Residential land feature in Property Week
Bruce Ritchie
Residential Land’s managing director tells Doug Morrison about his assault on the capital’s investment market.
Few among property’s high flyers need any incentive to head for the south of France in March. But for Bruce Ritchie there was more to MIPIM this week than his customary ‘meet and greet’ on his luxury yacht in Cannes harbour.
It was a good opportunity for the founder and managing director of Residential Land to convene a meeting with Bank of Scotland to discuss progress on their new joint venture. The Blue Princess might seem a touch ostentatious for what was only the second board meeting after Residential Land and the bank launched their joint venture. But as Ritchie points out, it was here exactly a year ago that he and John Moran, the bank’s head of joint ventures, started discussing the deal.
It took until December to complete the paperwork as equal equity partners but now the joint venture is up and running in the form of two funds: Pure Skill and Acquire London.
Both will focus on prime central London residential property although Pure Skill is the main investment vehicle, while Acquire London is a trading fund.
The ultimate aim is to sell on to an institution or REIT over the next five years, in effect presenting mainstream investors with a slice of upmarket London residential in the sort of large ‘lot size’ they prefer. That was always Ritchie’s intention for Residential Land as it started to make its mark in London over the last decade.
Now, with the bank’s Uberior Joint Ventures subsidiary by his side, things are motoring. Full-page advertisements in the run-up to MIPIM boldly declared how Ritchie and the Residential Land team were to be in Cannes ‘with over £1bn to spend on prime central London property’.
In the circumstances, perhaps the 115 ft Baglietto is not that ostentatious after all. As Ritchie says with a smile: ‘MIPIM has been good to us.’
A few weeks earlier, we are sitting at a table in another popular property haunt, the Mirabelle restaurant in Curzon Street, Mayfair. It is a luxury home from home for Ritchie and a clear sign that London’s booming residential market has already been good to him. Alongside chef Marco Pierre White and restaurateur Jimmy Lahoud, Ritchie is an investor in White Star Line, the company that owns Mirabelle and other restaurants, such as Le Caprice, Criterion and Drones. As with his property holdings, Ritchie likes his food to be upmarket and in central London.
This is not bad for someone who began his property career in the early 1980s as a sideline while working as a trainee manager at Harrods department store. By the end of the 1980s property had become the day job and today, at 42, Ritchie is a market veteran. Residential Land, meanwhile, has emerged as one of central London’s biggest residential landlords.
To put it in context, the company’s portfolio now held in the joint venture funds equates to more than 1,000 prime London flats. Much of the buying impetus has come in recent years and will need to accelerate still further if the new funds are to hit their target in the stated time scale. In crude terms and at current prices, £1bn will represent about 2,000 flats, says Ritchie, pointing out that in the last six weeks, the company has bought more than 100,000 sq ft (9,290 sq m) of property. ‘At that rate, we’ll get there, I reckon,’ he says.
He acknowledges that it has taken effort to get Residential Land’s name on the radar of London’s selling agents over the years. And it will remain his brand out in the marketplace, buying up property and allocating it to the Pure Skills or Acquire London funds as appropriate.
One more thing will remain constant: Ritchie’s self-imposed restriction to 24 central London postcodes . Over the years he has operated from his St John’s Wood base, he has never been tempted to buy south of the Thames. Nor has he joined the bandwagon of residential speculators who have ventured into Docklands, fuelling huge house and land price inflation in the process. His postcode criteria amount, simply, to knowing the territory and a firm belief that he has barely scratched the surface in investment terms.
Ritchie points out that there are more than 3,000 estate agents operating in Residential Land’s chosen patch, and he and his team deal with 1,700 of them. In practice, the company is doing most of its work in the eight most central or poshest post codes and, even then, there is little sign of supply drying up. ‘Already you’re beginning to see examples of quality buildings in central London containing flats selling at a three-and-a-bit yield, there is no lack of property to look at,’ he says. ‘There is no lack of property to offer on.
There may be a lack of property that you can acquire at an advantageous price. But we look at property all day, every day and never look at the same building twice. The point is, which one is the one that’s a deal and fits our portfolio?’
The question is all the more germane in 2007 after a prolonged boom in central London house prices and a startling 26.6% rise last year. Ritchie admits to some concern that ‘the top end is getting more expensive and the lower end is being pulled upwards’.
He has no truck, however, with the sceptics who fear the top of the market is nigh, pumped up beyond reason by inflated City bonuses pouring into residential real estate. Ritchie is more in tune with agents such as Knight Frank and Savills, which predict that capital growth will ease to a sober 9% or 10% this year, and declares himself comfortable with that.
Signed, yield, delivered
In rental terms, the heat is seen in yields that are nearer 3% than 4%. Ritchie says the market has risen faster than he anticipated when he wrote a report for Bank of Scotland following his fateful meeting with Moran at MIPIM last year.
‘Already you’re beginning to see examples of quality buildings in central London containing flats, rented out, selling off the back of three-and-a-bit yield. But I think 3% is a big psychological barrier,’ he says. ‘If you assume that it is in good condition and it has been rented correctly I can comfortably see any prime building ending up at that level of 3% gross yield. Seeing it less than that? Difficult.’
Ritchie’s judgement comes with experience and an attention to detail on acquisitions that seems no less attentive today with the support of Residential Land’s seven-strong buying team than it was 20 years ago. He understands the value of information. Indeed there was a spell during the early-1990s recession when he successfully published and sold lists of repossessions, which gave him the opportunity to buy the best ones for his portfolio.
He mentions a recent acquisition, Roland House in Kensington, which had 17 staff and a gross rental income when Residential Land bought it. Now he has two people managing the 100-unit flat block.
It is this assiduous management as well as Ritchie’s market knowledge that has drawn Bank of Scotland from the very top chief executive Peter Cummings was involved in putting together the joint venture.
But why go with one bank when Residential Land has worked with all the big lenders over the years? What is more, as recently as last summer Ritchie says he was considering an acquisition that would have transformed the company in its own right before plumping for the joint venture.
‘A sizeable proportion of my time was spent nurturing banking contacts and making sure each of them understood our business so that we were able to borrow what we needed when we needed it. But I want to put more of my time into acquiring assets,’ he explains.
‘Beyond the advantage of parking our stock there at a price so I don’t need to worry about it any more, if you think about it I started from nothing, so I’m used to joint venture partners and giving away an equal or slightly less-than-equal share of the profits.’
As for the future, the exit route is likely to be a straight sale to a REIT or institution rather than a public listing. Although Ritchie’s experience as a restaurateur makes him comfortable hosting industry receptions in Cannes, he grimaces at the suggestion of a flotation for Pure Skill. He likes his privacy and he prefers the property market to the stock market.
‘Buying and selling is what’s exciting,’ Ritchie says. ‘Five years is a long time in property and we have to be conscious about what the market dictates. At the time, we may have finished building what we’re looking to build. If it’s going well and we’re happy to carry on buying, we may decide to do a lot more together.’ Laughing, he adds: ‘I’m not so old that I have to sell up and go.’
For flats to rent in London visit http://www.residentialland.com
