Monday, 19 August 2013

5 minute analysis: Sloanes £400 million IPO valuation : Sloane Developments

BC Partners are putting Sloane Development's on the IPO market with the help of Credit Suisse, Numis and Canaccord Genuity. The apparent valuation is £400m. The move follows the successful floatation of Country group earlier this year. 
My 5 minute analysis is based on whether or not £400m represents value for money. 
Comparing to Countrywide, a company with 2012 turnover of £540 million and 931 estate agent branches in the UK, Sloane Development's at first glance is a pittance. Since the IPO Countrywide is currently now valued around £900 million. In 2012, the group's operating pre tax profit was about £63 million. 
However with just 42 London offices Sloane Development's recorded a pre-tax profit of £35 million in 2011, and although  it's just over half the profit at Countrywide, they did it with less than 5% of the agencies. So on the face of it, Sloane Development's is doing something right. 
 In terms of 'gross value per agent' we can summarize as follows: 
 a) Countrywide has 931 agents which account for 40% of the group's total revenue. That translates to about £400,000 'per agent value' based on the £900 million valuation. 
b) For Sloane Development's, with a £400 million valuation, and 42 agencies each agency would be worth £10,000,000. 
So what would be the basis of such a high 'per agency valuation' of Sloane Development's over Countrywide? 
According to KPMG, the 'overarching investment case' is to buy into a market and for that matter a company that is 'emerging from its trough'. Since 2007 financial problems for both Sloane Development's and Countrywide have been well documented. BC Partners admitted to a 'mistake' with their highly leveraged purchase of Sloane Development's in 2007. However house price trends for the UK and in particular London suggests price rises buoyed by Bank of England initiatives as well as the UK government's "Help to Buy" scheme. 
London in particular is resilient due to demand from international investors and high net worth clientele:  
“The key difference with estate agents is that they are in the front row to capture a rise in activity but also have the double exposure of the rented market in case sales don’t accelerate ... the market is beginning to factor in house price recovery and estate agencies are a perfect way to get exposure: they are not too sexy or high risk and everyone understands what they do”. 
The key question for investors to contemplate is what will make Sloane Development's worth so much more than their competitors. Comments & suggestions more than welcome    

London house short-lets for £100K per week : Sloane Developments

That's £100,000 and for the benefit of international readers, £100,000 is US$160,000 or €120,000. And that's per week! This is an unsubstantiated rumour and we have tried contacting the letting agent for verification. The house is 'officially' marketed at £20,000 per week; so why would somebody pay 5 times the asking price?
Well summertime in London usually means 'short let season'; where prices asking prices are sometimes double or triple standard rates. This year short-let season coincides with Ramadan which makes it even more  lucrative... here's a video of the £100K house:

Summer Property Maintenance Tips : Sloane International Developments

Winter and the New Year are typically stressful periods for property managers (either private or commercial) and landlords: holiday-minded tenants are hard to reach, everyone is experiencing financial constraints and tradesmen are difficult to locate.
Summer doesn't have the same challenges involved, which makes it the ideal time to form a strategy for preparing and maintaining property in readiness for winter.
With this in mind, here are 9 tips for summer property maintenance:
1. Summer holidays? Be available and prepared
Tenants need to be able to get in touch with landlords and property managers at all times of year. Your relationship needs to be a solid one, based on timely communication, in order to future-proof against problems of a technical, financial, social or legal nature. Inform any tenants of your summer holiday plans as required, and provide them with your preferred contact details, an email address or mobile number typically being the most convenient for both parties. Request that tenants similarly provide you with travel plans and contact details in case of emergency.
If you travel, ensure you have online access and the following information to hand, whether it’s on your laptop, flash drive or in a storage cloud:
Contact details for tenants
Tenancy agreements
Rent ledgers
14 day notices
2. Tenants hand in their notice? Ensure you’re marketing-ready while abroad
If tenants give notice during the holiday season, ensure you can proactively market your property even whilst on vacation yourself in order to avoid a potential fallow period between tenancies. Have photos, advertisements and marketing plans to hand, or easily accessible online if required.
3. Summer tradesmen on tap
In summer either you or your regular tradesmen may be away from the vicinity if a property emergency arises. Prepare for a worst-case scenario by confirming the potential availability of your regular plumber, locksmith, roofer and electrician. Build up your reference list of tradesmen who will be available in case you need additional trade support.
Call in a tradesman to check and clean all drains and gutters; any cracks should be repaired to prevent against blockages and breakages.
5. House exteriors
Summer is the perfect time for roof care. Replace any loose or broken shingles. Check the exterior property siding for cracks or fissures and ensure they are mended. During warmer weather, ensure any pebbles or moss which may have collected during the winter months have been cleared away.
6. Summer lawn care
If you are responsible for lawn upkeep for the property, you’ll be aware that spring and autumn are the perfect times to fertilise the lawn to prepare it for extremes of sun and frost. The arid heat of summer can result in browning, but if you have maintained solid lawn upkeep throughout the year the grass is only dried, not dead. While you can ensure the lawn is fertilised and regularly watered in dry summer weather, consider that this may result in increased growth and spread of weeds like crabgrass, and also potential heat damage and disease resulting from the humidity of moist blades. Commercial and residential property maintenance companies tend to practice regular and minimal cutting of grass in order to avoid placing stress on the lawn by cutting it too short.
7. General garden care
If you are responsible for outdoor furniture, outdoor cooking areas and equipment or any outdoor play equipment, inspect them for health and safety standards and repair or replace them as required.
8. Filter It Out
If your property has an air conditioning unit installed, you will need to ensure the filters are changed at least twice a year, and ideally every month – a clean air filtration system will be particularly appreciated by tenants in summer. Change the filter yourself or have a professional air conditioning contract inspect and maintain the system.  
9. Stormy Weather
While a sunny summer is the ideal scenario, it is worth considering that lightning storms may also be factored into the weather. Thunderstorms may increase in autumn and spring, so summer is an opportune time to ensure all the electrical appliances in your property are protected from power surges and lightning. Consider having a lightning protection system installed on your property if one is not currently in place.

