Machines like me was legendary author Ian McEwan’s blockbuster in 2019, focusing on the potential impact of artificial intelligence in the future.
Artificial intelligence is growing in influence across real estate, from robots in logistics warehouses today to forecasts of automation influencing workplace decisions in the future, to Amazon stores doing away with shop staff altogether.
For decades, property has been dominated by an elite class of specialists typically attending the same universities, moving into the finishing schools of the large agencies and then gliding effortlessly into a role at the larger property companies or fund managers. This has undoubtedly led to groupthink, with received wisdom driving herds of buyers into asset classes which become pumped up in value, or a full-scale exodus from others that become unloved partly because they are out of fashion.
Ahead of the curve
At Sirius we call the herd mentality ‘proscriptive intelligence’ because it closes people’s minds to what they can truly achieve. Alternative intelligence is quite the opposite, a bit like a footballer’s spatial awareness – the best players seem to have eyes in the back of their heads to pick out the next pass even before they have received the ball, while other players are often one step behind the game.
So how and why have we put alternative intelligence into action at UK-listed but Germany-focused business park specialist Sirius?
My own background is alternative in itself: after leaving school I joined the army, then went on to work in a variety of different industry sectors including IT, logistics and directory advertising, before I worked in serviced office groups such as Regus and MWB.
I now work with a highly diverse team of people, none of whom have taken the traditional route into a career in property. I work most closely with a team of seven other colleagues from Germany, Bulgaria, Australia, Ireland and the UK.
When I became chief executive of Sirius in 2010 the company was running out of cash, having over-extended itself with a development programme which had left it with a 30% vacancy rate. At the time the company had 30% of its people engaged in the development of buildings which involved sizeable capital expenditure, and even though we were sinking fast, too many people were focused on spending cash rather than generating income.
So, we endured a painful restructuring by axing the development division and instead creating a dedicated sales team devoted to filling up that empty space.
We then sold much of the non-income producing land to raise enough cash to stay afloat. Then, in 2011, the advice from activist investors was to walk away from a €100m outstanding loan facility and in the process hand over a collection of properties to the bank concerned.
Our thought process was totally different, and instead we restructured Sirius by moving from an external management platform to an internalised model, thereby more closely aligning the interests of the now internalised operating company with its new shareholders and giving us new freedom to sell 15 assets to help placate the aforementioned bank.
At that point our share price was so highly discounted to our net asset value that to most institutions in London, we were simply uninvestable.
South African investors, however, were hungry for exposure to European assets, and through their investment and further placings of shares over a number of years we raised €166m of new equity and doubled the number of business parks we owned to more than 60. So how do I think the wider property world can learn to embrace ‘alternative intelligence’?
Investing in the alternative
First, embrace diversity. At Sirius we employ 37 different nationalities among the 260 people who work with us, and we are now in a situation where more than half the people working at Sirius were born after 1990.
This is an important milestone because this group thinks very differently to the generation of baby boomers so this in itself develops a form of alternative intelligence across the workforce.
We also drummed into our team the importance of income growth. Maintaining good levels of occupancy across our light industrial, self-storage and office-led portfolio is key, together with confidence in our internal platform which enables us to renew existing tenants and attract new tenants at higher rates.
It is only recently that valuers have begun to understand that multi-let properties operated in conjunction with a strong platform can command a premium due to the high yields and well diversified tenant base.
Sirius has now been admitted to the FTSE 250 and has risen from a market capitalisation of less than £50m to nearly £1bn. Our next stop is building our funds from operations to €100m, and in doing so our intention is to materially improve our bottom line returns – and it’s alternative intelligence which will play a large part getting us there.
I am sure the rest of the property industry will at some point start to think ‘alternatively’ too.
Andrew Coombs is chief executive of Sirius
