure-led opportunities.
MBO at Edinburgh’s Quartermile Developments sees business acquired from Moorfield Group and Baupost Managed Funds
Two directors of Edinburgh-based property developer Quartermile Developments have launched a new development company following a successful management buyout (MBO).
Chief Executive, Paul Curran, and finance director, Mike Milligan, have purchased the entire share capital in Quartermile Edinburgh Limited (QMEL) from MREFIII, a value-add fund managed by London-based property fund manager Moorfield Group, and funds managed by The Baupost Group, LLC, the Boston, Massachusetts-headquartered investment advisor. The value of the transaction is undisclosed.
QMEL comprises the Quartermile Developments, Quartermile Estates and Quartermile Ventures operating companies.
Quartermile Developments is widely recognised for successfully delivering Edinburgh city centre’s landmark £750m Quartermile mixed-use development. The company is also currently building 145 homes at its 52-acre, £100m Craighouse development in the Scottish capital.
The new holding company is called Qmile Group and is headquartered in Edinburgh city centre. All of Quartermile Developments’ 17 employees remain with the business.
The acquisition was made following a highly successful four-and-a-half-year investment by funds managed by Moorfield Group and Baupost.
During that period, two Grade A office buildings comprising 128,600 sq ft and 72,991 sq ft were funded, built and let to high-profile tenants including financial services business State Street Bank & Trust Company and audio chip designer Cirrus Logic. Over the same period, the Residence Inn hotel and predominantly all of the retail, leisure and car parking, as well as more than 500 apartments were sold at Quartermile. There are currently no further properties available for sale, following the sale of the main hospital building and adjacent land to the University of Edinburgh.
Commenting on the MBO, Qmile Group CEO, Paul Curran, said: “With the final phases of Quartermile nearing completion it was natural for us to consider future opportunities. Our Craighouse development was already underway and selling well off-plan due to the strength of the Quartermile brand and our national and international reputation for design and build excellence.
“Our relationship with both Moorfield and Baupost has been excellent from very beginning; against this backdrop we were able to complete an MBO quickly and to everyone’s satisfaction.
“We now look forward to further implementing our strategic growth plans for Qmile Group. We are already exploring a number of mixed-use, residential and commercial opportunities and assessing various funding opportunities.
“Qmile Group will initially have a Scottish focus, but our ambition is to expand across the key cities in the UK. We are widely known for our ability to deliver high profile, complex projects, and we believe this gives us the strongest possible position upon which to continue to build our business and brand.”
Quartermile currently comprises 1,050 apartments; 370,000 sq ft of Grade A office accommodation; 65,000 sq ft of retail and leisure space; and seven acres of open landscaping. The development will also be home to the Edinburgh Futures Institute, the University of Edinburgh’s new interdisciplinary hub.
Moorfield Group’s chief investment officer, Charles Ferguson-Davie, added: “Quartermile has been a great success story for Moorfield and Baupost. We have enjoyed working with Paul, Mike and the rest of the Quartermile team to optimise, deliver and realise the Quartermile masterplan.
The Quartermile development was a complicated mixed-use project which required a broad range of skill sets. Given that experience and track record we have every confidence that Qmile Group will now go on to cement their position as one of the UK’s most highly capable property developers.”
Law firm Brodies advised Qmile Group, whilst MREFIII and Baupost were represented by Herbert Smith Freehills and Ropes & Gray.
For further information on Quartermile visit www.qmile.com
Moorfield Logistics Partnership Sells £42.5m Portfolio
Moorfield Logistics Partnership Limited (MLP), a subsidiary of Moorfield Real Estate Fund III (MREFIII), a value-add fund managed by Moorfield Group, has sold a £42.5 million portfolio of distribution warehouses to an institutional investor.
The portfolio is made up of five units in four locations; Rushden, Warrington, Deeside and Huddersfield.
The Rushden units comprise two warehouses totalling 239,644 sq ft let to the retailer, Urban Outfitters; the Warrington unit is a 94,234 sq ft warehouse let to the retailer, Next Group Plc; the Deeside unit is a 162,116 sq ft warehouse let to the paper and packaging manufacturer, Mayr-Melnhof Packaging UK Ltd; and the Huddersfield unit is a 47,666 sq ft industrial unit with offices let to the Council Borough of Kirklees.
Commenting on the disposal on behalf of MREFIII, Charles Ferguson-Davie, Chief Investment Officer, Moorfield, said: “We established the Moorfield Logistics Partnership to target industrial and logistics units with lot sizes of c.£15 million and with short to medium term lease lengths. The ambition remains to build a portfolio of good quality, well located, institutional grade logistics units where we can use our asset management capabilities and experience to bring further value to each asset.
“There is a shortage of good quality industrial and logistics units and strong demand from occupiers for these properties, which is supporting rental growth and yield compression in the sector. The unsolicited offer on the assets was at a level that resulted in the business plan being achieved sooner than anticipated
“These assets that we have just sold were owned by MREFIII and we will now be looking to invest in new opportunities on behalf of Moorfield Real Estate Fund IV (MREFIV), which achieved a first close in October 2017. MREFIV is targeting investments in residential Build to Rent (BTR), student accommodation, logistics, mixed-use projects and infrastructure-led opportunities.”
MLP was represented by Gerald Eve and the purchaser by ACRE Capital Real Estate.
Ealing London – Powering Ahead
The West End is moving West! It’s all happening in vibrant Ealing with exceptional growth prospects and fantastic connectivity to central London. Ealing is going from strength to strength and will be fully plugged into London and beyond once Crossrail opens in 2019 with rail times to Bond st of 11 mins, Heathrow 15 mins and Liverpool st 18 mins. Zone 3 living and working but with Zone 1 travel times!
There is a huge amount of inward investment with over £1 billion underway including Dickens Yard and Filmworks being delivered by St George with 970 residential units , a 1000 seat cinema and new restaurants, shops and leisure facilities. All this complements the extensive retail provision already existing, with Ealing being within the top 3% of retail destinations in London. There are ambitious plans over the next 10 years to deliver a further 14,000 homes and 1 m sqft of business space.
It probably comes as no surprise, but Ealing is one of the greenest boroughs in London with over 100 parks and is a place of great creativity and cultural invention supported by the highly regarded University of West London. There is a thriving business district and Ealing is home to a number of large organisations including Diageo, Carphone Warehouse, Ferrero, Random House Books and the world famous Ealing Studios.
This is a very exciting time for us to be launching Aurora Ealing, a Grade A office of 52,000 sqft where we have completed a design led refurbishment creating highly specified contemporary workspace. As well as a large reception area, there is a lightwell that runs from the ground floor to the roof, flooding every floor with glorious natural light. Whilst only a short walk to the town centre there is however plenty of underground parking (80 spaces) and cycles bays (with showers) if you are coming from further afield. Aurora would suit a single occupier who would like their own front door with prominent Uxbridge road corporate signage although there is the flexibility to subdivide the building to meet occupier requirements.
Come and take a look below at the new Aurora office building, you will be surprised about how much is going on in Ealing!
Moorfield Group Selects YieldStar Revenue Management
Moorfield Group, the private equity real estate fund manager, has selected RealPage’s YieldStar® revenue management solution for deployment across their funds’ build to rent (BTR) properties. Moorfield Group will be one of the first BTR developer and managers to implement the Yieldstar Revenue Management System in the UK.
RealPage is a leading global provider of software and data analytics to the real estate industry. Broadly adopted in North America, YieldStar’s algorithm considers internal supply and demand, competitive influences, asset attributes and consumer demand to optimize revenue for every unit, every day across millions of apartment homes.
Heiko Figge, Head of Hospitality, Leisure and Operations, Moorfield Group, said: “We focus on innovation and understand the importance of early adoption of key technologies and software to enable us to maximize our efficiency.
“YieldStar allows us to manage our rental streams and offerings to maximize revenue, as well as capturing historical data to enable us to accurately predict future letting trends. We see the early adoption of a sophisticated Revenue Management System as another sign of our commitment to the BTR space. We have extensive experience in the hotel sector and therefore the employment of a Yield Management System was an obvious next step as we will be bringing another 500 units to the market this summer.”
Deployments will begin with The Keel, a 240-unit purpose convert BTR scheme in Liverpool, which represents a milestone as the first UK new-generation build-to-rent scheme completed outside of London. Moorfield Group will also leverage YieldStar on their assets in Newcastle (The Forge) and Manchester (The Trilogy), which both open this summer.
Heiko Figge continued: “Moorfield Group chose YieldStar based on its ability to support inventory management for the company’s portfolio of properties. In our review of other revenue management solutions, YieldStar became the obvious choice given its extensive experience and deployment in the US and the steps they have already taken to align their product to the UK market.”
“YieldStar’s capabilities complement our overall business strategies, and allow us to deliver premium rents that are aligned to our target markets. With YieldStar, we can empower and incentivize our managers to take calculated risks to drive optimal performance.”
Keith Dunkin, Senior Vice President of Asset Optimization at RealPage said: “We are delighted to be have been selected by Moorfield for implementation across their BTR platform. Moorfield have been pioneers in the new generation UK build to rent sector and have a significant pipeline of over 700 units for delivery over the next 18 months. We are looking forward to getting the software into place to help Moorfield maximize performance for their investors.”
Moorfield Group January 2018 Newsletter
Moorfield had a busy year last year – please download our January 2018 Newsletter to read our latest news.
Expansion for EC-OG at Davidson House, Aberdeen Innovation Park
Another deal has been concluded at Moorfield Group’s Aberdeen Innovation Park, with existing occupier, East Coast Oil & Gas (EC-OG) expanding operations at the recently refurbished Davidson House on Campus One at Aberdeen Innovation Park.
EG-OC has signed up for an additional 1,200 sq ft at Davidson House, taking their total floorspace to 2,230 sq ft. A new four-year lease has been agreed at a rental of £20.75 per sq ft.
EC-OG provides expert engineering services for critical well barrier equipment, including wellheads, xmas trees and intervention systems. The team recently won a “VIBES” award in the Innovation category at the Scottish Environment Business Awards, for the Subsea Power Hub, a hybrid-based ocean current energy conversion system with integrated energy storage. The award recognised the company’s position at the forefront of eco-innovation.
EC-OG Commercial Director, Heather Sharkey said: “It has been a really exciting time for our team recently. We needed the additional space to diversify our business and Davidson House provides the perfect location for our expansion plans.”
Speaking on behalf of the parks’ owner, Moorfield Real Estate Fund III, Mark Holmes from Moorfield Group said: “It is great news to see EC-OG expand operations here at Aberdeen Innovation Park. We always adopt a ‘can-do’ approach and were able to offer the company a new suite which meets their needs.”
Matt Park of Knight Frank in Aberdeen, added: “Despite challenging times in the North East, we are continuing to see demand for the quality space on offer at both parks, which is evident at Davidson House.”
Knight Frank and Ryden are joint agents for Aberdeen Energy & Innovation Parks
Department For Work and Pensions signs to Atlantic Quay 1
Moorfield Group (Moorfield) and Resonance Capital have secured a new letting at Atlantic Quay 1, Glasgow by signing 15-year lease with the Department For Work and Pensions (DWP) on 85,000 sq. ft. This follows close on the heels of the long lease of 80,000 sq ft to the Scottish Courts and Tribunals Services at Atlantic Quay 3.
DWP will join a number of high profile organisations already based at Atlantic Quay Buildings 1, 2 and 3, including housebuilder Mactaggart & Mickel and Lloyds Banking Group.
Commenting on the second major letting since the acquisition of Atlantic Quay Buildings 1,2 & 3, Mark Holmes, Head of Asset Management at Moorfield said: “We are delighted to have secured yet another Government backed, long-term lease for Atlantic Quay. This letting further endorses Atlantic Quay as location of choice for high quality, ‘Grade A’ office space that is currently lacking in Glasgow City Centre.
“Our design focused refurbishment, together with the full range of concierge services and events program that we implemented has ensured that the Atlantic Quay Buildings continue to be an excellent option for high quality tenants. Moorfield has been a strong supporter of investment in Scottish real estate, and this letting further supports our ongoing belief in the strength of the Scotland occupier market.”
Angela Higgins of Resonance Capital said: “We look forward to welcoming the Department for Work and Pensions to Atlantic Quay 1. The scheme is in the right position and right location for DWP and they will take occupancy on the ground, third, fourth and fifth floors. We have worked very closely with them to offer a unique office space that will meet their specific needs.
“Atlantic Quay Buildings offers its tenants a contemporary business community with amenities such as a prescription delivery service, art exhibitions that support local talent and social and fundraising events for our many charities.”
Moorfield Real Estate Fund III purchased Buildings 1, 2 and 3 Atlantic Quay in September 2015 and a comprehensive refurbishment programme to revitalise the scheme will complete in 2018. The scheme is just a short walk from Glasgow’s main shopping, leisure and entertainment districts and accessible to all major road, rail, air and bus links.
Moorfield sell Iconic Shipping Building at The Old Vinyl Factory to Floreat
On behalf of the Moorfield Real Estate Fund III (MREF III), Moorfield Group (Moorfield) has sold The Shipping Building at The Old Vinyl Factory development in west London to Floreat Real Estate, on behalf of Real Assets (RA) Global Opportunity Fund I, for in excess of the quoting price of £29 million.
The Shipping Building is a landmark art deco office building of 99,990 sqft over ground and six upper floors. The accommodation provides a flexible, air conditioned office environment with good natural light. The property benefits from 273 car parking spaces in the newly purpose built ‘Music Box’ car park.
The building is multi-let to seven office occupiers including Central Research Laboratory, Kingston Smith LLP, Sonos UK and Sita Information Networking Computing UK.
The Shipping Building forms an integral part of The Old Vinyl Factory development, one of west London’s most significant regeneration schemes. The £250 million regeneration of The Old Vinyl Factory, when complete, will comprise 642 residential units, 550,000 sq ft of office accommodation, a variety of restaurants and shops, a four-screen cinema complex, a sustainable energy centre, a live music venue and a high quality public realm.
Commenting on the disposal on behalf of MREFIII, Charles Ferguson-Davie, Chief Investment Officer, Moorfield, said:
“We targeted Hayes as an investment location because of the impending arrival of Crossrail, and in particular the Old Vinyl Factory because of the ongoing mixed-use regeneration of the surrounding local area.
“We have sold the Shipping Building earlier than we originally intended and are pleased with our asset management achievements that helped to reposition the property. The Shipping Building offers a great place to work and we wish Floreat success with their investment.”
Commenting on behalf of Floreat Real Estate, investment director Jonathan James said:
“We are delighted to have acquired the Shipping Building, which supports our strategy of investing in growth locations in London and select UK cities. We focus on quality buildings where we can drive value through asset management.
“Creating workplaces that offer the connectivity and amenity to attract talent is a key driver for us. We believe the regeneration of the Old Vinyl Factory site, together with the arrival of Crossrail, provides a compelling offer for occupiers.”
Moorfield was represented by Savills and Floreat was represented by Fineman Ross.
Moorfield sells Atlantic Quay 3, Glasgow to Legal & General for £50 Million
On behalf of the Moorfield Real Estate Fund III (MREF III), Moorfield Group (Moorfield) has sold Atlantic Quay 3, in Glasgow City Centre to LGIM Real Assets (Legal & General) for £50 million.
Atlantic Quay 3 is a 79,500 sq ft high quality modern office built to a ‘Grade A’ specification and is fully let on a long-term lease to the Scottish Courts and Tribunals Service.
Newly refurbished Atlantic Quay 3 features a new double-height reception; new VRF air conditioning system; new LED lighting; three 13 person lifts with a separate goods lift. The building benefits from 24-hour security, 31 secure car parking spaces and 100 cycle racks in the basement.
MREFIII acquired Atlantic Quay 1, 2 and 3, which comprise 280,000 sq ft of office space, in September 2015 for c.£60 million, reflecting an initial yield of 8.5% for the three buildings. Moorfield is partnered with Resonance Capital to manage the three buildings.
The entire Atlantic Quay area comprises a unique office complex that fronts the River Clyde. It is just a short walk from Glasgow’s main shopping, leisure and entertainment districts and accessible to all major road, rail, air and bus links.
Commenting on the disposal on behalf of MREFIII, Charles Ferguson Davie, Chief Investment Officer, Moorfield, said: “We identified the Atlantic Quay buildings as high quality offices at the heart of Glasgow’s International Financial Services District, in a prime riverside location and in an office market starved of new space. They were ready for refurbishment when we purchased them in September 2015 and we are proud to have developed such a successful scheme with Resonance Capital.
The recent lettings in the vicinity (including the Government Property Unit’s selection of Atlantic Square for a 300,000 sq ft regional hub) also support our belief in the quality of the location. The evolution of Atlantic Quay is underway and we will continue to work on fulfilling the potential of Atlantic Quay 1 and 2.”
Legal & General was represented by Savills and Addleshaw Goddard.
Moorfield sells Derby Riverlights Holiday Inn Hotel
On behalf of the Moorfield Real Estate Fund III (MREF III), Moorfield Group (Moorfield) has sold Derby’s Riverlights Holiday Inn hotel, a prime destination for tourists and business visitors to the region, to Starboard Hotels, the privately owned operator of multi-branded hotels.
The Holiday Inn, a full service hotel with conference and banqueting facilities, was brought to the market for offers over £6 million. In addition to the hotel, Starboard has also purchased two retail units with a view to expanding the hotel restaurant.
Commenting on the disposal on behalf of MREFIII, Charles Ferguson-Davie, Moorfield CIO, said: “This hotel has performed very well for us and we are pleased to have agreed the sale to Starboard. We still own the remainder of Derby Riverlights, which is a vibrant mixed-use leisure destination. We have worked hard to improve the appeal of Riverlights to occupiers and customers alike and are proud of our achievements.”
Founder and Managing Director of Starboard, Paul Callingham said: “It has been a tremendous year of growth for Starboard and we are delighted to have made another important acquisition. We welcome the team from the Holiday Inn Derby into the Starboard ‘family’ and we are looking forward to working with the General Manager Carrie Louise Holleran and her team. “
Moorfield Group bought the mixed-use Riverlights scheme in Derby out of administration for £16.5 million, in 2015. The 200,000 sq ft building comprises a combination of retail and leisure units, alongside two hotels occupied by Holiday Inn and Premier Inn, as well as a Genting Casino.
Built in 2010, Derby Riverlights is located on the eastern edge of Derby city centre, adjacent to the intu Derby shopping centre and Riverside Gardens.
