Developer Richard Saint believes his unique ‘less than 5%’ profit model could revolutionise industrial development.
On the wall of Bericote Properties’ office, near Leamington Spa, a large-framed image proclaims ‘<5%‘ in bright blue letters.
And, says Richard Saint, the industrial property specialist’s chief executive and co-founder, it is not a celebration of the heady days when industrial yields reflected that figure.
Saint and his two-man team, Lee Pettit and Neil Curtis, are hoping their revolutionary ‘less than 5%’ model will change industrial property development in the same way that a schoolboy picking up a football at Rugby school changed the world of sport forever.
‘I’ve read a lot about the tide going out and you see who has got trunks on and who has not,’ Saint says. ‘But this is more than that. It is like a tsunami. It doesn’t matter if you’ve got trunks on. Everyone will be hit by this recession.
‘Some property companies will say: OK – we’ll pull out of the market for two or three years, until it recovers. But that is not an option. The market won’t be the same in two years. To me, it is a climate of adapt to survive.’
It is brave talk, but it is also considered and backed up by experience. This is a man who started at Gazeley, set up Astral and worked at Kingspark.
And, just 20 months after it was set up, Bericote has the big lettings to back up its big ideas. Earlier this year, it let 71,000 sq ft to ASDA for a recycling facility at a 14 acre site in Washington, near Sunderland.
‘About a year ago, we heard from Asda they were looking for a new recycling facility,’ Saint says. ‘It’s been a bit of a “road to Damascus” since then – or rather a road to Sunderland, but that doesn’t sound the same.’
Saint wanted Bericote to work on a unique, open-book model, showing Asda everything from costings to development profit. It was at the development profit stage that they hit a snag.
‘Asda looked at our development profit of 15% and said, why are you making that margin? We tried saying it was standard, but after a few meetings it became clear that unless we put development profit at less than 5%, we would not be doing business with Asda.’
So, after weighing up the options, Bericote decided to change the game by going for the deal with Asda at a less than 5% development profit. Saint has now adopted this model as a mantra.
‘We are not embarrassed,’ he says. ‘Less than 5% is only a bad thing if you are working off 15%. If we can build it quicker, cheaper and greener, who are the occupiers going to want? Rather than keep quiet, we are saying: OK – retailers are struggling. We can help you.’
It worked with Asda, and Saint says he is now in discussions with other occupiers, following the same model. Bericote owns land in Erith in south-east London and Welwyn Garden City in Hertfordshire.
‘This approach can make deals happen and unlock deals that are stuck at the moment,’ he says. ‘It also works for landowners. We will buy sites but we will also work in joint ventures with landowners, source funding and obtain planning consent and occupiers.
‘Which site will the occupier choose? Ours, or the one where the developer makes a huge profit margin?’
The waste and food sectors are still looking for big sheds, Saint says. He adds that the Bericote model is one they understand across their supply chains, however new it may be for property. ‘All their other suppliers work off open book and the supermarkets drive down their margins. They are on the same wavelength. Partnership is very fashionable these days but you can‘t be partners and be quiet about what return you are making.’
So far, the innovative approach seems to be working. Unlike most of its competitors, Bericote is still in the market to expand and buy more sites. It has secure relationships with both the Royal Bank of Scotland, which provided the business set up, and with Abbey, which financed the purchase of the Erith land for £30m and refinanced the facility for the deal earlier this year.
As Property Week went to press, Bericote was on a shortlist with Peel and Cirrus to buy around 100 acres from the National Grid on the Isle of Grain in Kent.
Saint does not want to comment on the bid, but it is the kind of land – a big, strategic site – that he is keen to buy. However, he says that, in this market, the focus is now on occupiers, rather than on big sites.
‘With Asda, it was occupier-led. We didn’t own the site but you don’t need to. This is how it used to be, and how it is now: you don’t need land banks.’
Bericote continues to have low overheads because Saint owns the office and surrounding land in Leamington Spa – in fact, his house is just across the drive (see box below).
In its first, and latest, results, released a few months ago but compiled to the end of December 2007, Bericote had a turnover of more than £15m and had bought more than £40m of land and property.
Since the company does not have a huge land bank or lots of vacant property to write down, Saint is sanguine about what the results might say at the end of this year. However, he is convinced that the ‘less than 5%’ model will be a boost, and that it will lead to more deals being done, rather than to the company taking a hit.
Saint accepts the model is not for everyone but, for now, he is almost evangelical about its potential.
‘You are forgoing super-profit but I think that era is finished. We are the first, but our industry will have to change. Sainsbury’s thought it could keep its prices higher than Tesco, but now the prices are nearly the same. There is no difference in our sector.
‘People will say, why did we ever support 15% development profit? Why were surveyors taking private jets to three-Michelin-starred restaurants? There’s been a seismic shift and we have to change with that.’
RICHARD SAINT: A DAY IN THE LIFE
I walk over to the office from the house and arrive at around 8.30 am. I catch up with Lee and Neil if they’ve been out, then we have a meeting, around 11-ish.
We all either go to the gym or run over lunch – I’ve always been into running. I’m also a vegetarian.
My son recently found out that Stella Artois is made with fish bones. So we emailed them and they sent back a reply saying no, it’s beef – so I’m having to look for a new beer.
In the afternoon we have another meeting and finish around 6 pm.
I spend about two days a week in London, having as many meetings as I can and collecting intelligence, and it’s a nice contrast.
Photograph by Anthony Lycett.
InBev wanted to add that Stella is not made with fish or beef products and is suitable for vegans and vegetarians.