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Do True Pioneers Make The Biggest Profits?

Do True Pioneers Make The Biggest Profits?
Bisnow's Mike Phillips; Apache Capital's Richard Jackson; Schroder Real Estate's James Lass; U+I's Matthew Weiner; Brockton Capital's David Marks

Is it better to be one of the vanguard going into a new district or sector in real estate, or let someone else do the heavy lifting and follow in the second or third wave?

That is a crucial question as new transport links open up new areas of London for potential development, and demographic trends like an ageing population change the type of real estate societies need.

Panelists at Bisnow’s recent London’s Hottest Neighbourhoods event weighed in on whether it is better to lead or follow just behind.

Richard Jackson, founding partner, Apache Capital

“We focus on long-term demographic trends, and we’ve deliberately tried to get into sectors early where we think there will be or there’s already starting to be institutional demand for that product that hasn’t been created — that’s where your value is. I wouldn’t say we’re pioneers but we try to be an early mover. We’ve looked at the U.S. market, looked at student housing, multifamily, senior living and asked, why do we not have that over here? Nick Porter was a true pioneer in student in the 1990s, we were early in but came in when that institutional demand had started to emerge. But definitely try and get in earlier than later.”

James Lass, fund manager, Schroder UK Real Estate Fund

“If you look at Croydon (where Schroder has a major 2M SF office, retail and residential development scheme) that took a long time to come through because for a long time we didn’t have a progressive local authority, so that is key to going into a new area. We had fantastic transport infrastructure, we had affordability, we had a lot going on down there, but a local authority that didn’t necessarily share the vision for what could happen. Luckily now we’ve been aligned with the local authority for several years so what is a key site on top of a key transport node can be developed. It is about when you get in, but it’s about having all those different pieces aligned.”

David Marks, co-founder, Brockton Capital

“If you’re managing IRR-driven capital on behalf of pension funds then you can’t afford to be the first pioneer into an area. You can’t afford to do what British Land are doing at Canada Water. They’ve hired Roger Madelin to do there what he did at Kings Cross, hopefully in half the time, so eight to 10 years not 20 years. That comes back to James’ point, that is not to do with Roger’s work ethic, which is prodigious, but it comes down to leadership from the local council.

“In terms of how we think about when to get in, there’s a quote from a 1970s San Francisco activist called Bill Kraus, and he said: ‘Cities are gentrified by the following types of people in sequence: first the risk oblivious, which is the artists; then the risk aware, which is the developers; and finally the risk averse, which is the dentists.’ And I think that’s true of many parts of London, so the short answer is, follow the artists but wait for the momentum and the leadership to prove that they are delivering, then the capital is good to go in on an IRR basis.”

Matthew Weiner, chief executive, U+I

“We might take a slightly different view on pioneering. If you can be new to an area where there’s the potential for transformational change, and you can buy off an existing use valuation, what’s not to like? What you’ve got to remember is that managing change is a local issue, and I think both James and David stressed the point that it is political. If you’re a pioneer and you go hunting in new places then you have to expect to take the odd arrow in the chest. It’s about communities, and we can’t just land spaceships in these communities. You have to understand that people are resistant to change. You need to listen to people on the street, open up your sites. We’re very strong on meanwhile uses and that way you can manage that pioneering spirit. But you need that spirit because the easy sites are gone.”