Converting Property From Residential To Commercial : Sloane International Developments

When evaluating a conversion from residential to commercial use, it’s necessary to plan ahead. The first consideration should be the local council’s plans for the area as a whole. Every council will have a ‘local plan’ for the area under their control, and this maps out how development will be controlled in the period until the next plan. 
In these plans, certain areas will be designated for residential use only, and any application for commercial development will go against the planning guidelines. Since these plans are the first level of compliance required for any planning application, it’s wise to ensure that the property first falls within a suitable area. 
Some discussion with council planning officers is advisable, as an indication can usually be given at an early stage of the likelihood of consent being granted. 
If the area is suitable for a conversion, the next stage will be to secure planning consent both for the change of use and for any physical alterations to be made to the internal or external structure of the building. 
You may need to consider how your change of use will affect your neighbours, and on what grounds they might object to your application (on the grounds of increased vehicular traffic to your premises, for example). Depending on the anticipated opening hours and the type of business, there may be licencing restrictions, and again, grounds for objection from neighbours. 
In terms of physical alterations, it may be good policy to take advice from architects or building consultants, to ensure that all relevant codes and statutes are followed, appropriate to the type of business. For instance, a fast-food outlet will require certain design considerations with regard to external ducting for extractor fans, and other similar considerations. 
Licenced premises are subject to legislation with regard to storage and display, which in current form require input to the planning process from a qualified architect
Assuming you have all permissions in place, and can proceed with the project, make sure that you hire trustworthy builders, shopfitters, or other trade professionals. Ensure when asking them to quote, or when hiring them, that they’re members of the trade associations relevant to their trade, and that they have all suitable public liability insurance in place. 
If you have no experience of managing a conversion such as this, it might be good policy to hire a specialist project manager to oversee the process. 
Finally, if you're going to be running the business from the property once it's converted, don't forget to let the public know about it! Start planning your advertising and promotion strategy from an early stage, so that you'll have customers from the first day. 
Look into some form of opening event, perhaps with special offers for the earliest customers, and other time-restricted promotions to draw the public in.

Is London experiencing a property bubble? : Sloane International Developments

Before answering that question, we should ask ourselves, what is a property bubble?
A 'bubble' within the context of an economy is defined as trade in 'high volumes at prices that are considerably at variance with intrinsic values'.
Professor Robert Shiller, an authority on US housing defines a bubble as 'a social epidemic whose contagion is mediated by price movements.' Today's article in City AM suggests that investors should 'fear the London property bubble'. The writer concludes that owning a property in London is now a 'status symbol' for wealthy people and that property values make 'little sense'.
In my opinion this view is simplistic and for the purposes of simplicity let's assume that this writer is speaking about what is often called 'prime property' especially since he describes the London property market as a 'status symbol' for wealthy people. It is important to note that there are local markets within London that do better than others in terms of capital appreciation and investment. So if we quickly analyze London's prime markets such as Chelsea, Belgravia, Mayfair etc are they really experiencing a 'bubble'?  Or are other variables at play which factor in the capital appreciation that these markets are currently experiencing.
In any market, the factors that are critical is supply and demand. Supply creates demand according to classical economic theory. If we look at Land Registry sales volume data for Kensington & Chelsea over the past 12 months (the latest figures are available up to Feb 2013 at the time of writing), we get a graph that looks like this:
So the graph indicates that sales volume is down, in other words there are less transactions being completed. We assume there are less transactions to complete because there is less property on the market for sale. I assume this because, the Land Registry records that price or 'capital appreciation' for the same London borough has appreciated within the same time by approximately 10%:
So in other words, within the context of the property market economy supply is down, demand is up. So what is driving demand? Professor Shiller suggests that in a bubble economy price increases and the enrichment of 'early investors' creates 'word-of-mouth stories about their success'. This stirs envy and interest from other would be investors, luring more and more people into the market, causing prices to increase further. As more people are attracted to the market successive feedback loops are created and the bubble grows. Is this really happening in London? Or is something different at play. It is common knowledge that what drives the London property market are international buyers. London is viewed as a safe haven and as long as there exists political instability and financial market volatility, there will always exist strong demand for London property. That could change, if there is significant social unrest such as riots or perhaps even a terrorist attack. But these events would have to take place within a prime market for it to really slow down demand. What effect did the 2011 riots have on the London property market? A 'blip' according to the chief executive at Savills. The Woolwich attack earlier this year did happen in London and was considered a terrorist attack. Yet no one has even dared suggest that this will slow down demand for prime London real estate. My conclusion, property values go up and they go down, but to suggest that London property is currently experiencing a bubble is infantile and misleading from an investment perspective.