The property also incorporates Derby’s main bus station at the rear, and is adjacent to the city’s Castleward area, which is undergoing a £100 million redevelopment.
Happy 2nd Birthday to the Keel – the first New Generation BTR scheme in the UK
Moorfield opened The Keel, Liverpool to its first tenants just over two years ago and we have had the pleasure of providing high quality, professionally managed homes to over 450 people during its first years of operation. The Keel represented a milestone in the UK build to rent (BTR) sector, being the first new generation BTR scheme completed outside London. During its two years of operations we have watched a community flourish within the building – we have running clubs, homework clubs, spinning classes, family days and barbecues (when the weather permits) and we are planning our first wider community event with our charitable partners, Finding Your Feet.
Last month we were pleased to congratulate a couple who moved in just two weeks after opening and are still there today, having recently renewed for a further 12 months. The Keel has been over 97% occupied consistently since October 2016 and tenancy lengths vary from 12 months to 24 months. We would like to thank our customers who were the early adopters of what remains a fairly unknown product class across the UK.
Alison and William, the Keel’s longest residing tenants
We have welcomed customers to a new breed of home before through our Retirement Living platform, Audley, where we have witnessed the joy that comes with professional management and hassle-free living. The UK BTR customer base is undergoing a similar journey of learning to understand the benefits of renting from a professional and aligned landlord. We have no doubt that as this sector becomes more established and the public become more aware of its benefits, the gap between purpose built, professionally managed homes and the private buy to let private rental stock will widen further, improving standards across the board.
Moorfield continues to be a champion and pioneer of sectors that are supported on a fundamental demand and supply basis, but also where we can re-create the norm through innovation and a focus on customer service. We have done and continue to do this across student accommodation, retirement living, budget hotels and BTR and we are glad that our latest efforts are bringing such benefits to the broad range of customers we have at The Keel. We look forward to replicating this across The Trilogy in Manchester and The Forge in Newcastle, both of which will open their doors this summer.
Why I like Build to Rent (BTR/Multifamily) outside London…
Moorfield has 4 BTR schemes, comprising c.1,250 homes:
- The Keel in Liverpool, consisting of 240 homes that opened in October 2015 and has planning consent for a further 240 homes to be developed
- The Trilogy in Manchester, which will provide 232 homes when it opens next summer
- The Forge in Newcastle, which will provide 280 homes when it opens next summer
- Erie Basin in Manchester, which will provide 270 homes when it opens in spring 2019
London has many attractions for a BTR investor as the UK capital and a major global city with strong population growth forecast. People choose to base themselves in London because it is such a cosmopolitan city with high earning job prospects and vibrant cultural/social attractions. But it is also an expensive place to live and from an investor’s perspective it is very difficult to buy land, get planning consents and develop with very low yields accepted as the norm. There is high demand and limited supply, which perhaps justifies the low yields of c.3% that a BTR investor must accept but is that enough to make up for the risks involved?
The London residential market appears to be cooling, particularly at the prime end because of higher taxes and perhaps Brexit too, with house price forecasts now expecting greater growth outside London. The BTR market has a great opportunity to help solve the housing crisis in London because all homes that are developed are for Londoners who live and work in the city and they need to be ‘affordable’ – this means units are not sold overseas to speculators and left intentionally empty or targeted at the prime end of the market where arguable there has been over-development in recent years. BTR should therefore be encouraged in London and it is a shame that the Budget did not look to make it easier for BTR projects to come forward as that is the type of housing that London so desperately needs.
The picture outside London is different. In the cities where we have invested there has been very little development of residential since the financial crisis, because of the lack of development finance and lack of appetite to take development risk. Values are considerably lower and in many cases the required build costs do not result in either any, or enough, land value to encourage land owners to sell and the margin available to be made over build costs may not be enough. However, there is more of an even playing field with the ‘build for sale’ developers because sales values are typically comparable to BTR investment values. Indeed, until recently because of individual unit sales risks the BTR option has often been preferable. As a result there are more rental units being developed in these cities than units for sale. This may change over time as there is a shortage of both rental and owned homes and this is also resulting in high house price growth forecasts (JLL are currently forecasting 9% growth between 2018-2020 in the North West vs 3.5% for Greater London for instance and city centres will surely outperform the whole North West region).
There are very low supply levels and there is strong demand in cities such as the ones we are invested in; so rents are expected to grow and importantly investors will also receive a yield almost double that available in London. These cities have great universities that students from all over the world are keen to attend and there is both population and job growth expected. International and domestic companies are increasingly looking to locate themselves in these city centres, where they can find highly educated workforces with lower office rental costs and lower living costs for their employees too. I would also wager that Brexit will be less damaging to these cities than it might be to London.
I shouldn’t really be encouraging more people to compete with us, we were at one stage a lone voice championing investment in these cities, and more competition is not necessarily good for us. However, I would encourage a closer look at the opportunities available outside London where BTR is also contributing to solving the UK’s housing crisis and creating places to live that many aspiring renters are looking for to make their homes.
Moorfield sells 305 bed student scheme in Sheffield to iQ
Moorfield Real Estate Fund III (MREFIII) has sold its premium student apartment scheme, Century Sq in Sheffield, to iQ Student Accommodation. iQ Student Accommodation is one of the largest providers of student accommodation in the UK, providing homes to over 24,000 students.
Century Sq offers a mix of 305 studio, twodio and multi-bedroom/cluster apartments with extensive communal facilities. The scheme is centrally located in close proximity to the University of Sheffield’s campus and is one of the largest private purpose built schemes in the city.
MREFIII purchased the site in 2015 and having secured planning consent for the change of use, developed Century Sq in partnership with Worthington Properties. The scheme opened in 2016 when full occupancy was achieved.
Commenting on the disposal on behalf of MREFIII, Charles Ferguson-Davie, Chief Investment Officer of Moorfield, said: “We identified the student market in Sheffield as having attractive supply and demand dynamics and we are proud to have developed such a successful scheme that is so popular with the students. We had planned to hold the investment for longer but the off market approach from iQ resulted in an early realisation of our business plan.
“Moorfield has now developed and operated some 5,000 student beds and we will continue to look for investment opportunities in the sector, as well as adding to our investments in the Build to Rent sector, which now comprises a platform of some 1,300 beds across five schemes.”
Iliya Blazic, Chief Investment Officer of iQ commented “Sheffield is a vibrant and growing city which has seen major investment in recent years. We are pleased to be contributing to that with our investment in Century Square, and recent investments to enhance our Brocco, Steel and Fenton House sites. In total we now provide 2,435 Sheffield students with high quality, safe homes from which to make the most of their university years.”
Moorfield exceeds target on first close of new value-add real estate fund
Moorfield Group, the UK real estate private equity fund manager, has successfully and materially surpassed the £100 million target on the first close of its new Moorfield Real Estate Fund IV (MREFIV).
MREFIV is Moorfield’s fourth value-add fund which is expected to have an investment focus on Build to Rent (BTR), Student Accommodation and Logistics, alongside opportunistic mixed-use and infrastructure led real estate opportunities. The fund will be seeded with a BTR scheme in Manchester’s Media City (Erie Basin) and an office building in Newcastle’s Cobalt Park.
The fund, which has a final target of £350 million, has attracted a strong global investor base from a number of blue-chip European and US pension, endowment and foundation funds.
Marc Gilbard, Moorfield Group CEO, said: “We are very pleased with the response we have had from the investors that we have met as part of raising this new fund. Our investors place a great deal of trust in our ability to invest their capital wisely and we will look to be patient and disciplined over the three year investment period.
Moorfield has a broad range of skills and experiences, established over almost 22 years of investment and across most real estate sectors throughout the UK, which enables us to be flexible and dynamic in our search for opportunities with the appropriate risk/reward profile. In particular, we have been pioneers in a number of alternative real estate sectors where we continue to see opportunity today.”
Charles Ferguson-Davie, Moorfield Group CIO said: “We have an exciting pipeline of opportunities in the themes that the Fund is looking to invest in. The ‘beds and sheds’ themes, comprising BTR, student accommodation and last mile logistics have compelling demographic, structural and societal drivers that are creating strong demand in markets where there is also limited supply through lack of development in recent years. We expect these three themes to make up 75% of the Fund (as they have done for MREFIII), with the remainder targeted at mixed use opportunities and infrastructure-led real estate where we can reposition assets and create vibrant communities.”
The two schemes that will seed the fund are in Manchester and Newcastle. Erie Basin in Salford Quays, Manchester is a 220,000 sq ft 16-storey BTR development, designed by award winning architects Shepherd Robson, consisting of 270 one, two and three-bedroom residential apartments with gardens, amenity space and car parking. Cobalt 23 is a 128,500 sq ft vacant high quality office building on the Cobalt Business Park in Newcastle.
Moorfield became a private equity real estate investor in 1996 and has a history and track record of investing across a broad range of established and emerging real estate sectors. It currently has c.£1.2bn under management and has raised c.£1.5bn since 2005 via its value–add MREF funds and its dedicated special purpose fund (MAREF) that owns the senior housing platform Audley.
Two of the MREF funds have now been fully realised, and MREFIII is materially invested and recently made its first realisations. MAREF acquired Audley, the leading UK retirement village developer and operator in December 2015, and recently raised a further £85 million from existing investors, to take the total raised to £285 million, so as to provide Audley with further capital to grow.
Moorfield announces deal with Scottish Courts and Tribunals Service on completion of Atlantic Quay 3 refurbishment
On behalf of the Moorfield Real Estate Fund III (MREF III), Moorfield Group (Moorfield) and Glasgow-based joint venture partner Resonance Capital, have announced that Atlantic Quay 3 is now fully let on a long term lease to the Scottish Courts and Tribunals Service, on completion of a multi-million pound refurbishment of the Building.
Completion of the deal on Atlantic Quay 3, will see the Scottish Courts and Tribunals Service – the scheme’s first new tenant – fully occupy 79,500 sq. ft. of ‘Grade A’ open plan flexible office space over its ground and six upper floors. Moorfield Real Estate Fund III purchased Buildings 1, 2 and 3 Atlantic Quay in September 2015 and a comprehensive refurbishment programme to revitalise the scheme will complete in 2018.
Atlantic Quay 3 features a new double-height reception; new VRF air conditioning system throughout to 1:8 design ratio; 2.7m clear from floor to ceiling; new LED lighting throughout; three 13 person lifts with a separate goods lift and new refurbished finishes to all lift lobbies. The building also benefits from 24 hour security, 31 secure car parking spaces and 100 secure cycle racks in the basement.
Mark Holmes, Head of Asset Management at Moorfield, said: “We are delighted to welcome the Scottish Courts and Tribunals Service to Atlantic Quay 3. We have worked very closely with them to ensure that their occupational requirements for the building are successfully achieved. Announcing that Atlantic Quay 3 is now fully let on a long term lease to the Scottish Courts and Tribunals Service, on completion of a multi-million pound refurbishment, reinforces our confidence in the quality of Atlantic Quay Buildings 1,2 &3 and its location in the City’s business district.”
Ken Barrett of Resonance Capital commented: “We are delighted to have brought this high quality ‘Grade A’ refurbishment to completion on time and well within budget. The supply of buildings of this size and specification in Glasgow is very limited at the moment and we are pleased that our ability to progress the development speculatively has been reflected in the building already being fully let to the Scottish Courts and Tribunals Service.”
Eric McQueen, Chief Executive, the Scottish Courts and Tribunals Service (SCTS) said: “The SCTS has worked closely with Her Majesty’s Courts and Tribunals Service (HMCTS) to rationalise accommodation in Glasgow and create this new Tribunals Centre. The centre will have 34 hearing rooms and provide excellent facilities for all tribunal users, with specific support for young users with additional support needs.”
A comprehensive refurbishment of Glasgow’s Atlantic Quay Buildings 1, 2 and 3, will create a contemporary business destination on the City’s waterfront, The overall design influence of the scheme is inspired by the colour palette of the Nordic countries. A bespoke art collection by the award winning photographer Damian Shields will feature Nordic and Scottish artwork in the public areas of Atlantic Quay 1, to be unveiled on completion in 2018.
The scheme is just a short walk from Glasgow’s main shopping, leisure and entertainment districts and accessible to all major road, rail, air and bus links.
For further information please visit www.atlanticquay.com.
Blue or Red – Now it Matters by Marc Gilbard
Why the swing towards socialism cannot last
For some 30 years, since the implicit defeat of socialism in the UK, there has been a relatively fine differentiating line between the policies of the Tory blues and the Labour reds, both encircling the capitalist centre ground. When one of the parties has threatened to move too far away from this hallowed centre they have been mercilessly knocked back into place by the voting public. So what’s happened in a few short months that has meant capitalism is currently being seriously challenged by socialism – as socialism is way off centre?
Prior to the general election you would have been laughed into an embarrassed silence by the majority if you had predicted that the current policies of the Labour Party would be taken seriously – and you will notice that I have avoided naming Corbyn as he is simply the current figure head of the socialist resurrection (albeit he was also considered an unelectable individual in the very recent past). So for now let’s not get personal with Corbyn or May as neither should be in their leadership seats at the time of the next election, and also (despite my headline) let’s avoid thinking of this as the red or blue party politics that we have known for the last 30 years with the connotations of rich versus poor – but instead let’s debate it as capitalism versus socialism.
Here are the first paragraphs on Wikipedia for each:
Capitalism is an economic system and an ideology based on private ownership of the means of production and their operation for profit. Characteristics central to capitalism include private property, capital accumulation, wage labor, voluntary exchange, a price system and competitive markets. In a capitalist market economy, decision-making and investment are determined by the owners of the factors of production in financial and capital markets, whereas prices and the distribution of goods are mainly determined by competition in the market.
Socialism is a range of economic and social systems characterised by social ownership and democratic control of the means of production, as well as the political theories and movements associated with them. Social ownership may refer to forms of public, collective or cooperative ownership, or to citizen ownership of equity. There are many varieties of socialism and there is no single definition encapsulating all of them, though social ownership is the common element shared by its various forms.
And here is a simple and quick summary of the perceived differences:
Capitalism and socialism are somewhat opposing schools of thought in economics. The central arguments in the socialism vs. capitalism debate are about economic equality and the role of government. Socialists believe economic inequality is bad for society, and the government is responsible for reducing it via programs that benefit the poor (e.g., free public education, free or subsidized healthcare, social security for the elderly, higher taxes on the rich). On the other hand, capitalists believe that the government does not use economic resources as efficiently as private enterprises do, and therefore society is better off with the free market determining economic winners and losers.
Possibly too simple in summary definition I accept (as in fact every developed capitalist country rightly has some programs that are socialist, under the definition above) but it’s a reasonable reminder and I am troubled by what I read and hear at present on the subject. Bluntly, the current political landscape is not one I believed we would experience again in my lifetime – and, if we are not alive to the dangers, we could be heading back into days of nationalisation, unionisation, state intervention and economic crisis! I realise that anyone under c.50 years of age may now be raising their eyes in despair. ‘Here we go,’ they will be thinking, ‘there’s a history lesson on the way about the bad old days of the 1970s’. And perhaps there should be! Isn’t there a lot to be learnt from the past so the same mistakes are not repeated? How oddly myopic are those not interested in these lessons? I certainly want to be reminded as by most accounts and from my own memories it was not a good experience! However, I will spare you the statistics and my interpretation of them as you can Google away and make your own mind up – but what I will do is point you in the direction of inflation, interest rates, economic performance, social hostility and strikes. It was these that principally brought socialism to its knees and has stopped it even trying to meaningfully re-emerge until now. Of course, some countries still pursue the socialist ideology today, Venezuela does, as does Zimbabwe, and you should ask what present day story they tell you if history is not your thing?
The swing toward socialism in the recent past has come principally from the younger generations. Those who did not live through the dark days of the 1970s or at least were too young to properly remember, and let’s also include those seeking a social ideal without bearing the scars to remind them that there is no such thing. I can understand that the status quo does not encourage them to continue with their support for the economic system they are due to inherit, with a housing ladder whose first rung is beyond reach for many and where tuition fees make a future without debt seem unattainable. These issues must be boldly tackled and the negative rhetoric around the need for austerity and national debt reduction must be dropped as it has been championed for too long. What takes over must be a positive and optimistic vision for the future of an independent UK, closely aligned with the EU but free from its shackles and enabling trade with the strongest fastest growing nations where it is predicted that 90% of world growth will lie. I also believe that the younger voter will sooner or later understand that socialism actually restricts what they are striving for rather than enhances it and that capitalism has in the past shown itself to be the only appropriate way forward, across the world, to promote entrepreneurship, liberalisation and free trade, helping emerging economies into developed ones and developed ones to progress – but it now must defend and prove its worth again to the vast numbers of disaffected younger UK voters.
Of course, the older generation must not be forgotten or neglected either in the political stampede to appeal to the young. They also need reassurance with regards to savings, pensions, healthcare and retirement living, amongst other things. They do not need to hear the reasons as to why socialism will fail the country as they have experienced it first hand and therefore will not want to see its return.
My prediction is that Theresa May will not remain Prime Minister over the five years ahead and Jeremy Corbyn will never be Prime Minister. But a battle must now be fought and, as I have said above, in my opinion it need not be considered Conservative vs Labour or Blue vs Red in the way we have known for some 30 years, as for now it’s back to Capitalism vs Socialism – and no one is claiming either is perfect. But let’s at least try to be honest about it, as there is not (and never has been) enough money or incentive in the system to see the socialist agenda succeed even if, in a fantasy world, it was a credible alternative.
Why I like Beds and Sheds…
It feels like we are quite late in the real estate cycle, or indeed in certain subsectors past the peak of the current cycle which you could say was in the summer of 2015 based on levels of enthusiasm at that point and the level of transaction volumes that year. There are certainly some subsectors to be wary of: City offices (where the vacancy rate could increase on the back of new supply and Brexit concerns), Prime residential in London (where too many luxury apartments have been built for off-plan sales to overseas investors and tax increases are affecting volumes and pricing), and retail (which is oversupplied on most high streets and in many shopping centres and the internet continues to take market share).
However, demographics, structural changes, technology and societal shifts are producing some very strong drivers of demand and will continue regardless of Brexit or a changing economic landscape. At the same time there are some sectors that are undersupplied due to many years of a lack of development since the GFC.
As a result we have conviction about the residential and logistics sectors – in particular: (i) Build to Rent/Multifamily; (ii) Student Accommodation; (iii) Senior Living; and (iv) Last mile logistics.
