Property tycoons who owe billions

With billions of dollars at their disposal, debt-backed buyers are riding high — for now. Jenny Davey reports on the fast-paced adventures of the super-wealthy.
Property tycoons who owe billions
By Staff writer
Sun 26 Nov 2006 04:00 AM

The outside temperature was minus 40C and Steve Boultbee Brooks was jammed into the Snowbird 6 — an outlandish vehicle, described by his wife, Jo, as “part Thunderbird, part combine harvester.” He was driving past No Hope Pass, Heartbreak Ridge and Lost River on a journey that would enter the record books.

Together with his colleague Graham Stratford he made history in April 2002 when they became the first men to drive a vehicle from America to Russia across the treacherous ice of the Bering Strait.

Nine months later, in January 2003, Boultbee Brooks cheated death when his helicopter suffered engine failure over the Antarctic Ocean. After ditching in the sea, he waited 10 hours before being rescued by a Chilean icebreaker. He also hiked barefoot for three days across the Himalayas at 17,000ft after losing his shoes in a river, and he survived a charge by a silverback gorilla in the Congo.

This appetite for risk and adventure is evident in his business dealings. Together with his younger brother, Clive, a sheep farmer who lives near Hereford, he has quietly assembled Boultbee, a private company that has acquired a US$2.7bn European shopping-centre empire stretching from Hounslow to Helsinki, funded with US$1.9bn of debt.

Almost unnoticed, they have joined a select clutch of debt-backed private property entrepreneurs — ranging from the flamboyant Nick Leslau and high-living Tchenguiz brothers to the intensely private Leo Noe and publicity-shy Livingstone brothers — who have become superwealthy over the past five years by taking advantage of low interest rates.

The commercial-property world has been on a huge borrowing spree since 2000. Research from De Montfort University, to be published next month, shows that by July this year the sector owed a record US$334bn, up 12% from the US$298bn at the end of 2005. HBOS and Royal Bank of Scotland have been the most active financiers. The banks have also profited from the relationship. Default rates have been extremely low and property values have soared.

Debt-backed property buyers have exploited the difference between five-year interest swap rates and rental yields. In June 2003 five-year swap rates were 4.03% and property yields were averaging 6.76%.

However, as property values have soared, that gap has been eliminated, and this year borrowing costs have outpaced yields for prime property for the first time since 2000, according to CB Richard Ellis, the world’s biggest commercial-property consultant.

This will inevitably erode the purchasing power of debt-backed buyers. The billion dollar- debt men have had their moment in the sun. For now, however, they are enjoying the party, splashing their cash on private planes and luxury homes and offices.

Boultbee is run from a converted cocoa barge moored on the Thames at Cadogan Pier in Chelsea. Bounding into the boardroom last week, Boultbee Brooks dislikes the description of the business as a swashbuckling, risk-taking organisation. In a rare interview, he insists that “while the group had a high level of debt secured against some relatively short property leases in Europe, it managed its buildings aggressively to add value rather than just treating properties like stocks and shares." He also stresses the huge diversity of tenants in the portfolio, which helps to spread risk.

Boultbee Brooks 45, a mechanical engineer, and his brother, 43, who trained as a chartered surveyor, are the sons of a stockbroker. They grew up on a farm in Staffordshire but started out in property in 1987, buying and redeveloping industrial space in Shoreditch, on the fringes of the City, and turning it into offices. In the 1990s they developed office and industrial space in the Midlands. After narrowly surviving the property crash, they turned to retail, buying shopping centres across the UK and the Continent.

The brothers have since built a fortune stretching to tens of millions of pounds and acquired the conspicuous trappings of success — including a Citation private plane and a Squirrel helicopter. Despite this success they are among the least well known of debt-backed buyers who have made it big.

Nick Leslau, 47, who runs the private Prestbury property company, is the pin-up of the sector. His US$4.2bn empire, built in partnership with Sir Tom Hunter and Bank of Scotland, has been funded with about US$3bn of debt. With a fortune estimated at US$380m, he jokes that “you would have to be a “complete moron” not to have made money from commercial property over the past few years merely by ownership."

He has just snapped up an elegant US$28.5m mansion in Mayfair, spanning 10,000 sq ft with a garden and swimming pool. He and his business partner, Nigel Wray, are also buying a new eight-seater Citation jet.

He went on to build Burford Group with Wray into a US$1.9bn business, before starting Prestbury in 1997. Three years later the company was taken private.

If Leslau is the pin-up, then Robert and Vincent Tchenguiz, the Iranian-born brothers, are renowned for their decadence and love of the high life. They enjoy regular weekend jaunts to St Tropez, gambling, drinking and shooting. Their Rotch property company has more than US$7.6bn of property financed 80% by debt. The brothers each have separate ventures, R20 and Consensus Group, with more than US$1.9bn of property-backed assets apiece.

Also big spenders are London-based Sol and Eddie Zakay, who have amassed a US$7.6bn property portfolio, including shops let to Tesco and Marks & Spencer. Friends say they are in the process of acquiring a US$24.7m Challenger jet to make it easier to visit their ever-growing European property empire. Their company, Topland, borrows from institutions such as HBOS and Norwich Union; and, despite a series of refinancings, soaring property values have helped to trim their gearing to about 50%.

Topland regularly competes for deals with Reit Asset Management, a private firm led by Leo Noe, 53, one of the quiet men of the sector. Noe has built the group into a US$6.5bn business, funded with US$4.6bn of debt. An intensely private family man who is married with fi ve children, he owns about 75% of Reit through family trusts. Friends describe him as “humble" and say “he shies away from conspicuous displays of wealth and is rarely spotted at industry gatherings." He lives in Golders Green, north London, has an Arsenal season ticket and collects art.

London & Regional, run by Ian and Richard Livingstone, a trained optometrist and chartered surveyor respectively, also try to shun publicity, despite having accumulated a US$8.9bn property empire, funded with about US$6.5bn of debt. Ian, 44, is married to a former Tatler magazine journalist, but refuses to have his photograph taken and does not give interviews.

Flamboyant or modest, the members of this property club may have seen their best days. Mike Prew, real-estate analyst at Lehman Brothers, believes cash-rich investors are poised to seize their mantle. Watch out, gorillas, Boultbee Brooks is going to have time on his hands.

"You would have to be a complete moron not to have made money from commercial property..."

For all the latest banking and finance news from the UAE and Gulf countries, follow us on Twitter and Linkedin, like us on Facebook and subscribe to our YouTube page, which is updated daily.

Subscribe to our Newsletter

Subscribe to Arabian Business' newsletter to receive the latest breaking news and business stories in Dubai,the UAE and the GCC straight to your inbox.