When browsing the auction catalogues, Tahir Ali, sole director of private propco Evergold Property, generally looks out for opportunities reflecting yields well above 30%, and assets he believes he can add significant value to.
So when The Postings shopping centre in Kirkcaldy, Fife, was put up for sale through Allsop with a reserve price of just £1, it would be fair to say the gross initial yield of 15,590,500% fitted the bill.
Of 100 prospective buyers registering their interest in the complex, 12 battled it out during the auction before Ali (pictured), who is based in Yorkshire, placed the winning bid over the phone.
Even though he ultimately paid £310,000 for the 80,618 sq ft mall in a cash buy, the sale represented an impressive yield of 50.29%.
While 14 of the 21 units there remain vacant, there is annual rental income of £152,005 excluding operating costs, although these were not referenced in the brochure.
Notably, the accompanying car park is on an 85-year lease to Fife Council, with no breaks and upwards-only rent reviews every five years.
Columbia Threadneedle Investments, the previous owner, had bought the shopping centre for £10.3m in 2003.
“I wouldn’t say I’m a speculative investor, but in the property industry there are many like me who will look for an opportunity,” Ali tells EG. “And there are many out there.”
At first glance, the odds do seem to be stacked against him, as an army of one attempting to achieve what a City pension fund could not. But Ali says he has agility and speed on his side.
Indeed, residents and councillors will certainly be hoping for some speedy action to revive the centre.
Citing dealings with large businesses in the past, Ali says he soon realised he could react to situations in ways they could not.
“The more business I was doing with these organisations, the more I came to understand the culture and the way they work – and I realised it takes them more than three months to make a decision,” he says. “Time kills all deals. That is just how it works.”
Rolling up his sleeves
Ali fully intends to be a proactive landlord from the get-go. He estimates that he will invest around £250,000 in the centre during the next six months.
He says: “Since the credit crunch there have been many opportunities, but with these types of investments you cannot just sit back and expect a management company to handle everything.
“You have to be ready to roll your sleeves up, speak to your tenants, and think outside the box on how to make it work with them.”
When it comes to revitalising the asset, however, he certainly has his work cut out.
During Columbia Threadneedle’s ownership, the fund manager struggled to retain the centre’s occupiers, as tough market conditions forced many to retrench.
In a major blow for the site, its anchor tenant, Tesco, shut its loss-making, 53,155 sq ft supermarket in 2015 – and so far the centre has not been able to recover from this.
Despite the foreboding caused by such a high vacancy rate, the centre has surpassed Ali’s expectations. He says: “When I saw the particulars, I was expecting a dilapidated, run-down and unloved building – the reason it had fallen into the state of having so many empty units.
“But it was actually quite the opposite: it was fantastically maintained and well looked after. It acts as a thoroughfare for the bus station into the high street, so around 15,000-20,000 people walk through it every week. It’s not hordes, but there is decent activity.”
As a first step, the site has been rebranded as the Kirkcaldy Centre, and will feature revamped signage, fresh paint on the doors and new ironmongery. A new website will also launch on 30 March.
Talks with the council have also begun on issues relating to the site’s rear staircase entrance, which Ali jokingly dubs “the staircase of doom”.
“The council is spending millions of pounds on regenerating the seafront and the town centre to attract tourists. But at the end of the day, they will see these stairs as either the first impression they get as they enter the high street, or the last as they are leaving. So I just don’t get it,” he explains.
Working out the tenant mix
Contrary to previous market predictions for the site’s future, there are no plans to redevelop or repurpose the centre.
Ali says he ruled out alternative uses such as offices and residential options from the outset, since neither the site nor its demographics lend themselves to his plans for the site.
“We are not trying to do anything revolutionary,” he says.
Occupier-wise, leisure is a key category that is being considered for the centre, with gym operators highlighted as the ideal choice.
Once a deal with an anchor tenant is sealed, Ali says the rest will naturally follow: “If we get a good gym operator in there, we could bring in some good delis or high-street coffee chains off the back of it.
“Otherwise, if we fill the small units first we will have to go down the road of more locals and independents, and give them lots of incentives to [open there]. So the boot will be on the wrong foot.”
Ultimately, his vision is to ensure a diverse tenant mix with minimal competition, to increase the centre’s ability to provide a “day out” experience. This in turn will extend trading hours and bring in more footfall.
“Customers want to go before or after work, and most people work in town centres. In [the likes of] Luton or London there are gyms all over the city centres, with many operating 24 hours a day, but outside cities it is happening more slowly. That is the key,” he says.
“These town centres just rely on daytime economies – they need to make more of a big shift towards environments for living and working.”
Having appointed Shepherd Chartered Surveyors to handle leasing, Evergold is currently negotiating with around seven or eight occupiers to sit alongside existing tenants Farmfoods, Lloyds Pharmacy, and bakery chain Stephens, with the aim of getting more well-known retailers in.
This includes discussions with an unnamed “large, national” operator in the former Tesco unit that anchors the centre.
For the smaller units, Ali is also considering local, independent businesses that are already operating more than one shop in the broader county of Fife.
“That sort of business would fit really well with us, because they complement what we are trying to do there,” he explains.
Betting on retail
Ali acknowledges that he could be taking a gamble by focusing so heavily on retail and leisure – at a grim time in particular for the retail sector – but he shrugs off any concerns about the market outlook.
“Retail is getting harder, but that means you just have to work harder as well,” he says.
“As an investor I have to look past all the negativity. If I just went on advice my solicitors gave me, I would never buy anything. They are there to highlight all the negatives, but sometimes you just have to take the risk.”
To secure occupiers, Ali plans initially to incentivise prospective tenants with rent-free periods, but he hopes that this will not reach excessive levels.
“As long as they are the right kind of tenant, I’m happy to sit down and discuss anything, [but] I’m hoping we won’t have to do a lot of that. If you have gold and you try to give it away for the price of bronze, it puts people off and makes them question it,” he reasons.
“We will do deals – a little more than the price of silver to get the oil in the engine, but hopefully within the next three to six months we will have a couple of quick wins, which will assist in normalising what we would ask for with the other units, once they generate more visitors.”
Additionally, the majority of the smaller units would be eligible for rates relief for small businesses, and Ali is hoping this will boost occupancy.
Nonetheless, he seems to be keenly aware of the challenges that await, and is wary of promising too much within a short space of time.
To illustrate this point, Ali will avoid most types of marketing and social media for the next six to nine months, or at least until he has got some tenant wins under his belt – even if this has “raised a few eyebrows” with local councillors.
With M&S shuttering its Kirkcaldy store in February – adding yet another empty retail unit to the town – it is probably a wise move to downplay expectations.
He adds: “The last thing we want is to be 12 months down the road and still have all the same units vacant. That won’t be because we haven’t had any interest, because we are already getting a lot of it, but because I would have been too rigid on deals with the right types of tenant.”
Scotland beckons
The Kirkcaldy purchase has now inspired Ali to look at other sites in Scotland. He says: “As I’m up there, I am being introduced to more potential properties and will start thinking about what else I can do with them.”
In the broader context of widespread expectation that The Postings’ buyer would redevelop the site completely, by his own admission Ali’s vision for his new asset is hardly ground-breaking.
But if he manages to resurrect the centre, he may be able to prove that there is still a place for traditional retail in the UK’s towns – and even pave the way for more private propcos that might consider making a bid for a shopping centre asset some day. That in itself makes it a scheme that will no doubt be closely watched by the industry.
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