Build to Rent / Multifamily
There is high demand for renting:
- Because of population growth, affordability issues, later family formation, urbanisation and the sharing economy trend
- Millennials are now used to living in purpose built student accommodation and are looking for better / more affordable accommodation than is currently provided
At the same time there is limited supply:
- Since the GFC there has been very little development outside London
- Multifamily / apartment blocks designed for rent did not exist until very recently
Despite this, mainstream property investors own only c.2% of the c.£1 trillion Private Rented Sector (PRS). This is changing as investors have noticed the changing societal attitudes, the supply/demand imbalance and the fact that the residential sector has outperformed other real estate sectors with less volatility. The UK market is starting to look a bit more like the US (20% of housing is rental vs 32% in the US and 60% in Germany) but still has a long way to go. The private buy-to-let market is being targeted by the government with higher taxes and an institutionally backed professionally managed market is starting to emerge, as well as new co-living and multifamily products.
Not enough houses are being built (> 300,000 pa recommended):
2m → 5m increase in renting households since 2000:
Source: The Size and Structure of the UK Property Market 2013: A Decade of Change – IPF, PRS in the New Century (Cambridge 2012); Department for Communities and Local Government (November 2010), IPF Investment Property Focus – Summer 2015, ONS
There is high demand from students:
- Continued growth in applications
- Overseas student numbers have grown strongly
- The introduction of tuition fees also resulted in the removal of student number caps
At the same time there is limited supply:
- Limited development outside London since the GFC
- Significant amounts of existing stock is low quality
- The private purpose built market still only makes up 7% of supply
There is strong interest from global investors for stabilised investments and we believe there is scope to compete with existing stock even in mature markets where you can develop in better locations and create a better product.
Overall student numbers continue to grow and non-EU growth has been very strong (14% of students are non-EU, 5% are EU students). We don’t think that students should be included in immigration targets.
Private purpose built accommodation makes up only 7% of the market:
Source: HESA 2014/2015, UCAS. End of Cycle Report, CBRE
There is high demand from retirees looking to downsize into specialist senior housing:
- Compelling demographics of the ageing population
- Projected increase in over 65s from 12.4m in 2014 to 16.5m by 2039 (and an increase in the over 85s from 1.5m to 3.6m)
- c.£1.3 trillion in housing equity owned by the over 60s, of which 96% is un-mortgaged
- Downsizing to release equity (58% of over 60s would be interested in moving)
- There are limited existing schemes and the UK market is tiny compared to the USA and Australia
- Early stage of market development
% of over 60 year olds living in senior housing:
Source: National Population Projections, Office for National Statistics (2012 based), Top of the Ladder, Demos (2013)
Last Mile Logistics
There is high demand for distribution, storage and logistics space:
- Take-up to support internet retail operations continues to grow
- There continues to be strong growth in demand for smaller units/urban logistics to meet same day/next day delivery targets
There is limited supply:
- Overall availability has dropped to below 6%
- There has been limited development and strong take-up
There is now strong rental growth and rent frees are reducing with strong investor demand for long leases. Higher yields are also available in industrial with an opportunity to extend leases as part of a Value-Add approach.
Continual growth in internet retailing is causing structural changes to the retail and industrial sectors:
Source: Gerald Eve, Capital Economics, ONS
I think that the research is compelling and that ‘beds and sheds’ offer a rare opportunity for investors to find reliable income with growth prospects. Moreover this income growth ought to be less exposed to the possible negative effects of Brexit and other global economic risks than many other real estate sectors that are more closely tied to business and consumer sentiment. The fact that these sectors can offer both growth and defensive qualities is attracting a great deal of investor interest. Our job is not to try and compete with these large pools of capital but instead look to create what it is they want through development or active asset management. This is where the Moorfield team is unique in having the experience, skillset and pioneering approach to unearth opportunity.
To read this article as originally published please see: http://bit.ly/CoStarBedsandSheds
Thanks for the Memories By Marc Gilbard
UK real estate: comparing then and now
I started my real estate career in the early 1980s, so over 30 years ago! I have been involved in many areas of UK real estate during that period, both cosseted in booms and fighting for survival in busts whilst finding my way through the world of real estate agency into investment banking and then finally (perhaps) private equity fund management. I have seen the poor made rich and the rich made poor and I have seen old habits die hard and new initiatives struggle to gain traction as those fearful of change cling to the comfort of the status quo.
So, when I was recently asked by a prospective Moorfield fund investor what significant changes I felt the near future might hold for UK real estate, I took the opportunity to glance back over my somewhat ageing shoulder and indulged myself. The excuse that the past might help understand the future is always a good one to oil the wheels of reminiscing. I intentionally use the word glance because I don’t want to take to the internet or brain-drain friends and colleagues to ensure I have a heavily researched article with everything covered, I simply wanted to know what I remembered most clearly as being structural shifts. You, the reader, will share some of these memories with me but you may also consider unmentioned other events as more impacting. However, this is intended as a brief personal journey and one that can readily be covered on a ‘then and now’ basis:
My first employment was in a partnership with the partners shut away in their offices both revered and feared and very much male. Their voices were those that mattered. Their secretaries were sentries, perched on a near-by desk, on guard and waiting for the shout of instruction whilst trying to open post, type letters and run errands. These men of stature were chauffeured into the office relatively late and then departed early without conscience (or so it seemed) for social engagements – and in between enjoyed exclusive top floor dining rooms where they and their clients could eat and drink with the privacy afforded to those deserving of the in-house silver service. They issued their orders from on high and the worker bees got it done. Being awarded a partnership was the goal and one that carried prestige, wealth and plentiful privileges. As a generalisation: computers were for nerds, lunch was either for wimps or for long boozy afternoons, woman were seen as temporary in tenure, employees’ rights were not an agenda item (they considered you fortunate to be there) and an awareness of the working environment outside of their wood panelled office would not arise for many years. Regulation was an unfamiliar word, unless used to explain how it could be ignored whilst the ‘old boys/school tie/masonic/worshipful’ networks thrived.
Hierarchy in organisations does still exist of course but it’s nothing like the same, either looking up or down the corporate ladder. Flat management structures, employees rights, management committees and protocols and an inviting working environment are very much on the agenda – and can be a minefield to be navigated through. A CSR (Corporate and Social Responsibility) policy is fast becoming a necessity with regulation, risk analysis and operational oversight now very much a part of everyday business life. Technology and social media are ever present, disruptive thinking is encouraged and a collaborative approach to all things corporate and personal is seen as positive and progressive. The equal opportunities that did not exist and the glass ceilings that did ‘back in the day’ are being recognised and tackled (even if too slowly) and any form of actual or perceived advantage as a result of club, past or parental connections are actively avoided!
Real estate in the UK did not exist – at least the words as used today did not. It was simply property (although sometimes ‘commercial’ property just in case the Chartered Surveyor was mistaken for an unqualified estate agent) and it covered retail, office and industrial. Residential was the domain of the housebuilder and hotels were left for the specialist and far from mainstream. The blue chip market participants were principally from the UK, such as the landed estates (aristocratic realms), public and private property companies, large asset occupying/owning corporates, high net worths and the UK institutions (pension and life funds and insurance companies).
Real estate has come to replace property as the descriptive words for the sector and we can credit or blame the 1990s attention of private equity for that. Real estate is also split into traditional and alternative, where traditional encompasses the markets of retail, office and industrial (including the new kid ‘logistics’) and alternative covers most other real estate sectors – that now unashamedly include student accommodation, hotels, leisure, medical, self-storage, build to rent, retirement living and so on. Residential development for sale remains principally with housebuilders but even their home turf is being challenged on a number of fronts. The sector participants remain largely as above but it’s worth noting one departure and two arrivals. Many of the large asset occupying/owning corporates sold their assets through OpCo/PropCo structures in the early/mid 2000s and so reduced their sector owning participation. The arrival of private equity into real estate did not simply change definitions and inclusions but also added huge scale and liquidity to ownership (through on- and off-shore vehicle structures). It is also fair to say that, although possible to find, it was rare for overseas participants to have much impact on UK real estate 30 years ago (ownership or occupation) whereas it is certainly appropriate to conclude that this has materially changed since then with overseas buyers and occupiers becoming significant influencers.
The hero of the occupational markets was the 25 year, full repairing and insuring lease with five yearly upward only rent reviews. If the tenant covenant was strong then the owner effectively had bond income with regular uplifts and any further capital expenditure was a long time away. The landlord was king! Create a weatherproof box and let the tenant sort it out.
Very few tenants will sign leases of a term certain longer than five years i.e. without a tenant break option at around this period. Long initial rent free periods are demanded and some tenants go even further and demand that their rents be capped and/or related to turnover. Most tenants also want material capital contributions to incentivise them to sign, dressed up in one form or another. Only tenants looking to depreciate material fit outs costs will sign longer leases, if deemed by them as appropriate. The landlord is clearly no longer king and, if alert to change, will today try hard to create a consumer facing product that attracts the occupier and at least establishes some form of competitive advantage. There is no doubt in my opinion that real estate is becoming considerably more operational in tenant management and also more onerous in ownership cost. Is this additional cost implicit or explicit in a yield – as it certainly has to be present in a cashflow analysis?
So that’s at least a start on my journey down memory lane. I do have some additional memories that also stand out from over the years and I will try to do them some justice through a mention here, as although they warrant inclusion I would not describe them as having the structural impact on the fundamentals of the real estate sector or on those making their living from it:
- the rise and fall of asset debt levels
- the rise and fall of the developer-trader in the late 1980s
- the diminishing % of the London Stock Exchange represented by the quoted real estate sector
- the creation of the Real Estate Investment Trust (some will view this as more meaningful than I do!)
- the physical and locational impact of the tech bubble – and now that of TMT
- the internet (and social media)
- the long term implications for real estate of the Global Financial Crisis
- QE and its meaning for interest rates and hence real estate yields
- the attempts at ownership division of a single property – whether Property Income Certificates (PINCS), Single Property Ownership Trusts (SPOTS), Single Asset Property Companies (SPACOs) or, today, IPSX.
One day in the near future I suspect I will also add the impact of Brexit to the list. Whether it deserves a greater or lesser comment, as above, only time will tell.
Charlie Ferguson-Davie’s CIO letter to Investors (Q2 2017)
We’re halfway through the year and much has happened but what has changed!? The recent election may have left Theresa May in a weaker position but we still have a Conservative government leading us to Brexit, it may now be ‘softer’ and there is scope for further political volatility but wasn’t that the case before? We have been poised for volatility and uncertainty as a consequence of the vote to leave the EU a year ago and this election result is in my view just part of that journey, with more disruption to follow.
Taking the real estate listed sector as illustrative of the wider real estate market, the index of quoted real estate companies is broadly flat on the year at the time of writing (though you could have made 15% by timing the trough in December and the peak in May). The index is also down some 15% on the peak in the summer of 2015 (though it has been down as much as 20% a number of times). Volatility is higher when you look at individual companies and demonstrates that there are opportunities to take advantage of if you are patient and you get your timing right.
FTSE EPRA/NAREIT UK Index
Real estate volumes were c.30% down in 2016 on 2015 and so far this year are in line with the same period halfway through 2016 (Q1 2017 was 20% lower). These volumes illustrate to my mind that there are fewer active buyers ‘in the room’ than in 2015, which should result in a less competitive environment and more attractive pricing.
The bars in the chart below show the UK real estate transaction volumes since 2000 and you can see the recent peak in 2015 surpassed the previous peak levels seen in 2005-2007. I have added the subsequent 3 year total return (which includes the income return) experienced from investments made in each year – it is not surprising to see that in years with high volumes the subsequent return is poor and it is better when volumes are lower! This (and the listed sector index) supports why we were slow to invest MREFIII through 2014 and 2015, accelerated in the second half of 2016, and why we think the uncertainty expected over the next few years will be good for MREFIV.
Source: Capital Economics
Some of the real estate headlines would suggest that nothing has changed since 2015 – for example The ‘Cheesegrater’ (The Leadenhall Building) and the ‘Walkie Talkie’ (20 Fenchurch Street) towers being sold for £1.15bn and £1.3bn respectively to Chinese investors at c.3% yields, well above recent valuations. Asian investors in particular have been attracted to London because of the fall in sterling and an ongoing view that despite Brexit the UK will remain a safe haven and London a global financial centre.
Indeed pension funds, insurance companies, local authorities, private investors etc. still find the income yield that UK real estate offers as attractive, especially relative to other options. And the world is awash with capital because of QE, low rates and growing economies, especially in Asia where the goal is to increasingly invest overseas. As such, long dated income, ie real estate with leases of over 10 years in length, is now even more sought after post Brexit.
On the other hand; short income (lease lengths of under 4 years), empty buildings, land; which are all considered to carry more risk; are all cheaper now. This is because investors are more cautious about the short term risks and will not underwrite as aggressively as in 2015 – and there is less competition to buy. This creates an arbitrage opportunity for the value-add asset manager to create value by turning the land/empty building/shorter income into the long term income that the institutional investment community is searching for.
However, there are a very few forced sellers, LTVs are generally lower than in 2007 and interest rates are so low that interest costs are not causing ICR issues. There is also generally a lack of occupational supply that meets current market needs as in the main there has not been over-development, which might ordinarily be another cause of pressure. Nonetheless, there are some possible exceptions – City of London offices, prime central London residential and retail. These are the sectors that we are most nervous of.
In the City, recent and ongoing development activity combined with slower than anticipated take-up and Brexit risks for the financial sector imply the vacancy rate could head towards 10% from the c.6% today. If this were to happen rents would fall, as would values, and so we think there is more risk on the downside than upside opportunity.
We also believe that too many prime residential apartments were built for off-plan sales, particularly aimed at Asian investors and the combination of the market turning, Brexit, higher SDLT (12% over £1.5m and an extra 3% surcharge for investors), the removal of some CGT/inheritance tax/identity protections for overseas investors, are all propelling a falling market.
The retail sector continues to be affected by the internet and legacy supply issues in the high street and shopping centre subsectors and we prefer to look to the beneficiary of this technological revolution which is the logistics sector.
There are some active sellers, notably the REITs, some of which are trading at discounts to NAV and are being encouraged to refocus on fewer sectors, and the open-ended funds which are holding record levels of cash and are generally waiting for more certainty before being tempted back into the market. Some global private equity investors are also deciding to sell rather than risk extended hold periods eating into their IRR performance.
Our view remains that although there are certain sectors to be wary of and there should be general caution about where we are in the real estate cycle, there are nonetheless (and will continue to be) pockets of systemic undersupply or stress for us to be able to originate attractive opportunities in the themes that we have conviction about.
The themes are (i) Build to Rent / Multifamily (ii) Student Accommodation (iii) Logistics (last mile in particular) (iv) Mixed Use distress (v) real estate that will benefit from new Infrastructure. Of course, there is also senior housing but that is an opportunity for MAREF/Audley. Hence the ‘Beds and Sheds’ label!
Demographics, structural changes, technology and societal shifts are very strong drivers of demand and will continue regardless of Brexit or a changing economic landscape. At the same time these sectors are undersupplied due to many years of a lack of development since the GFC.
Marc Gilbard’s CEO letter to Investors (Q2 2017)
You will have seen my previous Linkedin comments over the last 12 months, written as a result of significant events in the UK with unexpected results, principally related to Brexit and Politics. My intention in this latest note is to highlight the most impactful aspects of our current thinking in relation to UK economics, politics, social behaviour and real estate (closing with a reminder of our position on Brexit).
Economics: Growth in the UK is slowing, consumers and businesses are nervous with regards the impact of Brexit and the outlook through the eyes of many is one of rising inflation and interest rates alongside a weak currency and general economic uncertainty. On a relative and absolute basis this is not an attractive platform for UK investment and it’s hard to argue against. However, I do believe that this negativity is based in the short term (c.2 years) and in the medium term (3-5 years) UK economic performance will be a lot more robust. This optimism is primarily because of my outlook with regards the Brexit outcome (see below), alongside my belief that likely economic underperformance will allay concerns over the level of domestic inflation and, as such, interest rates will remain low. In my opinion, the Bank of England will look more to GDP growth than it does to 2% CPI.
Politics: I have said before that I try hard not to let my personal party-political views colour my commentary. It is, of course, hard not to be biased or cast a vote out of self-interest, but choosing the best political leaders (available) in the interests of the UK is how most of us would say we view the intended workings of the democratic electoral system. I know there have been times when I have voted outside my comfort zone because I think change is needed or lessons need to be learned. For example, I am currently of the view that the general election outcome of a hung parliament is very possibly a good result for an easier won softer Brexit because of the need for a more cross-party debate and agreement. It may make other policies harder for the Government to enforce but our main goal must remain the relationship with the EU and increasingly with the rest of the world.
Nonetheless, watching the behaviour of certain Labour and Conservative Party MPs and listening to their rhetoric we must be aware that their goal will be to disrupt policy and process as much as possible. As for those at the top of those political parties, I don’t think it will ever again be a Corbyn vs May general election contest so there is more political personality change to come in the next few years – and despite all pre-election speculation it is now more likely that May is where that change will lie rather than Corbyn.
As a final speculative statement, it is not inconceivable that there will be increasing support (vocal at least) for a second Brexit referendum. In my opinion one or both of two events needs to occur for this to happen in reality. The first is a shift in attitude in the EU that would allow the UK to substantially achieve what David Cameron set out to negotiate in 2015 and ultimately led to the Brexit referendum, namely sovereignty of the UK (including immigration). The second would be the finalised Brexit Heads of Terms being materially different or worse than the voter could have reasonably anticipated. I don’t believe the House of Commons can decide alone to remain in the EU, having heard the voice of the majority, but they can decide to call for a second referendum. Unlikely but possible and perhaps this will become the Labour Party ‘cause’ if it decides its newly found popularity is on the wane.
Social Behaviour: Whether it is political, economic, technological, leisure or real estate there has been and will continue to be significant social change amongst us and it has been repeatedly misread. At Moorfield we spend a great deal of time debating social change and how we think it impacts on what we do in providing accommodation for others. The subject is so big that my intention is only to point out to you that we are aware. Some of the societal changes we are all experiencing are definitely for the good and some are definitely not (and of course some are neutral and simply for change’s sake) but ignoring is not an option.
Real Estate: At the risk of repeating what you will have recently heard from us, I think I can put our current outlook and approach into a relatively small number of bullet points:
- We believe we are in the mature stages of the real estate cycle.
- We believe there is a value correction due in areas of the real estate market that are over-supplied or are experiencing record levels of rents and yields. We don’t believe this will come in the form of a real estate ‘crash’ but we have no intention of participating in any of these areas.
