• Pearl on the shock of being asked to repay £1bn after 30 years’ carefree borrowing
• Focus now is on low gearing and asset management
As the real estate world shifts back towards the heady days reminiscent of the last boom, what better time for EG Radio’s Real Talk with James Max to catch up with a private investor who got hit hard by the last recession, but has come out the other side with a spring in his step.
Here David Pearl shares the lessons he learned from having £2bn of debt at exactly the wrong time.
After two-and-a-half years shoving cardigans into boxes in a store on London’s Oxford Street, Pearl decided that a life in knitwear was not for him. So in 1965, he and a friend, with a whopping £75 each, launched the Pearl & Coutts estate agency, opening in Hackney, E8.
The pair knew nothing about property, but luckily for them, says Pearl, it was the mid-1960s and the world was a different place.
“I became successful very, very quickly,” he says. “I started when I was 18 and I could have retired by the time I was 21 or 22. I hit the market at the right time. You could buy a property one day and the price would be doubled the next. I was in the right place at the right time and I just knew what to do.”
After 12 years of advising others on buying and letting property, Pearl decided to move into the world of property ownership himself, setting up Structadene.
Over the next 30 years he bought hundreds of properties, mainly in London – first in Hackney and Shoreditch, where he could pick up a shop with flats above for around £50,000, and then in Soho, where the same property would cost at least £150,000.
For 30 years, says Pearl, he had it great. He did not even notice the recessions of the 1980s and 1990s. He did, however, notice 2008 and all that happened in the following five years.
“When 2008 came around we had something like £2bn of debt. I sometimes lay in bed at night trying to count to two billion. It takes you a really long time,” chuckles Pearl.
“Our main bank was Anglo Irish and they said to us, ‘you owe us nearly a billion pounds and we’d like our money back.’ That’s quite a lot of money.
“We repaid every penny. We repaid a £30m swap. It was really difficult. I had sleepless nights. I had thought we were invincible.”
But Pearl says that the threat of losing it all taught him some valuable lessons. Most notably, not to over-gear.
For the five years following that meeting in which Anglo Irish asked for its £1bn back, Pearl steadily sold off assets, something that had not been in Structadene’s business plan.
“It was very difficult for me. We sold some absolute gems. But I learned that the properties don’t actually belong to you unless you’ve paid off your debt. They belong to the bank,” he says. “But we’ve ended up with money in the bank and 45% geared overall, which is a very healthy situation.
“That was my biggest lesson,” he adds, “not to be overgeared. It is a recipe for disaster. We were 70-75% geared… I was 63/64 at the time and I thought, I don’t need this grief at my age. But it was thrust upon me. It was thrust upon everyone I know.”
In those first 30 years of property bliss, Structadene was focused solely on buying assets and regearing. It would buy five to 10 buildings a week and not worry about asset management or a strategy.
“It took me 30 years to realise that if you borrow money from the bank you have to repay it,” says Pearl. “No one asked me to repay any debt. For 30 years. Until 2008. It was the strangest thing.”
Now the business is focused on asset management. The portfolio comprises around 1,000 flats, 4,000 commercial tenants and a rent roll of around £100m pa. Plenty to manage. Current projects include building out 300 flats for rent, refurbishing existing stock, and a number of sizeable commercial projects in Aldgate, Hackney and the City.
After 40 years of good times working in the property market, those five years of discomfort do not appear to have put Pearl off the industry. He remains just as excited about buying buildings in London today as he did back in the mid-1960s. Albeit, with a little less debt.
