■ Every day this week EG will be focusing on a different facet of auctions, from what to buy, where to buy it and how to learn from the pros
Matthew Oakeshott and Kishor Ruparelia are regular faces at the major London commercial auctions: one is predominantly a seller, the other is usually looking to buy. Here they explain their strategies – and why they rarely miss a sale
If you have ever bought a branch of Lloyds TSB at auction, there is a good chance you bought it from Matthew Oakeshott.
The former Liberal Democrat peer, who now sits in the Lords as an independent, helped to pioneer the bank sale-and-leasebacks that began in the mid-1990s when he bought a £40m portfolio from Lloyds.
Oakeshott’s OLIM Property – investment manager of £670m of commercial property for pension funds, charities and investment trusts – has been selling individual bank branches through auction ever since, tapping demand for good covenants.
“We are targeting the Daily Telegraph reader,” he says. “The dealers are always in the auction room, but I wanted to get to the local investor with some money for his pension fund, out in some nice town in Wiltshire or somewhere, who wanted to buy his own bank branch. It’s very hard to find that stock, apart from through the auctions, so we really helped create that market.”
Most recently, at Allsop’s March auction, OLIM sold a Barclays in Lancaster city centre to a private investor for £1.4m. With a tenant break clause in five years and a backdrop of widespread bank closures, this was “a good deal more than expected”, according to Oakeshott, 70.
OLIM, which he runs with director Louise Cleary from offices close to Westminster, now has few bank branches left. Instead, the firm is selling off convenience stores. “They are the new banks,” Oakeshott says.
“We are testing the market initially with three spread across Acuitus, Allsop and Barnett Ross. They are nice little lot sizes of £500,000- £750,000 to suit private investors.
“Where else do you get a top A1 covenant and index-linked rent reviews at a time when RPI [the Retail Price Index] is heading up towards 4% and even higher?”
OLIM buys mainly through private treaty on behalf of clients including BAE Systems, Asda and three Oxford colleges, typically holding stock for five to 10 years. It bought £75m of property last quarter and has bought more than £100m since the EU referendum, focusing on long‑dated index-linked investments in alternative sectors such as pubs, restaurants and industrial.
It tends to buy two or three properties at the major commercial sales each year, the most recent being a Stonegate pub in Cheltenham, for just over £1m, a yield of just over 8%, from Acuitus in October.
It typically uses auctions to sell stock that no longer suits its investment criteria or to capitalise on prevailing demand.
“Stock we sell in auctions is not bad stock. We may just think it’s not in the first flush of youth or we may just be wanting to take a strategic view of moving from one sector into another: from retail to industrial, for example,” Oakeshott says.
Guide prices tend to be 5-10% below OLIM’s valuations. “Usually you beat the valuation, but you’ve got to give people a bit of value. You’ve got to create some competitive tension,” he says.
The common perception that the auction room is a bellwether for the wider commercial property market certainly holds true for him: he always attends the big sales and is convinced they afford him an early insight into market trends. “Auctions are the beating heart of the commercial property market,” he says. “They show what people are prepared to pay.”
Impact of Brexit
Oakeshott resigned from the Lib Dems two years ago after being accused of manoeuvring for then business secretary Vince Cable to replace Nick Clegg as party leader.
He remains staunchly pro-European and anti-Tory. “I have retired from politics, except that I’m still keeping my seat in the House of Lords and I go along to vote only on European issues to try to protect Britain from the worst effects of Brexit,” he says.
“There has been a dramatic divergence in performance of sectors since June and that’s going to get worse. Offices and retail have gone down and are still going down but industrial and alternatives of all sorts are going up. I can never remember a time like this, when the market as a whole is doing virtually nothing but half of it is going up and half is going down.”
However, he is far from sanguine about the short-term prospects from now: “It’s only now that Article 50 has been triggered that people are starting to focus on ‘what are the trading arrangements going to be?’ ‘Are we going to do a deal?’ ‘Are we going to crash out without a deal?’
“We have had many [currency] devaluations in my lifetime: you always get the pleasure first before the pain. So far we’ve just had the benefit – more tourists, and manufacturing and export benefiting. Because of hedging we haven’t had the price rises. Now the price rises are all coming through and consumer spending is slowing down fast. We are going into a very tough period. So you don’t want to be in anything risky.”
Matthew Oakeshott, chairman, OLIM Property
Kishor Ruparelia
The private treaty residential and commercial property markets reached almost complete stagnation before last year’s referendum on the EU. So the first two commercial auctions to be held after the Brexit result were seen by many as a health check on the property market.