- We believe there is an arbitrage opportunity in buying short term income and risk assets and selling stabilised long term income and lower risk assets.
- We have very strong conviction that there are some systemically undersupplied areas of the real estate market that will continue with high occupancy and rental growth despite the real estate cycle.
The Brexit Outcome (as previously set out plus some minor updates):
Medium term: it is our opinion that the UK will remain a safe haven for international investment capital for all the reasons we are familiar with. We also believe that the UK and the EU will need to reach an appropriate compromise on their relationship going forward, because we believe they effectively have to at some point – for the economic and social health of all those directly and indirectly involved (and many that have not as yet understood the likely global impact) and a softer rather than harder exit now appears more likely! Negotiations will take time, may well include transitional agreements and time extensions and will, no doubt, involve plenty of intermediate venom and vitriol magnified by the salivating media. However, the end result will likely be pros and cons for both sides of the divide but, we suspect, not materially worse going forward than at present, once the dust has settled. Wilful blindness on our part? Perhaps, but hindsight will have to be our judge on this.
We also believe that a UK unfettered by the ‘unelected eurocrats’ and free from imposed EU restrictions will be able to negotiate trade deals with economies that are faster growing than the EU – such as China, India, Canada, Japan, the US and more. The Election result has not materially changed our opinion on this medium term outlook, other than an expenditure policy versus the current austerity measures might see GDP growth benefit (at the cost of increased tax and debt).
The charts below show the growth in EU exports to the UK, while the UK has been growing its exports elsewhere – the EU is just as keen on a close trading relationship with the UK!
UK Exports & Imports by Trading Group
Source: Capital Economics
Short term: it is our opinion that the UK negotiations with the EU and the reporting on it will cause concern, confusion and disruption. Not a comfortable environment for anyone, but one in which opportunity lies for investment funds such as ours that like short term weakness as long as it translates into a means to create medium (and longer) term value. The Election result has magnified this perspective and does not take away from the investment themes we are currently pursuing.
Long term: it is our opinion that the UK may be better off out of the EU (and the Executive Committee of Moorfield all originally voted to remain!) for reasons that are much more about the EU and the Eurozone than they are about the UK or its reliance or role in the EU. We have no crystal ball of course and we are talking about the unpredictable world of politics rather than the world we more readily understand of business, real estate and finance – however, we can’t immediately see how the mechanics of the EU and eurozone can continue without some major changes.
We are told by the politicians that the answer to the broken experiment that is the eurozone lies in federalisation (i.e. greater monetary and fiscal union). But the voting public across the EU would appear to be pushing hard for greater nation-state independence. So how does that work? Have I not just described opposing forces? The bullet of a Le Pen victory has been dodged for the EU project but it’s a story far from over. Le Pen victory would have likely resulted in a disastrous event for the EU as an ‘in-out’ referendum similar to the one in the UK would have been called for (as it would have been if Wilders had triumphed in the Netherlands – and perhaps still will be if Grillo succeeds in Italy) and the result of the referendum(s) would be by no means predictable. President Macron and others seem to have recognised the need for change in the EU structure – but what change, what resultant impact and at what cost….short, medium and long term.
Am I being too pessimistic about the EU and the Eurozone? Well, it is worth remembering that Europe, despite some recent GDP growth, has clearly not yet properly recovered from the effects of the GFC. Low growth, high unemployment and unrecognised losses are still present across the continent and many of the issues that were headlines a few years ago are likely to be so again in the future.
The Brits may be relentlessly snatching defeat from the jaws of victory on a number of political fronts currently but it could still prove to be the case that we have escaped the EU in a timely manner!
Customer, Customer, Customer! The importance of a consumer focused approach to Asset Management by Sadie Malim
Real estate is one of the oldest asset classes known to mankind …… pretty obvious when you think about it, after all even Fred and Wilma needed somewhere to live. Cave drawings have been found that suggest rudimentary forms of currency were exchanged in return for shelter as early as 30,000 BC. Homo erectus then left the caves and tribal way of life and formed agrarian societies, whereupon defensible property rights were developed and the trade-off of occupancy for a fee paid to the “owner” of the property was established more widely. Fast forward to the present day and the landlord-tenant relationship remains widely accepted across most areas of commercial and residential real estate. However, at Moorfield we have long been of the view that there are some enduring industry dinosaurs that have time-travelled along with this fundamental relationship – creatures of habit that need to be chased into extinction:
Principally, your tenants are your customers is the key mantra that must be adopted. We have seen first-hand the difference brought to an asset when it is managed in a way that proactively focuses on customer experience – from the visual aesthetic of the approach to a building (inside and out), to the level of concierge services, community events and amenities on offer. It can breathe life into both an asset and its immediate area and gives the landlord multiple opportunities to communicate and engage with its customers. Retailers and hoteliers have long understood the importance of the psychological factors which generate loyalty, cooperation and ultimately maximise revenues – and in a world which is demanding greater flexibility, the rest of the real estate world needs to catch up.
So what does this require? A shift in deeply ingrained attitudes principally across what is meant by branding, amenities, design and customer service. Let’s look at each of these briefly in turn:
Branding – branding is not just a logo and some engaging visuals. In my opinion, the term “brand” in our sector refers to the identity of the asset; the life and soul which needs to permeate every level of its design, operation and customer interaction consistently and which itself informs the bricks and mortar stage of a development or refurbishment. It’s easy to see how well known brands such as Nike, Apple and Facebook all display their brand as a lifestyle, reflected in their corporate ethos and values as well as their marketing campaigns. The Instagram generation are looking for lifestyle inspiration that reflects their values and preferences, not just products with pretty packaging. But what does this mean for real estate?
We want our customers to identify with our brands and relate to the spaces and identities we create, and we want to make it as hard as possible for them to leave by providing relevant and value-add services that will assist them with their important task of enjoying their own lives (residential) or talent retention (offices) – all communicated through channels which resonate with them.
The second element is the movement towards communal living/working. It will not have escaped the attention of most in our industry that there is an increasing focus on the BTR, micro-living and co-working sectors and much discussion has ensued regarding the mix of amenities and services these developments provide and the trade-off against personal demised space. This has been a tried and tested approach for decades in the hotel space – I remember first visiting the, then desperately trendy, Hudson hotel in New York in the early noughties where my microscopic sized room was compensated for by fabulous communal spaces and amenities and design-led rooms which invoked aspiration despite their diminutive square footage.
Office space is also moving in this direction, with increased hot desking and an emphasis on collaborative endeavour. In our multi-let offices, whilst we remain a step away from the co-working spaces, we recognise the importance of amenities such as on site showers, gyms, café areas, lockers and lounges/shared spaces that are vital in appealing to modern occupiers, as well as being key to enabling us to offer our additional services. It’s hard to use on-site events to create a sense of community if you don’t have the space available or if the space you have is uninspiring and inflexible!
Moving to the third element – the importance of occupational design (rather than architecture). At Moorfield, we are design-led in our approach to our assets because we think aesthetics are what inform most people’s initial perception of a space – in a world where people are becoming increasingly discerning in this respect. Housebuilders and hoteliers have understood the importance of this for years and we are simply extending this principle into our rental homes, student accommodation and traditional assets.
Last but not least, there are the service levels. Of course, it is essential that there is a system in place to respond to maintenance issues swiftly and automated notification systems that have been adopted by the likes of Amazon and Ocado (and almost every app driven service provider) will become mainstream and expected. However, we also offer concierge style services across most of our office buildings and across our BTR and student accommodation in recognition of the pressures on people’s time. Getting the right service and events tone is essential – too little and you lose the opportunity to create a community and to drive additional revenue streams, too much and you overwhelm your customer base who will then “switch off” from engagement.
We live in a consumer world that has seen considerable changes in behavioural patterns over the past two decades – from the rise of the online shopper, the advent of social media and a re-evaluation of life/work balances by the millennial generation. I think that embracing all of these changes and trying to prioritise quality of life experience is key to remaining ahead of the game in real estate investment. Our occupiers are our customers and that is how we should treat them.
Moorfield Audley Real Estate Fund raises additional £85m
The Moorfield Audley Real Estate Fund (MAREF) has successfully raised a further £85 million from existing investors to take the total raised to £285m.
Moorfield Group, the UK real estate private equity fund manager, created MAREF to acquire Audley, the leading UK retirement village developer and operator, in December 2015.
Audley, one of the UK’s fastest growing companies, is the UK’s market leading luxury retirement village provider and is ramping up for a period of significant and sustained growth. This latest fund raising round creates a total war chest of over £700m to be invested over the next five years, drawn from a combination of equity, development income and investment debt.
To date, the fund has attracted institutional investors from the US and continental Europe, and this new funding will support the acquisition and development of new Audley Villages in key locations, as well as sites for its new mid-market proposition, Mayfield Villages. Investors have been attracted to Audley’s vision of creating a best-in-class product, differentiated from its competitors in many ways and not least by its innovative business model, with Audley both developing and operating the villages.
As well as the 15 villages that sit under the Audley Villages brand, which when completed will provide at least 2,000 units nationwide, 500 units are currently planned at future Mayfield Village sites.
Marc Gilbard, Moorfield Group CEO, said: “Over the nine years we have worked with Audley we have seen that a strong management team, premium design and ambitious growth plans have led to the business being a significant success story. The retirement living sector has become one of the biggest growth areas in UK real estate. We decided to raise the additional capital from our present investors in the fund and we are very pleased to have reached our target.
“The new capital will give Audley the opportunity to acquire new sites, develop existing sites and allow the expansion of the business. We continue to expect to see a strong return for our investors as Audley capitalises on the clear demand for quality living options for the older generation in the UK.”
Nick Sanderson, Audley CEO said: “This latest round of fundraising further underlines what we at Audley and Moorfield have known for some time; retirement living in the UK is a growth market, principally as a result of the significant shortage of retirement housing and growing demand is now vastly outstripping supply. Market penetration is less than 1% in the UK, compared with 17% in the USA, and 13% in Australia and New Zealand.
“This new investment will allow us to explore new sites for both the Audley and Mayfield brands, delivering the products and services that our customers demand. We are a profitable business with a robust balance sheet. Our vision is to continue transforming the market by providing choice and high quality housing, and investment such as this will allow us to maintain our heritage of innovation and realise this vision.”
Audley’s brands serve two distinct audiences. Audley Villages is the luxury retirement brand, delivering a first class experience and award winning design to owners. Typically, heritage properties are adapted to incorporate existing features from the original buildings, bringing them back to life by turning them into modern, high specification houses, apartments and communal spaces, akin to a boutique hotel. Owners also benefit from access to luxurious Audley Club facilities which include a restaurant, bar/bistro, library, a health and wellbeing centre and swimming pool. All owners can also take advantage of the highest quality care in their own home.
Responding to customer demand, Audley last year launched Mayfield Villages, a mid-market proposition for which the first location will be announced shortly. The premise behind Mayfield is to offer the same level of service as Audley Villages, with high living standards and excellent care, but at a lower price point. These will be larger villages, typically in urban/suburban environments.
Audley was ranked 73rd in the 2016 Sunday Times Virgin Fast Track 100 league table of the UK’s fastest growing private companies by sales growth over the past three years, and CEO Nick Sanderson was 8th in the 2016 Health Investor Power Fifty Most Influential Leaders’ Awards. He was also handed the inaugural Pathfinder Award for innovation in healthcare at the same ceremony.
A post UK Election commentary by Moorfield – an update from Chief Executive, Marc Gilbard
Personality and Popularity: Very few believed that Jeremy Corbyn could win a popularity contest (against almost anyone) but effectively that’s exactly what he did against the ‘Maybot’. Only a few months ago it seemed that the election of Corbyn as the head of the Labour party (principally as a result of support from Union members) may herald the beginning of an era where the Labour party became unelectable, however, Corbyn and his team expertly played the election game, tapping into the British dislike for complacency and arrogance and using social media channels to win an almost cult-like status amongst the younger generation. Clearly May was badly advised, absent at the wrong times, unwilling to properly engage, arrogant and overly confident in her popularity and in her approach – and the Conservative manifesto was very badly conceived and presented. The opinion polls about May’s popularity misled her and all her advisors. Corbyn on the other hand, the victim of an aggressive and vitriolic press campaign from several major newspapers, fulfilled the role the British people love to get behind – the underdog, whilst also tapping into the widespread feeling that austerity needs to come to an end. In giving the public a “personality” and a “cause” to support, he was able to leverage off the social media and alternative media channels and emerge looking like a hero. He is also, of course, a seasoned campaigner with resilience, endurance and a thick skin as his stock-in-trade! Corbyn won the popularity contest last Thursday – but has he peaked?
Young voters: 18 – 25 year olds (+) are very concerned for themselves and their futures! They do not like the thought of leaving University in debt (as a result of university tuition fees that Labour promised in its manifesto to remove) and they do not like the thought of struggling to get on the housing ladder. They also believe that Brexit will result in fewer available jobs and long term economic damage. The thought of a hard Brexit alongside ongoing austerity fills them with dread – so in the idealist world in which many of them reside, and having never seen the impact of a socialist government, they decided they wanted change and Corbyn was alone in offering it. The Conservative party will need to very carefully consider how they address this demographic in the future.
Manifesto: This is where the problems for the Conservatives really began. Hard Brexit, dementia tax, school lunches, pension raids, rising tuition fees, ongoing austerity, further cuts in public services … and so on. Hardly an inspiring and positive message for voters to get behind. It was ‘same old/same old’ in many respects in this post-GFC austerity focused UK and much of the electorate have had enough of this approach. The Labour manifesto was as ridiculous as the Conservative was uninspiring, but at least it was filled with feel good promises. The policies contained therein were tantamount to bribery and certainly there was no proper explanation of where the c. £100bn of expenditure was going to be sourced, other than from the ‘broad shoulders’ of the wealthy! Nonetheless, this old school socialist approach won the hearts and minds of many as the battle became, in part, austerity vs expenditure.
Brexit: Both the Conservative and Labour parties are committed to Brexit – that means 84% of the popular vote is effectively represented, albeit the maths is not that simple. Most people accept that Brexit will happen – the Liberal Democrats and the SNP who are very vocal opponents of Brexit both lost votes and seats. However, the issue is more about hard vs soft Brexit and I must say I have been growing increasingly uneasy about the hard Brexit approach the more I learn of what that might mean. Perhaps the fact that the Conservative Government are in a minority now and must form strategic alliances with those in favour of a soft Brexit will mean a more cross-party approach to Brexit and stand the UK in a better position to agree with the EU a mutually beneficial departure programme and package. Perhaps, without intending it, the voting public have just made an acceptable Brexit to all parties more likely.
Scotland: The Conservatives increased their number of seats in Scotland from 1 to 13 through a relentless campaign opposing any repeat referendum on splitting the UK. This electoral gain has helped to halt in its tracks the Scottish National party’s push for a second independence referendum and has, therefore, created a more stable outlook for Scotland and the United Kingdom. But I suspect that it is too important for the SNP to drop and so we can expect to hear a lot more about it – especially post Brexit when the terms are known. However, it feels as if the Union is stronger now than pre-election.
General Election and Conservative Party Leadership: I can’t imagine there is anyone in the Conservative party who would want to face another General Election in the near term, far too high risk. However, if it proves they simply can’t manage the Country even with the support of the DUP then perhaps there will have to be one. My guess is that the Conservatives feel Corbyn will remain in situ and in a position of strength until once again he says or does something to cause a fall from grace and, alongside lessons learnt, they will stand a much better chance to gain back the majority at that time than they do now. The leadership of the Conservative party is another matter. I believe May will stay as PM for a few more months to allow the dust to settle and then she will resign due to the loss of her credibility – leaving the way clear for someone like David Davies or Boris Johnson. The only issue that troubles me on this reasoning is that May has been elected by 42% of the popular vote and so actually has at least earnt the right to the keys of No 10 – which is more than you can say for anyone else.
The future certainly contains more unknowns now than before the election, however if it results in a faster more acceptable Brexit then perhaps it will all have been worthwhile. Moorfield stands by its existing investment strategy.
A post UK Election commentary by Moorfield
- Hung Parliament
- Conservatives stay as minority government (albeit with 43% of the national vote) but need Democratic Unionist Party of Northern Ireland to get a majority in the House of Commons
- Conservative Leadership election possible
- Another General Election in the near future possible
- Very much a two party system again – at least for now
- Brexit continues but will be from a position perceived as weakened
- Softer Brexit more likely
- SNP sent a sharp message in Scotland
- Austerity and public spending become the focus.
- Don’t be complacent about the younger voters!
Democracy has once again delivered a shock to the political system! Certainly aided by the employment of social media and those who use it (i.e. principally the younger voters) alongside one very effective and one shockingly ineffective campaign strategy. But what were the public voting on – not so much about Brexit I suggest (although a softer Brexit would appear preferred by the majority) but more about austerity and spending on public services and especially from the 18 -25 year olds. Had it been principally about Brexit, the Liberal Democrats (who were strongly opposed to Brexit) would have picked up many more votes, but instead the Country focused on only the two main parties, at least outside of Scotland. In Scotland, SNP were given a sharp reminder that their seemingly singular focus on independence and a second referendum was not being well received and this is going to cause a great deal of confusion for them as they have little else to differentiate their platform.
I am going to work on the basis that our observations on the outcome of the General Election will need to come in at least two parts: (i) our initial reaction (below) and then, (ii) a more informed commentary as the dust settles and the ‘experts’ forensically analyse the result and its likely impact.
So back to basics and what we have learned from the General Election results so far, other than the Conservatives had a disastrous campaign and Labour, in opposition and without expecting victory, could promise the world through throwing money at every perceived problem without justifying properly where it was coming from. As I say above, it would appear that the principal differentiator between the Parties was about matters that are not directly Brexit related, although it is hard to completely ignore the tide of opinion over the hard and soft options. Both the Conservatives and Labour agree that the British public want to exit the EU and so this is what must be achieved with as little damage as possible. There is an argument that says a deal with the EU is more rather than less likely now as the weaker position of the Conservatives will mean a softer approach to the EU, but contrary to this is the argument that the UK are now in a weakened position.
Certainly, if the Conservatives have any sense at all, their response to the Election result will be to go back to the drawing board and amend their policies on austerity and public spending as well as seeking cross-party support for Brexit related matters. They should also address the demographics and realise the young seem not to like the Conservative approach to life generally.
