COMMENT The year is 1990, and the London Japanese rugby team is pitted against the might of Richard Ellis, captained by the mediocre rugby player John Slade. The game was organised by top Japanese real estate player Taeko Oliver. A big win for RE – not based so much on fitness and skill, but the odd international player on our side, and a considerable size advantage!
Why the rugby story? The late 80s and early 90s in London commercial real estate were characterised by two phenomena. First, the onset of international buying, led in the early part of the period by the Japanese and latterly the German funds. Second, the use of debt and gearing, substantially inherited from the more advanced US real estate practices.
Foresight in foreign markets
During the late 80s the larger agents had started to invest in international offices, and their foresight paid dividends in the import of this money to London.
I was lucky enough to be at the forefront of the Japanese buying in London, with Taeko Oliver. As I lowered my compact backside into my BA Club Class seat, en route to Tokyo via Alaska in September 1987, I knew something was up but not quite how substantial it would be.
The Japanese institutions came in big time – they had already been purchasing in the US and Australia –but had to pay low yields to get the market to take them seriously, because their government approval system meant they needed a long time to deal. Eventually they lost out because the market moved and they were not permitted to gear their purchases to mitigate currency fluctuations.
In the early 90s the market slowed and the German institutions came in, with purchasers such as Deka, DIFA (Union) and CGI (Commerz) being prevalent.
In addition, at the beginning of the decade, there was a development boom – London needed regeneration, but not all at once. The likes of Barclays Bank were hard hit and developers such as Speyhawk rose and fell.
The importance of debt in the market began to increase markedly; debt at a primary level, not only to support equity purchasers, but a secondary market also grew beyond corporate bonds with loans or part loans secured against properties being traded.
Lessons in leverage
The Americans were not only bringing us lessons in debt, but also the 20%+ IRR brigade of private equity, bankers and asset managers were beginning to play.
Among the big agents, mergers and takeovers were beginning to happen: CB/RE/Hillier Parker, JLW/LaSalle, DTZ/Zadelhoff. Technology really began to move – we corresponded by email (the life-changer), our sophistication got bigger, mobile phones got smaller.
The 90s were good to me with those international monies, both at Richard Ellis and in my own agency set up in 1997.
Hitherto this time, agency had revolved around who you knew. The overseas buying brought in the dubious overseas practice of accepting purchase introductions, no matter how little information and advice was given. Quite rightly, that now seems to have been supplanted by the need to add value whether by valuable information, research, sophisticated data, or some other method.
John Slade is director at Sladesco