It was Kishor Ruparelia, a well-known private investor, who snapped up the very first lot: a retail and residential investment offered by Allsop. He did so to celebrate his 60th birthday the following day and may just have played some part in settling any post-referendum nerves in the room: Allsop sold more than 80% of its catalogue that day, raising close to £70m. Bidding was just as busy the following day at Acuitus, with investors snapping up £57m of stock.
The Allsop lot was a freehold retail and residential investment in NW10, offered on behalf of receivers and let to an individual until 2024. It produced £18,000 pa in rent but had a rent review due last year – a typically favoured angle for Ruparelia. The lot included a three-room maisonette and was guided at £300,000 to £325,000; Kishor paid £362,500, a gross yield of 4.9%.
Still in celebratory mood, he bought a Clydesdale Bank in Middlesbrough at the Acuitus sale the next day, paying £477,000, a yield of more than 8.5%, and has since sold it on for £545,000.
Ruparelia has built much of his fortune from buying and selling auction lots like these over more than 30 years.
It was the expulsion of Asians from Uganda that brought him, his parents and six siblings here in 1972. Dispossessed by Idi Amin’s dictatorship, they arrived with “very little of any worth” from their middle-class life in Africa.
The experience proved formative for Ruparelia, who would go on to assemble a sizeable property portfolio.
He began working as a car trader at 21 with his brother, Arun, and father, Bachubai, after leaving his job as a trainee accountant in 1975 “to do something for myself”.
His first property purchase at auction, funded by his car sales, was a dilapidated office block and yard in Wembley, north-west London, in 1982. Let to a scaffolding business, it cost £185,000 and produced a 10% yield. Six months later, he sold it to residential developer Fairview for £600,000. “The auction game is very interesting. Private treaty takes a long time and often, in the end, you don’t end up buying it. But at auction, it all happens on the day. It’s a done deal,” he says.
He looks for added-value angles, including possible redevelopment, properties that are under-rented, or change of use. He buys parades of shops to break up and trade on – often selling the shops to existing tenants.
By 2008 he had created a commercial and residential property portfolio worth £80m; but with a fair share of gearing at a time when the banks wanted to retreat, he was forced to let several properties go.
Undeterred, he started buying again, by teaming up with other investors he had met through auctions to buy in cash. Today, Wembley-based Ruparelia owns around £15m of property in his own right and also buys and manages properties on behalf of his business partners. He says lenders are approaching him again now, but he would rather avoid the extra costs and stick to cash deals if he can.
A recent buy was at Allsop’s February sale, when he bought a One Stop convenience store and MOT centre let to Halfords Autocentres on a 0.36-acre site with residential development potential. He paid £640,000, a 7.28% yield, for the freehold site in Weston-super-Mare, which was guided at £600,000-£625,000.
“The Autocentre has a 2016 rent review outstanding. I will do that and then either keep it as an investment or make a turn on it,” he says, “and if something goes wrong I have the option to look at development.
“These are good covenants and the tenants are trading well. Rent is coming in on time. I try to buy good, clean property with good tenants and at the same time future potential. If I manage to get an increase in the rent, I’m happy. But if I don’t, I’m still happy to be getting a 7% yield.”
Ruparelia says bidding has grown very competitive for the best commercial lots lately – particularly since last year’s stamp duty hike for residential investments.
“All the resi people are moving into commercial,” he says.
But Ruparelia will continue to hold out for decent yields. Pop in to an Allsop, Acuitus or Lambert Smith Hampton auction and you’ll find him at the back, studying the room.
“I have to be at all the auctions. That is what I do,” he says.
“I sit at the back and see who is bidding, how popular the lot is. I enjoy the buzz.”
And if he doesn’t buy anything? “You have lunch and go home.”
What I could buy
up to £250,000
A ground rent. At Lambert Smith Hampton’s sale last December, Ruparelia bought the ground rent on a single-storey building let to a bakery on a Merseyside industrial estate for £130,000. The rent is £5,900 pa and the lease on the 0.3-acre site expires in 2033. “After 17 years, the property is yours. You could double or triple your money.”
£500,000
“You could get a decent property in a good location around the M25, a shop let off a good covenant with a flat above.” They don’t come cheap, so expect a yield of 4.5-5%. For safety, go for longer leases and a good location.
£1m
“A parade of shops or restaurants in a good location. Fish and chip shops make money and they pay the rent on time.” At Allsop’s March sale, Ruparelia bought a high-street property in Esher, Surrey, on behalf of his business partner. He paid £1.1m, a 5.5% yield. It is let to an estate agent with a two-storey maisonette above.”
This article appears in the latest edition of EG’s Property Auction buyer’s guide, available in newsagents from 20 May. For full and free digital access to the guide, please click here