Our Brexit related views:
Over the past few months, we have described what we believe to be the short, medium and long term perspective of Brexit. What is it that we have been saying and then how have our views changed as a result of the Election outcome? I set this out below:
Let’s start with the medium term: it is our opinion that the UK will remain a safe haven for international investment capital for all the reasons we are familiar with. We also believe that the UK and the EU will need to reach an appropriate compromise on their relationship going forward, because we believe they effectively have to at some point – for the economic and social health of all involved (and many that are not yet) and a softer rather than harder exit now appears more likely! Negotiations will take time, may well include transitional agreements and time extensions and will, no doubt, involve plenty of intermediate venom and vitriol magnified by the salivating media. However, the end result will likely be pros and cons for both sides of the divide but, we suspect, not materially worse going forward than at present once the dust has settled. Wilful blindness on our part?……Perhaps, but hindsight will have to be our judge on this.
We also believe that a UK unfettered by the ‘unelected eurocrats’ and free from imposed EU restrictions will be able to negotiate trade deals with economies that are faster growing than the EU – such as China, India, Canada, the US and more. The Election result has not materially changed our opinion on this medium term outlook beyond what I have said above, other than an expenditure policy versus the current austerity measures might see GDP growth benefit (at the cost of increased tax and debt).
In the short term: it is our opinion that the UK negotiations with the EU and the reporting on it will cause concern, confusion and disruption. Not a comfortable environment for anyone, but one in which opportunity lies for investment funds such as ours that like short term weakness as long as it translates into a means to create medium (and longer) term value. The Election result has magnified this perspective and does not take away from the investment themes we are currently pursuing.
In the longer term: it is our opinion that the UK may be better off out of the EU (and the Executive Committee of Moorfield all originally voted to remain!) for reasons that are much more about the EU and the Eurozone than they are about the UK or its reliance or role in the EU. We have no crystal ball of course and we are talking about the unpredictable world of politics rather than the world we more readily understand of business, real estate and finance – however, we can’t immediately see how the mechanics of the EU and eurozone can continue without some major changes.
We are told by the politicians that the answer to the broken experiment that is the eurozone lies in federalisation (i.e. greater monetary and fiscal union). But the voting public across the EU would appear to be pushing hard for greater nation-state independence. So how does that work? Have I not just described opposing forces? We think that the bullet of a Le Pen victory has been dodged for the EU project but it’s a story far from over. Le Pen victory would have likely resulted in a disastrous event for the EU as an ‘in-out’ referendum similar to the one in the UK would have been called for (as it would have been if Wilders had triumphed in the Netherlands – and perhaps still will be if Grillo succeeds in Italy in September) and the result of the referendum(s) would be by no means predictable. President Macron and others seem to have recognised the need for change in the EU structure – but what change, what resultant impact and at what cost….short, medium and long term. The UK Election result does not change our opinion.
Am I being too pessimistic about the EU and the Eurozone? Well, it is worth remembering that Europe, despite some recent GDP growth, has clearly not yet properly recovered from the effects from the GFC. Low growth, high unemployment and unrecognised losses are still present across the continent. This week’s rescue of Banco Popular by Santander (bought for 1 euro and requiring 7 billion euros of fresh investment) and the re-emergence of debt issues in Greece (where the IMF and Germany are again in disagreement about the right way forward) are a helpful reminder of the risks in continental Europe and the issues facing the eurozone.
The Brits may be relentlessly snatching defeat from the jaws of victory on a number of political fronts but it could still prove to be the case that we have escaped the EU just in time!
Finally on UK real estate investment, post the Election, we will hold the line on the view that Brexit related disruption and caution in the short term will see many investors nervous of the UK. However, this is an opportunity as long as you believe the medium term is a more settled environment. We also continue to believe that investing in discounted assets with short term income will enable value-add returns to be achieved if those investments can be actively managed into assets with longer term stabilised income, which is also true of select development projects that show the same stabilised income characteristics.
Moorfield Logistics Partnership acquires two logistics units in Huddersfield for £25.9m
Moorfield Logistics Partnership (MLP), on behalf of Moorfield Real Estate Fund III and Moorfield Group, the UK real estate private equity fund manager, has acquired two modern and institutional quality logistics units in Huddersfield, West Yorkshire from Aviva Investors.
The acquisitions are the second investment into MLP, following the purchase of a £30 million logistics portfolio in the Midlands and North of England from M&G Real Estate in October 2016.
Unit one is 385,498 sq ft with good eaves height, a service yard and car parking provision and is let to Instore Ltd, which operates 340 stores across the UK including Poundstretcher and Ponden Mill.
Unit two is a 47,556 sq ft steel portal frame warehouse with good eaves height, a service yard and car parking provision and is let to the Council Borough of Kirklees.
Charles Ferguson-Davie, Moorfield Group CIO said: “We established the Moorfield Logistics Partnership to create a portfolio of industrial and logistics units that meet current occupier requirements.
“Both of these assets are of institutional quality with good covenants and are in line with our strategy to build a portfolio of good quality, well located, institutional grade logistics units where we can use our asset management capabilities and experience to bring further value to each asset.
“It has been well documented that there is a national shortage of good quality industrial and logistics units. Strong demand from occupiers for assets in the right locations and the undersupply mean that we see the potential for further rental growth in the sector.”
Moorfield completes acquisition of high quality office building at Cobalt Business Park, Newcastle
Moorfield has purchased Cobalt 23 on the Cobalt Business Park in Newcastle in partnership with Highbridge. The 128,500 sq ft vacant high quality office building was bought out of receivership.
The building has the largest floorplates on Cobalt Business Park and could be occupied on a single-let basis or sub-divided for multi-let occupancy.
Cobalt Business Park is the largest business park in the UK and the premier office park in the north east. It is currently 90 per cent let and comprises a number of blue-chip occupiers, including Accenture, Hewlett Packard, P&G, IBM, Siemens and Santander. The park was developed as an Enterprise Zone and almost all the other office buildings on the site are fully let.
Charles Ferguson-Davie, Moorfield Group CIO said: “We saw this as a good opportunity to purchase a modern office building on the premier business park in the North East in conjunction with the developer of the Park, which is due to benefit from new infrastructure investment. We will together with Highbridge invest in the building and re-launch it to the market as either a single let HQ or for multi-let occupancy.
“There is very little good quality available office supply and we believe that we can offer a very attractive proposition to corporate occupiers requiring high quality space in a well-connected location.”
The Newcastle office market has seen improvement in recent years and the vacancy rate is low; helped by positive net absorption, limited new development and conversions of office buildings to alternative uses. Rents are growing and with a lack of development pipeline the fundamentals are set to remain robust.
Cobalt Business Park is set to benefit from substantial infrastructure investment including c.£75m of road improvements, including the new triple-decker roundabout being added to the A19 and the recent installation of a 25 mile dark fibre network connecting Cobalt business park to Newcastle city centre and improving the park’s connectivity. There is also the potential introduction of a Metro station on the park, which has received in principle funding approval.
Guy Marsden, of Highbridge Properties Plc said: “Cobalt 23 is an office that provides the best of both worlds. It is a significant energy efficient, environmentally sustainable office building which has the flexibility to be sub-let in floors .
Cobalt Business Park is located five minutes from the A1, 10 minutes from Newcastle city centre and 20 minutes from Newcastle International Airport. Both the city centre and the airport can be accessed by the Metro and the park offers a regular shuttle to the nearest station.
The agents for the building are BNP Paribas and Bray Fox Smith.
Moorfield Group invests in IPSX
The International Property Securities Exchange (“IPSX”), which will be the first regulated exchange dedicated to the admission and trading of securities in commercial real estate assets (CRE), today announces that Moorfield Group (“Moorfield”) has invested in the current IPSX funding round. The terms of its investment are not disclosed.
Moorfield is a leading UK specialist private equity real estate fund manager and has been investing in UK real estate on behalf of global institutions for over 20 years. Moorfield invests in single assets, portfolios and real estate based operational businesses and has invested in over £3.4bn of assets across almost every real estate sector, including logistics, office, retail, PRS, senior living and student accommodation.
The commitment from Moorfield follows prior investments from a number of leading players in the CRE industry, including British Land, four of the Partners in Tritax Group, and M7 Real Estate, all of whom were attracted by the alternative investment model offered by the IPSX platform.
Commenting on the announcement, Anthony Gahan, Chairman of IPSX, said: “As we move towards launch, our dialogue with the wider real estate industry and associated ecosystem continues to discover strong demand for a new class of commercial real estate securities with regulated trading platform that will provide greater transparency, liquidity and attractive yields to investors. As a leading UK private equity real estate fund manager with a track record of pioneering innovation and emerging sectors, we are extremely proud that Moorfield has joined our other investors in their support for IPSX and as a further demonstration of the appetite from the industry for innovation in CRE investment.”
Marc Gilbard, CEO of Moorfield added: “I am a keen supporter of the IPSX proposition and feel that the creation of a liquid flexible market for the realisation, investment and trading of a range of real estate assets is long overdue. In broadening the access to an asset class which is only currently available directly to institutional, professional or high net worth investors, IPSX will also provide significant benefits to many other real estate investors. Of course it will also provide some much needed real time valuation evidence. I would encourage all professional investors to support the growth and launch of this platform.”
Moorfield completes acquisition of £50m Manchester MediaCityUK Build to Rent scheme
- Moorfield and Glenbrook will develop a 270 unit scheme at Erie Basin, adjacent to MediaCityUK in Salford Quays –
- Planning permission recently granted for 270 homes –
Work on the last undeveloped site overlooking Erie Basin in Salford Quays is set to start following the partners’ acquisition of the site from Peel and the granting of planning permission. The Build to Rent (BTR) development will create 270 new homes, residents’ gardens, amenity space and car parking.
Moorfield and Glenbrook will work together on the development, with construction due to begin this summer. Moorfield will fund the scheme and retain ownership when it is completed.
The site is located adjacent to MediaCityUK in the heart of Salford Quays with waterside views and the cultural, entertainment and leisure offer of an internationally recognised destination.
The development is the third BTR scheme undertaken between Moorfield and Glenbrook, following the 240-apartment development of The Keel at Queen’s Dock, Liverpool and the 232-apartment scheme now known as Trilogy in Castlefield, Manchester. It will be Moorfield’s fourth BTR development, after work recently began on the 280-apartment Forth Banks site in Newcastle.
When completed it will be a 220,000 sq ft 16-storey scheme, designed by award winning architects Shepherd Robson, consisting of 270 one, two and three-bedroom residential apartments with gardens, amenity space and car parking.
Charles Ferguson-Davie, Moorfield Group CIO said: “Moorfield has been a pioneer of the Build to Rent sector and we are pleased to be adding Erie Basin to our platform. With this new project, which is next to the vibrant and growing MediaCityUK, we are aiming to deliver another landmark BTR scheme, focusing on design and professional concierge style services to create an attractive place to live.
“The BTR sector is in its infancy and we are proud to be at the forefront of it as we have been with other sectors such as student accommodation and retirement living. BTR will form a fundamental part of many cities’ wider residential strategies and we intend to develop more schemes and so help deliver much needed housing supply across the country.
“Moorfield is committed to BTR, which is underpinned by a structural lack of supply and strong demand, and we are progressing with a pipeline of exciting opportunities with an aim to build a c.2,000 unit platform.”
Ian Sherry, director at Glenbrook, commented: “This latest deal further demonstrates our confidence in the built to rent sector in the regions. Our ability to identify suitable sites for purpose built build to rent and then deliver viable schemes has enabled us to develop a long term relationship with Moorfield. We have achieved consent on over 1,000 apartments in the past three years and we continue to look for further opportunities across the UK.
“Erie Basin meets all the criteria when identifying suitable sites for Build to Rent. Visually, the building design is very impressive helped by its prominent dock side position. But what sets Erie Basin apart is its position next to MediaCityUK, which will provide residents with a quality address in a premium location and with excellent transport links to the wider North West.”
Graham Construction has been appointed as the main contractor. The scheme is due to complete in summer 2019.
Extracts from Charlie Ferguson-Davie’s CIO letter to Investors
What a year! Looking back now at the major events of 2016 it is staggering how much happened and how sentiment in the real estate market has swung from one extreme to another. In January last year concerns about the Chinese economy, large declines in equity markets and a $27 oil price led to a focus on the threat of deflation. The 10 year US Treasury yield hit an all-time low in July and negative yielding bonds became common place in the Eurozone. The UK had to deal with the threat and then reality of Brexit which damaged confidence and transaction volumes and led to dramatic REIT share price falls and the closure of open-ended funds. Sterling has also fallen some 15% but with Trump’s election the expectation of higher growth and inflation has seen a surge in the dollar and a rotation from bonds into equities, driving very strong stock market performance.
Whilst transaction volumes in UK real estate in 2016 were down c.30% on 2015, the year will still be in line with long run averages and there is plenty of capital looking to invest. Particularly now that the UK economy has shown resilience to the referendum vote (so far!). The majority of this capital is looking for long income of a minimum of 10 years, where the yield arbitrage over bonds is still healthy and the currency falls make the in-price seem more attractive to overseas buyers than pre-referendum. There are still very few shorter income transactions occurring and the less an investment looks like a bond and carries occupational risk, the more pricing has moved. However with very few forced sellers now that the open-ended funds have reopened there is limited transaction activity for the valuers to use as comparable evidence. REIT shares have been trading at c.20% discounts to NAV, with the stock market pricing in expected falls in values, particularly for the London focused companies.
I still like to examine the reasons for the bullish vs. bearish views on the market: (i) real estate offers an attractive yield relative to bonds and pension funds from around the world are searching for yield and increasing allocations to real estate; particularly now that bond yields are rising and inflation is expected to erode bond values. There has been limited development other than in London and in many markets there is a supply / demand imbalance and leverage is considered less of a risk today than in 2006/7/8. On the other hand; (ii) inflation will lead to an increase in base rates and the real estate yield gap risks being eroded, Brexit will damage London offices where there is the risk of oversupply in 2018-2019 and occupational demand will be weak for some time because of the uncertainty of Brexit. I think that if we take account of both sides of the argument we can position ourselves to exploit the current dynamic.
Brexit volatility and uncertainty in particular is an opportunity (assuming you believe, as we do, that in the medium to long term the UK will be able to forge its own path successfully outside the EU). Now, more than before, we can feed the demand for long income and pay less for shorter income assets with our value-add approach and asset management skill-set. In the meantime we will be looking to avoid the City of London and the majority of the office sector (unless as part of a Mixed Use or Infrastructure-led opportunity) and we remain unconvinced by the retail sector, which is oversupplied and continues to be affected by the growth in internet retailing. Instead, by focussing on demographics and structural/societal changes we can take advantage of some early stage sectors that are systemically undersupplied (eg Build to Rent (BTR), Student Accommodation, Senior Living, Logistics) as part of our “Beds and Sheds” strategy.
Extracts from Marc Gilbard’s CEO letter to Investors
2016 was a challenging year for investors throughout the world. Not only were there the usual economic, political and social/demographic obstacles to navigate, but additionally there were the seismic shocks of the mid-year UK Brexit vote followed by the year-end US election of Donald Trump. Of course, many other events of significance occurred around the world over this period, but from a macro-perspective not many of them would currently be classified as potential changers of the ‘world order’. This does not mean I am overlooking the significance of events in the Far-East, South America or the huge threat posed by Islamic State extremists and the rise of the far-right (populist-right) in Europe but, without the benefit of hindsight as yet, Brexit and Trump would seem to be the stand-out 2016 events to beat!
Taking those two premier events in chronological order, and without feeling the need to set out the details (considering the extent of coverage already given to this), I thought I would express my perspective following on from the conversations I have had around the world with business people, economists, politicians and commentators. There is no intention to be politically biased in my comments but simply to share my interpretation and set out how this may impact on our investment strategy.
I think it would be fair to say that prior to the ‘In/Out’ EU referendum outcome, many in the business community (and especially those in and around London) would have said that their heads and hearts were in two different places. Head says ‘In’ because who wants the disruption and resultant volatility of stepping into the unknown – we all had a taste of that in the global financial crisis. But heart says ‘Out’ because although we believe we understand the benefits of being part of the EU, it is not a good experience to be dictated to by unelected ‘eurocrats’ who seemingly waste vast sums of capital whilst flexing their undemocratic muscles at inappropriate times. In addition to this, many people in the UK and increasing numbers in the EU see the Eurozone as a failed experiment and the EU as now potentially broken in its current form, so why be part of it? Admittedly, if change is to take place then better to be sat at the negotiating table than peering in through the window, but at what cost?
Post the Brexit vote I was surprised by how relaxed many ‘In’ voters were at the ‘Out’ outcome. The familiar heads and hearts conversation often arose and so the actual disappointment was often understandably muted. Economic and political confusion was overruled by the positive attitude of making the most of the situation whatever was coming down the road, accepting that some changes would be for the better and some would likely be for the worse. Volatility and disruption led to opportunity if a positive stance was taken. Many business leaders were still the same as those in place at the time of the global financial crisis and had learnt to crisis manage whilst recognising opportunity through adversity.
I doubt there is anyone who could honestly say that they had predicted the positive (even bullish) market conditions that have been experienced since the Brexit vote. Perhaps this is the lack of clarity as to what an EU exit actually means for the UK or perhaps it is because of the belief that the UK will be better off as independent, especially considering the EU and Eurozone issues that must be faced in the near and longer term. Or, maybe it is because many believe that there is not much that will change in the UK/EU relationship once all the political posturing is over. Whatever the reason, very little changed in market momentum post June, other than a brief stall, and it can’t simply be put down to the immediate actions taken by the Bank of England, a collapse in sterling and a ‘stiff upper lip’! We should remember that there is also a natural economic cycle taking place alongside all these political events with a momentum of its own, even if it is accelerated or delayed by extraordinary events. As we all know, there are many component parts to an economic cycle, for example; inflation, interest rates, employment growth, consumer expenditure, house prices, business and government investment, oil price and more…. and even without the impact of our sentiment over Brexit (or Trump) all of these components come together in the ordinary course to create the cycle – and let’s not forget that none of us know as yet what the QE programme will eventually result in!
Despite the prolonged debate, that is still far from over, it is currently hard for anyone to see a way through to the other side of Brexit, as the fight over what would be considered a ‘hard’ or ‘soft’ version continues and this gives rise to whether the mandate given to the Government by the result of the referendum was ‘exit at any cost’. The current expectation is more weighted towards an extension of time being agreed for the Brexit timetable and a harder version (if that is appropriate terminology), however, this is ultimately a huge negotiation taking place and obviously no one will show their true colours for some while to come.
