Profile: David Lockhart
Published: 02 October, 2009
Serial entrepreneur David Lockhart has just launched his third retail property business, New River Retail. Will he be able to repeat the trick of buying at the bottom and selling at the top one more time?
Lockhart’s property career spans three decades: in 1981 he quit the family law firm to found Caltrust, selling the business in 1987 to Sheraton Securities. Again in 1991 he founded Halladale and in 2001 it was floated on AIM (the Alternative Investment Market) with a £10m market capitalisation.
By April 2007 Halladale had £1.5bn of property assets under management, and the company was bought by Stockland Corporation for £171m. Within weeks the credit crunch had begun to bite but Lockhart and his management team, headed by his son Alan and Ken Lindsay, stayed on until the beginning of this year to oversee the transition.
At the beginning of this year the two Lockharts left Stockland and their immediate instinct was to set up on their own again. Their latest venture is called New River Retail. “I think there are real similarities with 1991, when we founded Halladale,” says Lockhart. “I think we’re close to the bottom of the market and it’s time to look forward to the next cycle.”
And they had no hesitation in deciding to concentrate on retail property. “It’s a sector we understand well,” says Lockhart, “but there are other reasons too: retail is the biggest UK property sector, making up over half of the IPD index, and all the evidence is that it’s far less volatile than other sectors like offices.”
And Lockhart believes there are underlying characteristics that drive activity in the retail sector even in the toughest market conditions. “Retailer demand is always changing,” he points out. “They have to adapt to changing consumer tastes and that always throws up asset management opportunities for centre owners.”
So New River has been positioned as a specialist asset manager in the retail sector. “In the next cycle investors are going to be looking for sector specialists: they’re only going to pick the best-of-class in each sector,” Lockhart asserts.
And while Halladale did exceptionally well out of the property boom of the early years of this decade – in the six years between floating the company and its purchase by Stockland assets grew from £116m to £1.5bn – the Lockharts believe we’re going to see a very different market for the foreseeable future.
“We don’t expect to see yield compression,” says Lockhart. “When we came out of the last recession, between 1991 and 1999, prime yields only moved by something like 200 basis points.”
So if the market is not going to generate returns, the emphasis is going to have to be on asset management that drives rental income.
New River Retail has just raised £25m through a flotation on AIM, after an earlier attempt to raise ten times as much was shelved in June. Although the City’s cautious approach means the company raised less than he’d like, Lockhart believes that it actually puts the company in a strong position compared with its competitors.
“Up to now almost all of the equity that’s been raised has been used by property companies to repair their balance sheets so there’s actually been very little new money raised,” he says. “The City’s only willing to back those who have a track record.
“Players with access to equity will be the first to move,” Lockhart asserts. “Our investors know that our intention is to come back for more but £25m is enough for us to get out into the market.”
This is where Alan Lockhart comes in. He spent 13 years as a retail investment specialist at the property agent Strutt & Parker before joining his father at Halladale, and now he’s back out looking for stock. The drive to invest will receive further impetus with the recruitment of ex-CBRE director Nick Sewell, who has over 15 years experience in the retail sector.
“There’s an interesting pipeline of opportunities, and we’ll be making our first acquisition soon,” he says. To give it access to larger lot sizes, New River is looking to form joint ventures with investors who have the capital but need access to asset management expertise. The company has already been selected as a partner by the US giant Blackstone. And it is also willing to take on third-party asset management instructions. For instance it is already looking at refurbishment or redevelopment options at the 85,000-sq ft Abbey Centre in Abingdon, on behalf of Scottish Widows Investment Partnership.
Alan Lockhart describes his ideal investment target as “a first-generation shopping centre that needs hands-on asset management. And ideally it should be food-anchored or have potential to create space for a foodstore.”
This is a significant point of difference. Although food operators trade perfectly well in shopping centres everywhere else in the world, UK shopping centre owners have traditionally preferred fashion-led department stores as their anchor tenants.
But Alan believes this approach is mistaken. “The sales densities achieved in food stores are massive,” he points out. “Over £1,000 per sq ft compared with £400 per sq ft for a typical department store.”
And even in the current market food retailers remain the last bastion of the 25-year lease. “Food operators are prepared to take much longer leases: they want to protect their market position,” notes Alan Lockhart.
Planning policy is not going to get any less restrictive, and the big grocers are all finding it increasingly hard to secure their traditional edge-of-town locations. At the same time high petrol prices – and they are rising again – mean consumers are less willing to drive far to carry out the weekly shop.
Alan Lockhart believes all these factors are combining to drive food shopping back to the town centre. And where better to locate it than in a shopping centre which already has a car park?
But the key is to identify the right food operator to suit a town’s demographic. “Food retailers are very sophisticated,” Alan says. “They know exactly who their customer is.”
Even in the current subdued investment market, New River expects to be able to find properties that suit its specific requirements. “We know where the stock is,” Alan says, “but with rents generally under pressure we’re looking for assets where rents are going to be stable at least. That means we’re typically looking in the sub-£100 zone A towns.”
Could the Lockharts’ return be yet another sign that the savage downturn of the past two years is finally coming to an end? Time will tell but with their track record it’s difficult to bet against them pulling it off again.