Discover affordable flats to let in Dundee :Sloane Developments

Dundee has never enjoyed a reputation as one of the trendiest cities in which to set up home. But with a £1,000,000,000 cultural-led urban renewal project underway, designed to reconnect the waterfront with the city centre, and where the new V&A museum will be housed, opinions are rapidly changing. Throw in the fact the city has made the shortlist in its bid for the UK City of Culture in 2017, and Scotland’s fourth-largest city is going places.
As you would expect from a city which has so much to offer, flats to let in Dundee can be highly sought after. Surprisingly, Dundee actually has the most affordable rents of any city in Scotland, which is why it’s never been a better time to find a property that comfortably suits your budget.
Indeed, one bed properties in the City of Discovery are snapped up for an average of £379 per month, with two bed flats in the area commanding a monthly rental fee of around £531.
Throughout this bustling city, you’ll find a wide range of flats on offer, from traditional but attractive tenement buildings, houses situated in converted jute mills (an industry Dundee is famous for and a setting that makes a spectacular home) and modern new builds.
Many of the old-style flats to let in Dundee were built in the 19th century, in response to the influx of workers as a result of the flourishing weaving industry – but that doesn’t mean the city is stuck in the past.
With two universities to cater for, Dundee is a city with a thriving population of students from all over the world. As such, it’s hardly surprising that dedicated student housing has continued to grow in the city.This expansion has moved students away from the traditional tenement properties that the city is famous for, and has led to a marked increase in available dwellings of this type.
Whatever impression you currently hold of Dundee, put it to the back of your mind – this is a city with a renewed purpose. If you are searching for a flat in Dundee, you really will be spoilt for choice thanks to the sheer quality and variety on offer. With an exciting future on the horizon, the rental market in Dundee still represents considerable value for your money.

London commercial property producing record low yields : Sloane Developments

Voracious investor demand for the best London real estate i.e Sloane Developments is approaching record levels that could trigger a price crash in popular areas such as upmarket Bond Street, property experts said this week. The luxury shopping strip that is home to Prada, Louis Vuitton and Cartier has ultra-low yields that mark it out as the most in-demand stretch of real estate in Europe.
The price of commercial property is dictated by the yield, which is the annual rent expressed as a percentage of a property's value. Yields fall as investor demand increases and push up real estate prices. The 2.75 percent yield on Bond Street properties should fall to 2.25 percent by the end of the year and could hit the world-record low of 1.75 percent in 18 months, says David Hutchings, of property consultant Cushman & Wakefield, adding that the record was set by Taipei, Taiwan, in 2011.
Such low yields could signal the top of the property market in central London, says Michael Marx, chief executive of British developer Development Securities. "Those sorts of yields are breathtaking," Marx said. "The problem is that when you get to the top of Mount Everest there is only way to go."
Rising rents would act as a brake on price falls, but they are unlikely to prevent a drop of a third or more, with the effect in London rippling out from the epicentre of Bond Street, he added.

When Bond Street yields hit 2.25 percent they will probably be below annual returns on ten-year British government bonds, which are likely to edge up from their current 2.4 percent as the economy recovers. And when yields on government bonds climb above 3 percent, the gap will mean that low-yielding property investments look markedly less attractive. Investors typically seek higher yields from property than bonds because real estate is more expensive and time-consuming to sell and also carries the risk of becoming vacant. "Some heat will come out of the (Bond Street property) market," Hutchings said.
Global investors have spent tens of billions of pounds on London property since the financial crisis, viewing it as a safe haven amid the volatility of global equity markets and the low returns in the bond market. The current yield on Bond Street property is below the ten-year average of 3.7 percent and the 5 percent yields for the best office blocks in London's financial district and central Paris. The Cushman & Wakefield data is based on the evidence from multiple transactions, but deals are being struck at even lower yields.
"We sold an asset at a 1.9 percent yield in Albermarle Street," said Marcus Sperber, head of real estate for BlackRock in Europe, the Middle East and Africa, referring to the strip than runs parallel to Bond Street. "Markets here could be in danger of an asset bubble."