Well that’s a sub-heading I never thought I would type in the real world! Having said that, after the Brexit vote outcome we began to believe it was actually a possibility and whilst on a visit to the US (pre-election) we warned to expect the unexpected after our own UK experience and the rise of the populist movements elsewhere in the world. And so it came to pass. But once again the markets shrugged this off and in fact found the pro-business, pro-growth, anti-regulation Mr/President Trump a rather appealing prospect (at least to date) despite his colourful rhetoric. It’s not my job here to comment more widely on the US economy or political machinations other than to say that an economically strong US and one prepared to be a close ally of the UK is a very good thing for the UK in many respects, especially economically and in the upcoming confrontation with EU-27. The outspoken US President may well say what others silently believe – that the UK is probably better off out than in and actually the EU/Eurozone has many problems ahead that it will need to tackle efficiently and effectively in order to survive in its current form.
Brexit, President Trump, EU/Eurozone – UK real estate strategy
So what has changed as a result of Brexit, President Trump or a rising tide of concern over the EU/Eurozone once again? I think the answer is ‘it’s the economy stupid’. What we are trying to do is look through the politics and media spin to the economics underneath. Yes, the two are intrinsically linked, but let’s not get caught up in the noise and fake news coming from campaigners and journalists. Instead, let’s consider the impact that each of the economic factors that we are predicting actually has on the real estate cycle. It seems to me that, despite Brexit related acceleration in some areas and delays in others, the economy continues moving forward with most, if not all, the pros and cons that it would otherwise have had. We watch and predict; GDP growth for general economic health and sentiment, inflation to judge likely interest rate movements – and this sits together with employment and wage growth (and house prices) to judge consumers’ confidence and likely expenditure. We also watch business, government and foreign direct investment to gauge confidence and commitment to our economy – and additionally to educate ourselves as to likely areas for value enhancing impact. In other words, other than some yield weakness in short term income (reflecting increased concerns over occupier demand), not a lot has changed in our outlook for UK real estate since the start of 2016, although we are further into the cycle which therefore requires greater caution in the form of risk assessment. I still firmly believe there are investment opportunities that will meet our investment return thresholds despite our greater caution.
Newcastle’s first £37m Build to Rent scheme starts
Work on Newcastle’s first build to rent (BTR) development is set to start following a joint venture which will create 280 new homes in the city centre.
Worthington Properties, Moorfield Group and Panacea Property Development will work together to develop the £37 million Forth Banks site, with construction due to begin this month. Moorfield Real Estate Fund III (MREFIII) will fund the scheme and retain ownership when the development is completed.
The Forth Banks site is located near to Newcastle’s Central Station, adjacent to the Stephenson Quarter. The development, which will have views of the River Tyne, is to be built on a former brownfield site and is an area that Newcastle City Council has targeted for regeneration.
The development will be built by the Marcus Worthington Group’s construction arm, Worthington Construction and when completed will see 280 one to three-bedroom residential apartments in three blocks between seven and nine storeys high. It will also comprise a 3,000 sq ft (279 sq m) retail unit located on the ground floor.
The is the second joint venture the Marcus Worthington Group, Panacea Property Development and Moorfield Group have worked in partnership on, the first being an £18 million student development in Sheffield, which is now owned by MREFIII and operated by Fresh Student Living.
Russ Worthington, director of Worthington Properties said: “The Worthington Group has always been involved in ground-breaking schemes and the delivery of this project in Newcastle is something we’re very pleased to be involved in.
“It will be a key residential project in the city and one that is going to bring back into use a brownfield site and contribute to Newcastle’s ongoing renaissance, as well as creating jobs and providing a boost to the economy. Newcastle is a vibrant, growing city with several initiatives dedicated to regeneration, which we’re proud to be contributing to through the Forth Banks development.”
Charles Ferguson Davie, Moorfield Group CIO added: “Moorfield has been a pioneer of the new BTR sector through The Keel in Liverpool, which was one of the first schemes to open, and The Trilogy in Manchester which is under construction. With this new project in Newcastle we are aiming to deliver another landmark BTR scheme, focusing on design and service to create an attractive housing option in the city centre.
“The BTR sector is in its infancy and we are proud to be at the forefront of it. The sector forms a fundamental part of many cities’ wider residential strategies and we intend to develop more schemes and so help deliver much needed housing supply across the country.
“Moorfield is committed to BTR as a sector, which is underpinned by a structural lack of supply and stron demand, and we are progressing with a pipeline of exciting opportunities with an aim to build a c. 2,000 unit platform. We have a track record of pioneering emerging real estate sectors such as student accommodation, budget hotels, luxury hostels and retirement villages and we think that BTR has enormous potential.”
Neil Patten, managing director at Panacea Property Development, said: “The Forth Banks scheme represents a strong commitment from Newcastle City Council to demonstrate support for BTR. We look forward to working with our joint venture partners to transform this previously underutilised brownfield site into a high quality residential scheme that can assist in the regeneration of other areas.”
The UK Housing Crisis by Charles Ferguson-Davie
There has been, and continues to be, a great deal of commentary on the subject of the housing crisis in the UK and a recent report from the CBI on the subject contains some helpful perspectives and recommendations. This is a topic of great interest to me, and to Moorfield, and I recently participated on a panel in the Property Week Retirement Living conference where we discussed some of the most pertinent issues.
A lot has been written about the need to focus on increasing housing supply rather than just stimulating demand and we would support that approach. The first time buyer market receives the greatest attention and most government support is aimed at increasing demand / providing finance to help people step up onto the first rung of the housing ladder. However, we think that more can be done to encourage an increase in the supply of housing and more development is required of all types and tenures of housing.
The CBI highlighted two areas of specific interest: (i) that the importance of the role of the Private Rented Sector (PRS) needs to be recognised and (ii) that the Government should give greater consideration to improving the attractiveness of specialist retirement homes to both developers and potential residents, through for example SDLT exemptions.
There is a great deal of investor interest in the PRS sector, principally through large scale, professionally managed, Build to Rent (BTR) communities, and this should be encouraged through government support as part of creating more housing supply. There are many who prefer to rent and increasing the supply of high quality product will give greater choice and help keep rents and house prices under check because of greater choice. At Moorfield, we are focused on this growth sector of the real estate market. We also support the idea, through our own investment and development programme, that the establishment of attractive senior housing will encourage downsizing and so free up family homes, and therefore this also will be part of the solution to unlocking the logjam on the housing ladder.
Moorfield has been a pioneer of the student accommodation sector through its Domain business which was sold in 2007 and is now using and evolving that experience to develop a BTR portfolio. The Keel in Liverpool www.thekeel-liverpool.co.uk which opened a year ago and is fully occupied, is one of the first BTR schemes delivered in the UK and we also have a pipeline of new developments, which will deliver over 1,000 homes. We also recently raised a £200m specialist fund to acquire and grow Audley www.audleyretirement.co.uk which is one of the leading retirement village developers and operators in the UK, and has c.1,500 homes being developed.
However, we are just scratching the surface, as we are a long way behind other countries in our provision of BTR and senior living and therefore we need to continue to make it easier for capital to invest and develop the homes that are needed, with further efficiencies in the planning system alongside a non-penal tax environment being critical. We do of course need to ensure that developers create the homes that customers desire and that all schemes are professionally and carefully managed.
Innovation is also required in the construction industry to help meet the demand for housing. The Farmer Review of the UK Construction Labour Model highlights the opportunity presented by BTR, where the scale of development could underpin investment in innovative ways of building and the development of new skills across the industry.
If Government and the private sector work together I believe that we can produce the step-change in delivery and mind-set that is required.
Renters have doubled in number over the last 15 years but renting only makes up 18% of housing in the UK vs. 32% in the US and 49% in Germany. In the US, ‘multifamily’ is a mainstream asset class with over $100bn of transactions last year but in the UK the institutions/commercial property investors only own 2% of the c.£800bn PRS market and a professionally managed BTR market doesn’t yet really exist.
The over 65s are expected to increase in number from 10m in 2012 to 17m by 2037 and the over 60s own c.£1.3trillion of mainly un-mortgaged housing with downsizing increasingly popular. However, only 1% of over 60 year olds live in specialist retirement accommodation vs. 17% in the US and 13% in Australia and New Zealand.
Sources: IPF, ONS, Demos, DCLG
Moorfield acquires £30m Logistics Portfolio
- First acquisition for newly created Moorfield Logistics Partnership –
New entity Moorfield Logistics Partnership (MLP), on behalf of Moorfield Real Estate Fund III and Moorfield Group, the UK real estate private equity fund manager, has acquired a £30 million logistics portfolio in the Midlands and North of England from M&G Real Estate.
The portfolio is made up of three assets (four individual units) in Rushden, Warrington and Deeside. Rushden comprises of two warehouses totalling 239,644 sq ft and is let to the multinational clothing corporation, Urban Outfitters; Warrington is a 94,234 sq ft warehouse let to the retailer, Next Group Plc; and Deeside is a 162,116 sq ft warehouse let to the paper and packaging manufacturer, Mayr-Melnhof Packaging UK Ltd.
This is Moorfield’s first venture back into the logistics sector following the success of Logistics Property Partnership, a 50% joint venture with SEGRO, which was sold in July 2014.
Charles Ferguson Davie, Chief Investment Officer, Moorfield Group, said:
“This acquisition is a seed portfolio for the Moorfield Logistics Partnership. We have established the new entity to target industrial and logistics units with lot sizes of up to £15 million and with short to medium term lease lengths. The ambition is to build a portfolio of good quality, well located, institutional grade logistics units where we can use our asset management capabilities and experience to bring further value to each asset.
It has been well documented that there is a national shortage of good quality industrial and logistics units. Strong demand from occupiers for assets in the right locations and the undersupply mean that we see the potential for further rental growth in the sector.”
Moorfield to fund £40m Manchester Build to Rent scheme
- Moorfield committed to further BTR development pipeline
- Second BTR development with Glenbrook
- First BTR scheme, Liverpool’s The Keel, now fully occupied
Moorfield, the UK real estate private equity fund manager, has announced an agreement with Glenbrook, the property development company, to fund the £40 million development of a new Build to Rent (BTR) scheme at Ellesmere Street in Manchester City Centre.
This will be Moorfield and Glenbrook’s second development together, following the £30 million transformation of The Keel in Liverpool, the former HMRC building on Queen’s Dock, into 240 stunning waterside rental apartments. The Keel is now fully occupied.
The 232-unit scheme was granted planning consent by Manchester City Council in April and will offer over 200,000 sq ft of residential and ancillary accommodation across three buildings, ranging between eight and 12-storeys. Construction will commence on site at the end of July with completion scheduled for summer 2018.
Charles Ferguson Davie, Chief Investment Officer, Moorfield, said:
“Moorfield has pioneered the development of Build to Rent with The Keel, which is among the first of its kind in the country and has become one of the most desirable locations in which to live in Liverpool. With this new project in Manchester we are aiming to deliver another landmark BTR scheme, focusing on design and service to create an attractive housing option in Manchester.
“The Build to Rent sector is in its infancy and we are proud to be at the forefront of it. The sector forms a fundamental part of many cities’ wider residential strategies and we intend to develop more schemes across the country and so help deliver much needed housing supply.
“Brexit has created much uncertainty, particularly for real estate investors and developers in the UK, but Moorfield is committed to the BTR sector and has a pipeline of exciting
opportunities with an aim to build a 2,000 unit platform. We have a track record of pioneering emerging real estate sectors such as student accommodation, budget hotels and retirement villages and we think that BTR has enormous potential.
“With the great success of full occupancy at The Keel in Liverpool validating our vision, we aim to develop and build a portfolio of consumer focussed, design-led, desirable modern rental homes for professionals, families and retirees alike and create new, professionally managed communities for City Centre living.”
The Keel in Liverpool is a new luxury development offering a range of studio, one, two and three bedroom apartments, complete with a residents’ only gym and waterside terrace. Surrounding a central quay and overlooking the River Mersey, the apartments enjoy an abundance of natural light, with waterside views, providing a luxury lifestyle in the city’s most inspirational location.
As the city’s first Build to Rent scheme, The Keel offers a new approach to private renting in the Liverpool market as the entire development is owned and managed by a single entity, rather than by many different private landlords. Tenants benefit from professional on-site property management and a 24-hour customer help service, meaning quality and management, both short and long term, can be controlled and enhanced. Services such as personal training in the onsite gym, laundry services and apartment cleaning are provided upon request through the Keel Concierge.
Brexit – A week later by Marc Gilbard
As it is now a week after the momentous decision taken by the UK to vote to leave the EU (17.4m/52% vs 16.1m/48%) I felt it appropriate to once again make some observations that I hope you will find of value:
- The UK stock market has not (yet) reacted as negatively as was initially feared and neither has the value of sterling. The most severe impact has been seen in the UK sensitive FTSE 250 and the decision to remove the UK’s AAA rating, but to date the FTSE 100 has shrugged off the result and there has been no sharp rise in the risk premium on UK assets.
- Pessimism and optimism with regards inflation, interest rates, real incomes, job security, further monetary easing (hence sterling and gilt levels) and UK competitiveness continues to be heavily debated. I can’t see how this will not remain the case well into the foreseeable future until the relationship with the EU and the rest of the world becomes more obvious.
- By Friday 9th September the Conservative Party will have chosen its new leader, giving the new Prime Minister some 3 weeks to reshape his/her administration ahead of the Conservative Party conference and the return of Parliament. Surprisingly, Boris Johnson (the favourite) has ruled himself out, so now it is Theresa May who becomes the one to beat. Other contenders include; Michael Gove, Liam Fox, Stephen Crabb, and Andrea Leadsom. It is worth noting that Theresa May was a Remain supporter, albeit a quiet one.
- The Labour Party leader, Jeremy Corbyn, has placed the Party in an extraordinary position as he continues to refuse to stand down despite an almost complete collapse in support from his fellow MPs (and 20 members of his Shadow Cabinet), being generally seen as ineffectual and never a PM in waiting. The UK actually needs a strong opposition party over the coming years so we can only hope that Corbyn and his close partner in his defence, John McDonnell (Shadow Chancellor), accept the damage they are doing and go quietly and quickly. Rumour has it that Corbyn wants to resign but McDonnell will not let him – citing the overwhelming support he received from Labour Party members only a few months ago. The latest twist is that Angela Eagle (a former Shadow minister) seemingly found the support to launch a challenge for the Labour leadership but then decided not to proceed.
- I believe that the Chancellor will wait for the new PM to be selected and will then look to step down from his current position. Whether he will be given a different Cabinet position is as yet unclear. However, I believe the Autumn Statement will be given by a new Chancellor (who that may be is also unclear) and it will be more bespoke to the current political and likely economic environment than the existing, needing to be more stimulus biased. A new economic strategy will emerge.
- In my opinion it is most likely that Article 50 will be invoked sometime between the Conservative Party conference and the year end. Pressure from Brussels to act sooner will fall on deaf ears! I would also not be at all surprised if behind the scenes there is an ongoing attempt to tackle to the more emotive issues raised by the UK voters and inherently felt throughout Europe – Immigration (free movement of people) and laws (the challenge to our sovereign rights). This is where the independence momentum is most likely to go viral.
- Currently EU officials are saying that the UK has to have left the EU after invoking Article 50 before it can negotiate the trade terms with the EU – this would mean that any trade between the UK and EU would be based on current World Trade Organisation rules until a new deal is completed. So the UK has ahead the exit negotiation and then a new trading relationship to negotiate. But rules are there to be broken!
- There is a perfectly reasoned argument that says a new PM and Chancellor might call for a General Election once they understand better the relationship most likely to be negotiated with the EU. Especially if the Labour Party is still weakened by intra-party disputes and unrest. This could even be seen as a second referendum if it was pitched as such!
- But before those UK/EU relationship conversations become any more transparent, Europe will need to see who leads France and Germany. France has its presidential election in April/May 2017 (with the current Socialist Party and Hollande unlikely to be re-elected) followed by the German federal elections in September 2017 (with Merkel – CDU – likely to remain in place, but the coalition she leads is not so certain).
- So, a new administration in Paris and then Berlin prior to any likely resolution of relationship parameters or terms. Well into the 2 year period and hence my suspicion that an extension may be considered necessary at some point.
- I am not sure that we can look to Norway, Switzerland or Canada for exactly what will emerge. My belief is that it will be a mixture of all those and also some new. I am also inclined to think that with the benefit of hindsight the UK may even reach the conclusion that leaving was the in the Nation’s best interests – especially if the rest of Europe is dealing with other calls for Independence alongside the inevitable flaws in the Eurozone continuing to be so apparent.
- What of Scotland? If I was in Nicola Sturgeon’s position I would do what she is doing and say what she is saying: (i) She has a duty and mandate to look again at independence from the UK (ii) Scotland may not ever need to leave the EU even if the rest of the UK does (iii) Scotland has the economic strength to go it alone and can decide what currency to employ at a later date. However, my view is that the only really smart tactical way forward is to simply say (amongst a lot of peripheral noise) that she will await the outcome of the renegotiations between the UK and EU and then let the people of Scotland decide what they want, if it is appropriate at that time. Otherwise her risks are principally that: (i) the EU does not let Scotland stay or join (ii) the UK does not allow Scotland to use Sterling or have the Bank of England as lender of last resort and all financial support stops without an EU back-up plan (iii) Scottish people recognise that Scotland is not capable of financial independence and has to do an embarrassing climb down – by which time the rest of the UK will be very tired of the threats and Scotland runs the risk of a reversal of the referendum vote ie do the UK still want Scotland (unlikely but fun to speculate!).
Moorfield Real estate Investment Strategy:
- We have looked at every exiting investment and every new opportunity and amended the business plan for each. Our already conservative approach to gearing will continue.
- We will be progressing with some of the new opportunities but with different prices and structures.
- Our economic outlook has become less positive and hence we are materially more cautious.
- We intend to be patient with our un-invested capital and look for stressed vendors.
- Our focus remains on Alternative real estate sectors but we will be looking to Traditional real estate sectors again if the discount to pre-Brexit pricing is sufficient to reflect both Brexit and the maturity of the economic and real estate cycle.
Moorfield’s response to Brexit
Three points to set the scene:
Firstly, and most importantly when unexpected events occur, there should be no rush into making decisions that do not need to be urgently made. Further, let’s be aware of those responding to sentiment swings as an immediate reaction to a surprise such as this Brexit vote, as their decisions are unlikely to be based on well informed and considered judgement and we all need time to listen, watch, consult and contemplate. Having said that, some of us had prepared, at least to some extent, for this potential outcome so hopefully that reduces or eliminates any need for any immediacy on their/our part.
Secondly, the UK has just taken a step into the unknown so there is no one (at all) who is able to guide us as to what ‘will’ happen now. Instead it is about listening to those who have an informed opinion and impartial perspective on what is ‘likely’ to happen – and then formulating a view of your own on which your decisions will need to be made.
Thirdly, from a Moorfield platform perspective, we are in strong financial health (best ever at present) and we are UK specialists without pan-European exposure – see below for further comment as to why I believe this is relevant and positive. We have: (i) realised the entirety of MREF and MREFII so all asset and financial risks have been eliminated; (ii) ensured MAREF has secure equity and debt finance in place and a pool of un-invested capital, and; (iii) we have only invested c.50% of MREFIII so this has material cash resources and will be able to take advantage (when appropriate) of real estate market opportunities. Additionally, our current focus in MREFIII (and of course MAREF) is on the Alternative real estate asset classes and, in my opinion, these are likely to be the most stable from both an economic and demographic perspective over the next few years.
The UK public has voted to leave the EU by a c. 52:48 ratio on a c.72% turn-out.
The UK Prime Minister, David Cameron, has resigned effective from the Conservative Party Conference in October 2016. We don’t yet know what will happen with the Chancellor George Osborne.
It is predicted that on resignation and newly elected PM, Article 50 of the Lisbon Treaty (2009) will be invoked and this will begin the process of a two year period of negotiated exit (this period can be extended by unanimous consent). It has also been suggested that there may be 12-18 months of preliminary discussion prior to Article 50 being invoked to pave the way for a more orderly departure. So 2019/20 for UK exit.
It is unlikely that an ‘EU-lite’ relationship results (i.e. Norway) due to the strong resistance to free movement of people and EU budget participation. Instead it is likely to a more complex one based on a ‘free trade treaty’ such as that between the EU and Canada. But at least Canada has set some parameters to help guide us!
Scotland voted 62% remain and 38% leave and so will now be considering/preparing another independence referendum (predicted within 2 years). Currently the general opinion is that the independence camp will win. One of the many issues to be addressed by the First Minister of Scotland (Nicola Sturgeon) will be the economic viability of independence as since the last referendum vote the oil price volatility has reminded everyone of Scotland’s financial fragility and hence reliance on Westminster (i.e. UK parliament). There is also the likelihood and/or appeal of membership to the EU – and of course all those other ‘pros and cons’ from last time that have not gone away.
Northern Ireland through Sinn Fein have already started talking of reunification with the Republic of Ireland.
Whether positive of negative for the UK in the medium/long term there will be short term uncertainty and volatility in most areas of the economy and this is not good for any of the markets. Sterling is likely to be very weak and there will no doubt be talk of a recession. Sterling weakness leading to a potential pick-up in export led inflation will be unlikely to lead to interest rate rises whilst the BoE is considering how to tackle concerns over economic growth, employment and consumer confidence. Perhaps an interest rate cut is more likely? Of course, lower growth projections are already flooding in.
Moorfield views and its intentions:
David Cameron will hand over to a new Prime Minister at the Conservative Party conference in October 2016. This will likely be his final act as UK PM with his interim role principally being to stabilise markets and manage political manoeuvring and division within the Conservative party. In the Labour party there will also be significant unrest and likely leadership challenges. Both David Cameron and Mark Carney (alongside the leave campaign leaders) will have to find credible and comforting words about the strength of the UK economy, together with ongoing banking liquidity and stability, as there is little more that they can do in the short term. Those who predicted disorder and economic unrest resulting from a Brexit (i.e. Bremain camp) will now have the job of ensuring that this does not happen – in part working to disprove their own thesis.
Unquestionably difficult and unpredictable times ahead and I intend to write again when the dust has settled. For now I would say that limited action is the best way forward for Moorfield as we have a well-funded GP and cash resource in both our active funds (MAREF & MREFIII). We have not invested any material capital in 2016 but do have a number of investment opportunities sitting with Brexit clauses – which we will now revisit. I don’t believe a lot of buying opportunities will result in the short term but I do think that some interesting opportunities will arise in 2017 onwards. Moorfield also remains predominantly focused on Alternative real estate investment opportunities where the demographics are more value and income protective through the economic cycle.
In the past I have expressed my concerns over the future political, economic/fiscal and cultural structure of Europe and hence the risk of investing there (and especially in the Eurozone) and although we regularly revisit our strategy we have always decided to stay UK focused. I believe there is now more reason than ever for this to be the case and here are a few of the reasons:
The Eurozone is a failed experiment and everyone knows it – so how is it going to be corrected?
Europe currently has more political and economic division than at any time since WWII, in my opinion – and it is not close to being resolved.
Polls suggest (if you chose to take any notice of them) that other EU countries would also vote for independence given the chance – so what does the future hold in this regard? Could independence from the EU go viral?
What does all this mean for the euro? It would not be the first time that smart people make good asset investment decisions but make the wrong currency call.
Despite the current events, in the medium term the UK is economically sound, politically stable and has its own central bank and currency. The language, time zones and law assists the highly regulated and professional sectors to make the UK a safe haven for global capital. This, in my opinion is unlikely to change. In fact, independence in a fractious and unstable Europe could prove very positive.
I think real estate capital values will fall in the short term, rents will also stop growing and asset management initiatives will prove more difficult. Income and banking terms (LTV and ICR and cure rights etc) will be very important in every real estate investment.
I am disappointed with the outcome of the referendum but I am very pleased Moorfield determined to stop investing and hold cash in case Brexit occurred, and also that our focus is UK and Alternative sectors. It does not mean we are immune to the pain on some of our Traditional investments but they are all manageable issues until markets get some clarification and direction, afterwhich I believe they will perform well.
I hope the above is of value – more from me over the next few weeks.
The EU Referendum from the Moorfield perspective
We are less than a week away from what could prove to be the most important vote in a generation – and one that will impact the lives of multiple generations. In my opinion, the consequences of this EU Referendum will directly and indirectly impact in three inextricably interwoven waves: (1) on the UK (2) on the EU (3) on the rest of the world. Perhaps I am seeing dangers lurking in the shadows where actually there prove to be none but it is currently my view that an exit of the UK from the EU will have much greater collateral impact than we can currently forecast or understand. If the UK exit encourages other nations to follow a similar path and independence goes viral we will have many years of global unrest and uncertainty ahead of us and we all know that markets hate that above all else. However, change is clearly needed in some form as Europe is certainly not stable at present, with extreme groups and parties rising in popularity due to a general dissatisfaction and refusal to accept the status quo.
Nonetheless, I have to admit that my head and my heart have been in opposition from the outset. … my heart says leave as at least then we will be the victims or victors of our own home-grown decisions, however, my head currently says stay. I believe the EU (and more especially the Eurozone) is in for a rough ride over at least the next decade, in any event. The EU has simmering economic and political instability and the Eurozone is a flawed experiment waiting to fall apart at every level. The next few years could prove a painful economic and political period for Europe and, as such, I would rather be sat at the negotiating table, as an important and influential host, than as an unwanted or uninvited guest.
Life as a member of the EU is far from perfect, just like many Scots feel about life within the UK. But the Scots made the right decision in seeing a unified UK as stronger than a proud standalone Scotland. What the Scots insisted on was a devolution of certain powers and they made it clear that another referendum on independence would come if the promises made by Westminster were not honoured. In fact, it was made clear by Scotland that if anything materially changed for the worse for the Scottish people and/or they clearly wanted another opportunity to vote about their future in the UK then that would be offered. This is the message we must take to the EU – we will vote to stay but we will need the promises honoured, and if anything unacceptable occurs to make matters for the UK worse or even if we change our minds about the value of our relationship with the EU then don’t be surprised if another vote follows. Perhaps therefore a close vote with the outcome being a Bremain will be the best result. Close enough to make the support for EU membership seem fragile and hence give the UK sufficient voice to threaten.
I am not going to talk about the individual and most emotive issues as you will have heard the arguments ad nauseam from both the camps of Brexit and Bremain. What I will do is end for now, at least until the outcome is known, by pointing out some of the issues that I believe are related but much more significant, and do keep me awake: (i) our social welfare system in the UK is no longer fit for purpose and neither is our NHS. They can’t be fixed by tinkering with short term solutions or blaming it on immigration; (ii) the pension industry is in deep trouble as fewer jobs, technological change and a growing and ageing population create a mathematical problem that is unsolvable without radical change in many areas of our society; (iii) terrorism is reflecting the growing levels of dissatisfaction across the world and is proving a career choice for the disaffected; (iv) The population of the planet is depleting and abusing more of the world’s resources than it can hope to replace and replenish. We all know this to be true! So just how many of these issues, that will have adverse material adverse global impact, will we chose to knock down the road for the future generations to solve. Perhaps the question should be – are problems such as these made easier or harder to solve by being united or independent? If the answer is united, which I believe it is, we should all work harder at staying that way rather than running home with our ball when the going gets tough.
Please find below previous comments made on this topic.
The EU Referendum:
Currently, many of our investors are rightly focused on the EU Referendum, and particularly the impact of a Brexit. It is possible to argue that this is the single most important vote that any of us have had since long before Moorfield had its first birthday! In order to share our thoughts, and establish a base from which to do so, I would like to refer back to a few comments I have previously made in my Quarterly Reports to our fund investors.
The European Union (EU) and The Eurozone: As you will be aware, the EU is made up of 28 member states that together form a ‘single market’ to oversee co-operation among its members in diverse areas, including trade, the environment, transport and employment. The Eurozone is a monetary union of 19 of the 28 EU member states which have adopted the euro (€) as their common currency and sole legal tender. I have written many times on what I believe to be the original purpose and good sense in creating the EU (intended to saves us from WWIII amongst other more social and economic based matters!) but I have also described the Eurozone as a political experiment gone wrong. This is still what I believe to be the case and Greece is a text book example of why!
David Cameron formally launched his renegotiation of the UK’s terms of membership of the EU at the EU Council meeting in Brussels recently. This had been preceded by a tour of European capitals in which he set out his thinking to other heads of Government on a one-to-one basis. His pitch at the Council was then deliberately low key. The wording of the Conservative Party manifesto states that there will be a period of renegotiation and that a referendum will take place before the end of 2017. Beyond that, this document is silent on what level of concessions Mr Cameron would need to extract for him to call the renegotiation a success. The Bill which has been submitted to the House of Commons on the matter indicates neither a date nor a set of ‘red lines’ for the renegotiation exercise. The Prime Minister’s challenge is three-fold: He needs to secure enough from the renegotiation to be able to claim that the referendum is one being conducted about a new deal with the EU; he needs to win a referendum on his recommendation that Britain remains in the EU having secured a better understanding with it and by a margin that settles the question unambiguously ( as a Scottish-style ‘neverendum’ would be a political nightmare); and thirdly, he wants the referendum to occur in a manner that does not divide the Conservative Party so deeply that it becomes impossible to manage in Parliament and electorally endangered in 2020.
The Prime Minister now seems to have narrowed his renegotiation to five areas of interest, which may yet be reduced further if he feels that any one of them are impossible to obtain concessions in. These five domains are: a dilution of the official ambition of the EU to obtain ‘ever closer union’ (or at least a British opt-out in terms of this language); an enhancement of the capacity of an ordained number of national parliaments (probably ten) to ‘red card’ the edicts of the European Parliament and send them back for reconsideration; a strengthening of the rights of non-Eurozone members of the European Union over economic policy and financial regulation by extending the so-called double majority principle that decisions in this sphere require appropriate majorities of both the Eurozone members and non-Eurozone states before they become applicable in the latter category of member; a substantial change in the length of time that migrants within the EU have to wait before they are eligible to claim benefits in another member country (that period is presently three months, the PM has publicly signaled support for a four year rule, but would almost certainly settle for half of that); and, more tentatively (because it might not be obtainable), a restoration of the opt-outs which the UK obtained from the Maastricht Treaty more than two decades ago, some of which Tony Blair waived.
Although progress in this sort of territory would fall well short of what many within the Conservative Party want from renegotiation, Mr Cameron’s calculation is that it would be enough to keep the vast majority of his colleagues in government sufficiently content. He could then afford to allow them a ‘free vote’ in the referendum contest confident that almost all of them would endorse his position rather than take the more divisive step of insisting that they resign if they wanted to oppose him. Much will turn on the attitude of Angela Merkel, but if Berlin determines that it wants/needs the UK to remain in the EU then it would not be that hard for the EU to issue a commitment to deal with the first four of the five areas outlined above and with enough force that Mr Cameron could assert that he has triumphed. His critics will retort that such a victory would be almost without consequence. Changing the mission statement of the EU does not make it a changed institution. National parliaments will not have the authority to overrule the European Parliament so the ‘red card’ is more like a quick trip to a sin bin as far as MEPs are concerned. Beefing up the double majority will be of no value if the UK finds itself in the minority among even non-Eurozone countries in a sector of vital importance. A two year wait to claim benefits will not stop EU migrants coming if they are convinced they will find employment. One suspects, however, that the final public determination about how to vote in the referendum will be less about the details of the terms than a broader sense of whether departing the EU is too risky. For the Conservative Party’s post-referendum debate, by contrast, those details really will matter.
Dare I say again that I think the Eurozone has yet to even come close to convincing many of us of its long term future following its exposure through the financial crisis? For too long we have discussed the potential for a Grexit as the potential catalyst of a break-up of the Eurozone – but I wonder could a Brexit trigger the break-up of the Eurozone, due to simply showing that the people of the UK believe that you don’t have to be part of a club to successfully survive and prosper?
Are UK and European business leaders and politicians’ over-confident of the UK staying in the EU? Could migration and terrorism (such as that in Paris) be the catalyst to the general population deciding that EU rules are unacceptable (epitomised by the immigration laws) and the UK is better standing alone? If so, as set out above, could this even become the trigger for a break-up of the Eurozone and possibly a rethink of the EU membership rules?
Will the UK Prime Minister attempt smoke and mirrors to avert an EU exit for the UK and if he does so will the voters fall for it? It is now widely accepted, even without the migration and potential terrorism issues outlined above, that reform is essential if the UK is to stay a part of the EU and so David Cameron will need to tread very carefully!
The Short term: The occupier market is fickle at the best of times, being economically, politically and financially fragile, with occupiers prone to switch off demand and sit on their hands with little more encouragement than some near term uncertainty. As such, the immediate outlook for the UK, with the Brexit referendum (and related issues hard on its heels), is unlikely to be a conducive environment for occupational decision taking. Therefore, it is possible to foresee an inactive occupier market in the UK in many areas over the next few months, including those most likely to have otherwise offered the prospective of rental growth. My opinion is that, unless something unexpectedly positive emerges from the current debates and negotiations, this halt in rental momentum might then prove hard to re-ignite in many areas, even with the UK staying in the EU.
Of course, the sentiment reflected in the occupier market is not the only threat to our broader economic performance, as the same potential for behavioural volatility is also true of investment capital generally. Although it could be argued that there is a fundamental difference between the inactivity of the occupier and that of the investor (due to the constant demands for risk weighted capital returns), investment capital is global and in the face of the current uncertainty perhaps the UKs perceived future economic growth and alluring safe haven status (normally seen as our first line of defence) will not prove enough to encourage or even retain investment capital. We only have to look at the lead up to the Scottish referendum on independence to know this to be true.
Considering the Brexit based uncertainty we face, my current opinion is that in the short term there will be some economic damage no matter what the ultimate decision, and GDP growth will slow alongside that of employment, consumer confidence and general investment. Sterling will be punished in the currency markets and the positive impact of this on exports will not result in a net benefit overall. Perhaps a positive is that I can see no reason why interest rates will rise in the near term, even if inflation gets some inappropriate momentum, and it would appear the Bank of England feels the same way.
The Medium Term: However, the reason we have materially stopped investing at the present time, is not because I am concerned with the medium term outlook whilst within the EU or the longevity of performance of our current investment themes (in or out), but simply because the opportunities may get cheaper to buy and build due to the impending Brexit vote (June 2016). I could spend many hours in the writing and produce many pages for the reading if I were to spend the time exploring each of the issues that the politicians will furiously debate in the coming weeks, such as; free movement/immigration, cross-border/trade agreements, regulation/directives, legal/enforcement….etc. but I am not going to – you will be pleased to know! What I will do instead is give you a summary of my personal view with my best guess of the outcome. This view comes from reading, listening and meeting with various organisations where I have an active participation, including; The British Property Federation, The Bank of England Forum, The British Venture Capital Association and even meeting with senior members of the Conservative Party and, most recently, Nicola Sturgeon (First Minister) of the Scottish National Party
By way of ‘book-ending’, let’s start and finish my EU commentary with the Scottish independence referendum, where some important lessons have clearly been learnt whereas others are seemingly being ignored. In the lead up to the vote on Scottish independence, the UK government and other parties from Westminster in London were far too complacent about their need for a strong message as they believed it a foregone conclusion that the Scottish electorate would vote, in the majority, to stay in the union (UK). They felt it to be a personal crusade undertaken by the then First Minister, Alex Salmond, and his argument had little substance if looked at intellectually rather than emotionally. But Alex Salmond is a great orator and was underestimated. He did not win the intellectual debate, but he played directly and effectively to the electorate with the power of the emotional perspective. Late in the campaign, when voting margins became too close to call, Westminster had to mobilise in a way it had not prepared for and to say near panic ensued would not be an exaggeration. Scotland finally voted to stay in the UK because fear of life outside of the status quo marginally moved ahead of the cleverly manipulated emotional pull – but only just! It is also worth noting that all through this debate, many companies and businesses throughout Scotland had made it clear they wanted to stay in the UK, so this did not prove to be an accurate indicator of the views of the general public. Those running companies and dictating what’s in their corporate best interests are, in fact, only few in number.
The EU in/out referendum for the UK does not have the same Scottish dynamic with regards a peoples champion (or a film like Braveheart), despite David Cameron wanting to stay in and Boris Johnson wanting to leave, but it absolutely does have the same emotional perspective when it comes to ‘us versus them’. The lesson learnt from Scotland and now being employed by both sides is not to be complacent and to ensure the message is loud and clear as early in the process as possible (Scotland had 2 years whereas EU has just 4 months). The lesson seemingly ignored by the ‘in’ campaign to date (although not by the ‘out’ campaign) is the power of simplicity and emotion – the majority of the voting public will not think in terms of the more rational and frankly complicated points of debate, but instead will vote ‘in’ principally because of their fear of the unknown, or ‘out’ principally because they are tired of being dictated to by unelected bureaucrats in Brussels and Strasburg on issues that are perceived to be substantially (and sometimes entirely) to do with UK living. So if you were to read that last sentence again you would conclude that, at least in my opinion, the majority of the UK electorate would emotionally rather be outside the EU and would vote that way if given the confidence to do so. The outcome is therefore most likely to come down (again) to the fear of the unknown outside of the EU versus the power of the basic argument for safer with the status quo. Let’s not forget that we have seen that it is not an accurate indicator that the majority of companies and businesses (or so we are told) in the UK say they want to stay in the EU.
Therefore, on the basis no one can sensibly argue for something they know nothing about (albeit politicians are very adept at this), let’s put aside the speculation of what life would be like outside the EU and just focus on actually what the majority of the voting public want to hear – the simplistic arguments focused on the benefits and disadvantages of retaining or improving what we currently have in our EU relationship. Of course, this is what Cameron has tried (and so far failed) to do and he should be working hard behind the scenes to try for more opt-outs or Sovereign controls for the UK, to appeal to those emotional issues, considering the gathering strength of the ‘out’ campaign.
So the point I am making, ahead of my in/out prediction, is that there will no doubt be a lot of time misspent with political noise, posturing and focus on all the EU policies and directives and how much better it will be without them (ie exit) or alternatively how frightening it will be without a say in them (ie an stay in), but I think the swing will be an emotional one based on perceptions and sound bites relating to our Sovereign control over issues most emotive to the general public, such as; immigration controls, UK laws, welfare only for those that have contributed and the security of our borders due to the global terrorism that is increasingly present. As with Scotland, my guess is that it will be hard fought and close but it will have little to do with the detail of the policies. Ultimately, I believe that people will vote for the status quo despite their strong emotion and preference to be independent. The fear of the unknown is just too strong.
I will not spend long in setting out some of my additional thoughts and fears for you to consider. Bluntly, I believe that if the UK exits the EU it could possibly be the beginning of the end for the EU and the (already broken) Eurozone. This is very material globally, both economically and socially, and is, in my opinion, one of the principal reasons why our European neighbours are so concerned about the UK vote and why the world outside of Europe is watching so closely. Yes the UK is a large economy and a very important trading partner in the EU, but this is not just about the UK being part of the EU but also about the ongoing purpose and cohesion of the EU in its entirety. The momentum of the exit vote must therefore be very alarming for more than just David Cameron and his UK allies – and so perhaps there may be more concessions yet to be offered to the UK from across the Channel despite the cries of denial!
I promised to end as I started, with Scotland, so a quick comment on their potential for another independence referendum. When I recently met with the First Minister of the SNP, Nicola Sturgeon, I asked her a number of questions, such as: (i) why she wanted to be independent from the UK, even with devolved powers, but still be part of Europe; (ii) if she would definitely put the independence vote back to the Scottish people if the UK left the EU; (iii) if she felt the EU would break apart if the UK voted to leave; (iv) if she felt confident that the EU would have Scotland as a member on acceptable terms and how long that negotiation with 27 other countries would take; (v) how she would finance an independent Scotland with oil at $30 per barrel when the maths had not worked at $100 per barrel; (vi) did she expect to use Sterling or the euro as a currency; (vii) did she feel she had won any sort of victory for the people of Scotland or just imperilled them as many in England and Wales now felt they would like a vote to decide if Scotland should remain part of the UK. Her response to me was – she wanted the UK to remain part of the EU….! I apologised for appearing confrontational but said I felt that investment capital in or looking at Scotland needed to know answers to these questions. I didn’t get my answers. However, I was later informed that an independent Scotland was not something the SNP felt appropriate to revisit in the near term unless the UK left the EU and then they would reconsider their position.
It is interesting for me to read again what I have written in the recent past and to realise how little there is to add despite an inordinate amount of time spent listening to the opinions of the ‘in’ and ‘out’ campaigners. As predicted, the exit arguments of both sides have been based on supposition, fear-mongering and a lack of forecasting credibility. Voters want the facts to be stated as simply as possible and without the feeling that this is as much political posturing as it is about the future economic and social environment of the people who live in the UK. I am often staggered by how widely politicians miss the mood of population because they are so focused on fighting each other!
Moorfield will continue to comment on this issue as and when we feel we have something of value to say. My prediction remains that we will ‘Bremain’, but it is interesting to canvass the opinions of my business colleagues and I suggest that the majority feel they would personally like to leave the EU although professionally/corporately they will most likely vote to remain in the EU because of the years of uncertainty and disruption that will follow. However, overwhelmingly they would vote to stay in under a renegotiated treaty and they hope this is what the final outcome will prove to be.
Buccmoor sell development site at Aberdeen Energy Park
New facility set to deliver major business expansion for Hydro Group plc
Buccleuch Property and Moorfield Group (Buccmoor LP) has announced the sale of 0.63 acres of development land at Aberdeen Energy Park to existing occupier, Hydro Group plc.
The site sale has enabled Hydro Group, which designs and manufacturers underwater cables and connectors for subsea, underwater, topside and onshore applications, to expand operations and develop a brand new 13,700 sq ft bespoke workshop, with mezzanine deck.
This will be used to install the company’s new armouring line and also provide a pressure testing area, together with additional storage. This new space is in addition to the 45,500 sq ft already occupied at the park.
This development follows on from the company’s £300,000 investment last year in the advanced armour line, which extended Hydro Group’s product capabilities, enabling the company to offer cable products to improve and support subsea operations.
Doug Whyte, Hydro Group Managing Director, said:
“The new facility and additional space was required in order to diversify and develop our business. The new facility has been a significant investment in the future of our company here at Aberdeen Energy Park and has opened up new business opportunities.
“We are now able to manufacture mechanically protected cables which can withstand higher stresses in subsea and defence operations and the extra space means that we can also offer greater capacity in size and overall lengths.
Hydro Group, an Energy Park occupier since 2008, is currently one of a very small number of companies in the UK to offer this technology.
Speaking on behalf of the parks’ owner, Moorfield Real Estate Fund III, Mark Holmes from Moorfield Group said:
“It is very encouraging to see Hydro Group diversify and expand operations here at Aberdeen Energy Park. We were pleased to be able to facilitate the sale of development land which was available adjacent to the company’s existing facility. We look forward to the business continuing to develop and prosper at the park.
“This trend of diversification into new or complimentary business activities seems to be gathering pace around Aberdeen and the North East of Scotland at the present time.”
Doug Garden, partner of Knight Frank in Aberdeen, who advised Hydro Group added:
“Having project managed the original building for Hydro Group; it was pleasing to be involved once again in assisting Hydro Group with their further growth at Aberdeen Energy Park, with the new facility set to open officially this Spring.”
As well as having sites for sale at Aberdeen Energy Park, Buccmoor is an experienced developer and can tailor bespoke packages to match occupiers’ business needs.
Moorfield raises £170m to grow Audley, the leading retirement village developer and operator
Moorfield has successfully raised a new fund (Moorfield Audley Real Estate Fund – “MAREF”) with £170m of equity to acquire Audley Court Limited – “Audley”, one of the UK’s leading retirement village developers and operators. MAREF has attracted institutional investors from the US and continental Europe and, alongside Moorfield and Audley management, will provide Audley with equity to be used to fund both the existing development programme and support the acquisition and development of new Audley retirement village sites. The investment is expected to enable Audley to double the size of its platform over the next five years.
Audley currently owns 10 villages, which when completed will provide c.1,000 units. Recent sales performance has been strong and off plan pre-sales have already delivered c.60% of the current development program meaning that Audley has now sold or exchanged on c.500 units. Audley is targeting c.2,000 units in its platform by 2020 by developing the land bank on existing villages, which already have planning consents, and from new site acquisitions.
Audley has seen a significant acceleration in its growth trajectory in recent years and based on its pipeline and forward sales is expecting this momentum to continue. Audley sells properties in magnificent settings and then provides country club style leisure facilities, including swimming pools, restaurants, beauty treatment rooms and fitness rooms and discreet on site domiciliary care on demand. Audley’s customers either choose to use the facilities on their doorstep or just enjoy their homes and independence.
Nick Sanderson, CEO, Audley said, “Moorfield and a number of its global institutional investors are recognising retirement living in the UK as a growth market, principally as a result of the significant shortage of retirement housing and because demand is now vastly outstripping supply. Market penetration is less than 1% in the UK, compared with 17% in the USA, and 13% in Australia and New Zealand(i).
Against this backdrop, Audley’s scalable, strong brand and expertise in the sector is well placed to provide the products and services that our customers demand, and this new capital injection enables us to accelerate and deliver our plans. We can now significantly increase the number retirement properties we develop and manage, supported by unrivalled facilities and care services.”
Marc Gilbard, Chief Executive Officer of Moorfield added, “Over the seven years we have worked with Audley we have witnessed first-hand the strength of the Audley offering. We are delighted with the on-going backing of our investors and together we look forward to continuing to support Audley, one of the pre-eminent developers and operators of retirement villages in the UK and therefore ideally positioned to capitalise on the compelling demographics and significant demand for quality independent living options for the older generation.”
The senior housing market in the UK benefits from attractive demographics with a projected increase in people over the age of 65 from 10 million in 2012 to 17 million by 2037(ii). This is combined with around £1.3 trillion in housing equity owned by people aged over the age of 60, of which 96% is un-mortgaged and additionally 58% of property owners over the age of 60 are interested in moving but feel restricted by stock availability(iii).
(i) Housing Learning and Improvement Council: Viewpoint on Downsizing for older people into Specialist Accommodation. Feb 2011.
(ii) ONS data
(iii) Demos: September 2013 Top of the Ladder Report
MREFIII acquires Shipping Building at The Old Vinyl Factory
On behalf of the Moorfield Real Estate Fund III (MREF III), Moorfield Group (Moorfield) announces the purchase of the Shipping Building at The Old Vinyl Factory estate, Hayes from U+I, the new name for Development Securities PLC and Cathedral Group
The landmark building is a seven-story multi-let office building let to seven tenants totalling 96,700 sq ft. Whilst the original structure dates back to the 1920s, the building was comprehensively refurbished in 2002 and was the former headquarters of EMI. Present tenants include SITA, SONOS and CHAMP Cargosystems (UK) Ltd. The Shipping Building forms part of The Old Vinyl Factory site and is now being extensively regenerated by U+I.
Planning permission for this mixed-use £250m scheme was granted in 2013 and is set to transform the site with 630 new homes, 750,000 sq ft of commercial and leisure space – including offices, restaurants, and retail, bringing 4,000 much needed jobs back to Hayes. The introduction of Crossrail will also benefit Hayes, allowing the town to close the gap with the West London market.
Marc Gilbard, Chief Executive Officer of Moorfield said:
“This is a really interesting opportunity as The Shipping Building is a key component of the wider 17 acre Old Vinyl Factory masterplan and only 200m from Hayes Crossrail station due for completion in 2018. Crossrail is a game changer for Hayes and to be part of West London’s most exciting regeneration project will allow us to deliver Grade A space in an increasingly under supplied market.”
Richard Upton Deputy Chief Executive of U+I said:
“Since first acquiring the site in 2011, we have taken great care to rediscover its past as well as make great plans for its future. We have paid attention to the heritage and former significance of the site, so that it can once again become a place full of life.”
Located on Blyth Road in Hayes, the site is 14 miles west of central London, 4 miles from Heathrow Airport, 1.5 miles to junction 3 of the M4 and 10 miles from junction 16 of the M25.
Hayes and Harlington Railway Station is a 5 minute walk; providing services to Reading, London Paddington and into the Heathrow Terminals. Hayes and Harlington station will be a Crossrail station (operational from 2018) providing services to Bond Street, Heathrow Terminals 1,2 & 3, Liverpool Street and Canary Wharf.
Moorfield acquires Atlantic Quay Buildings in Glasgow for £60.7m
On behalf of the Moorfield Real Estate Fund III (MREF III), Moorfield Group (Moorfield) and Glasgow based joint venture partner Resonance Capital, announce the purchase of Buildings 1, 2 and 3 Atlantic Quay, in Glasgow City Centre from M&G Real Estate.
The purchase is MREF III’s third major acquisition in Scotland in the last two years, following on from the purchases of Aberdeen Energy and Innovation Parks and Quartermile in Edinburgh.
Buildings 1, 2 and 3 Atlantic Quay comprise 280,000 sq ft of high quality modern office space built to a ‘Grade A’ specification. Currently producing a rent roll of £5.5m from a range of occupiers, MREF III paid £60.7m, reflecting an initial yield of 8.54%. Atlantic Quay is a unique office complex that fronts the River Clyde. It is just a short walk from Glasgow’s main shopping, leisure and entertainment districts and accessible to all major road, rail, air and bus links.
Marc Gilbard, Chief Executive Officer, Moorfield, said:
“Atlantic Quay provides us with a significant City Centre office complex at the heart of Glasgow’s International Financial Services District. The modern buildings offer a range of refurbishment, improvement and re-letting opportunities that we will work on together with our joint venture partner, Resonance Capital.”
Angela Higgins of Resonance Capital said:
“We are delighted to announce that we will be moving on site in a matter of weeks. The evolution of Atlantic Quay is now underway and we aim to realise the complexes full potential as a destination waterfront location.”
Ryden and Resonance Capital advised MREF III and Savills advised M&G Real Estate.
Image shows external view of Buildings 1, 2 and 3 Atlantic Quay, Glasgow.
Moorfield completes acquisition of Derby Riverlights
Moorfield Group, the real estate private equity fund manager, has completed the acquisition of the mixed-use Riverlights scheme in Derby for £16.5 million, representing a yield of 10%. The asset has been bought out of administration.
Extending to 199,008 sq ft including four upper floors, Derby Riverlights comprises a combination of retail and leisure units ranging from 3,600 to 8,000 sq ft, alongside two hotels occupied by Holiday Inn and Hampton by Hilton, and a Genting Casino.
Built in 2010, Derby Riverlights is located on the eastern edge of Derby city centre, adjacent to the intu Derby shopping centre and Riverside Gardens, and acts as a key gateway to the city.
The property incorporates Derby’s main bus station at the rear, which transports some 12 million people to and from the city centre each year.
Robin Matthews, Moorfield Group, said: “We recognised significant potential in Derby Riverlights to deliver a first-class retail and leisure asset. Derby City Council has been extremely supportive of the acquisition and we are working closely with them to provide a complementary offering that enhances the city’s overall leisure and retail portfolio.”
Derby Riverlights is adjacent to the city’s Castleward area, which is currently undergoing a £100 million redevelopment, including delivery of 800 new homes and 34,500 sq ft of commercial space.
The area will be further enhanced through the development of a currently vacant plot to the north, which is part of the city’s masterplan.
Robin Matthews continued: “The proximity of the bus station, Riverside Gardens and the Council House already provides significant footfall and the programme of redevelopment works due to be delivered around the site will further enhance the locations appeal to top-tier leisure and retail operators.”
Home to the global headquarters of Rolls Royce, Derby is an attractive Cathedral City which benefits from its location on the edge of the Peak District National Park and proximity to urban centres such as Sheffield, Nottingham, Birmingham and Leicester.
John Forkin, Marketing Derby, said: “The retail and leisure sector is a key element in the ongoing regeneration of Derby, with over 25 million visitors and £570 million of retail spend recorded every year. Assets such as Riverlights are fundamental in ensuring that we are able to provide the very best experiences to visitors and its enhancement really could help Derby rediscover the river.
“Moorfield is exactly the type of investor we should welcome into Derby, with an exceptional track record in the delivery of mixed-use leisure and retail destinations and I am entirely confident that the future of the Riverlights development is in safe hands.”
Martin Rawson, Derby City Council Cabinet Member for Regeneration said: “We welcome this investment as a real vote of confidence from a noted investor. In the near-term, this helps protect local employment but we believe we will soon see jobs created as new lettings are made. Derby City Council will be working with Moorfield to ensure the environment around Riverlights is improved so as to better welcome people into the riverside area.”
Derby benefits from excellent transport links, with the city centre just seven miles from Junction 25 of the M1 motorway. Frequent direct train services run to London St Pancras from Derby station and East Midlands airport is 10 miles from the city.
Colliers represented the administrators during the acquisition process, with DWF and Rapleys providing legal services and investment advice to Moorfield.
Moorfield sells c. £1billion diversified investment portfolio to Lone Star
Moorfield Real Estate Fund (MREF) and Moorfield Real Estate Fund II (MREFII) have completed the sale of a diversified real estate investment portfolio to Lone Star Real Estate Fund III (LSREFIII) for c£1 billion. LSREFIII secured senior debt financing from RBC Capital Markets and Wells Fargo.
The portfolio comprises both traditional real estate investments (retail and offices) as well as alternative real estate investments (hotels, residential and student accommodation). Moorfield Group (Moorfield) will continue to have a role as asset manager, alongside Hudson Advisors, to ensure there is continuity of asset management initiatives, asset knowledge and stakeholder relationships.
MREF was raised in 2005 and MREFII was raised in 2007 with both private equity real estate funds managed by Moorfield Group.
The portfolio comprised of companies owning the following assets:
- The Salisbury – office and retail, London
- Pinnacle – office and retail, Leeds
- Towers – business park, Manchester
- Skypark – offices (& mixed use), Glasgow
- Brindleyplace (40% interest) – offices (& mixed use), Birmingham
- Velocity Village – residential (& mixed use), Sheffield
- Sovereign Reversions (50% interest) – residential equity release portfolio
- Mercure & MGalleries – hotel portfolio
- Shearings – hotel portfolio
- Domain (Queens Road) – student accommodation, Winchester
Marc Gilbard, Chief Executive Officer of Moorfield Group said:
“This is the largest transaction that Moorfield has undertaken in its corporate history and is a very effective way for MREF and MREFII to dispose of the majority of their investments.
“We are very pleased with the investment performance this will give to our investors and it allows us to focus on optimising the value of the remaining assets in these funds together with investing our recently raised MREFIII. We are also glad to be able to continue to work with Lone Star and Hudson Advisors to ensure further value is realised from the assets that they have acquired.”
The transaction has been undertaken ‘off-market’ with Doherty Baines acting on behalf of Lone Star. Herbert Smith Freehills and PWC acted for Moorfield and Allen & Overy, Pinsent Masons, Shoosmiths and PWC acted for Lone Star.