Sailing through the eye of the storm
Tuesday 1 November 2011 6:00
Wallace Mercer was one of Scotland’s most outspoken entrepreneurs figures. But his premature death forced Iain his son, then in his late 20s, into the frontline, as Kenny Kemp reports.
On the Richter scale of business, the death of a charismatic boss is a seismic event. When such a leader dies prematurely, succession planning is thrown out the window, disaster recovery kicks in and it becomes a battle for survival.
Iain Mercer, at 33, is now a battle-hardened property investor. His father was Wallace Mercer, the colourful and controversial property tycoon who was once loved and loathed in equal measure by Edinburgh football fans.
Wallace was the audacious visionary who put a substantial chunk of his personal fortune into Heart of Midlothian Football Club – and later earned brickbats for suggesting Hibernian, their sworn rivals, should share a football stadium.
While it was more than enough that his death was a personal family tragedy, it was also a baptism of fire for Iain, picking up the pieces as the biggest recession in 80 years kicked in.
“It’s been a tumultuous last five years, both corporately and personally,” says the slim and bespectacled Mercer, sitting in his converted mews office in Edinburgh’s West End.
“There isn’t a day that goes by without wondering what my dad might think or do,” he says, reflecting on his father’s life. “Or what his advice would be. He was the biggest influence on my life.
He survived at least two proper recessions and when the last one came around in the mid-1990s I was at an age where I could understand the impact and implications, both economically and for the family.” Wallace Mercer was running Dunedin Property which he built up from nothing to a turnover of £150m, before his asset base collapsed. In the mid-1990s, after selling out to Hearts, he went to live in France before returning to set up Almondale Investments with Cosmopolitan set up from the sale of the shares from the football club.
“In those days it was good going to build up such a portfolio from nothing,” says Iain Mercer.
“Then it went into reverse and he had to dismantle it all. At that time, my father said it was one of the hardest things that he ever had to do.” But Mercer senior survived and was rebuilding his business. Mercer junior’s childhood memories involve being with his father on building sites and looking at property.
“I always had an interest in property and what he was doing,” he says. “We used to spend Sundays driving around building sites, seeing contractors and finding out what was going on.
“In his latter days, when we were redeveloping the Hearts football stadium at Tynecastle, I worked for six weeks during the summer as a labourer on the building site, digging the foundation pits for the new stands. This gave me a basic understanding of how these buildings are put together. I gained a working knowledge and that has stood me in good stead.” But a career in commercial property was not Iain Mercer’s goal. He set out to become a sports broadcast journalist, although he undertook a business degree at university.
“I wasn’t an academic by any stretch of the imagination but my real drive was to get into broadcasting,” he says. He worked at the BBC in London and Radio Five for a stint, before working for Radio Forth where he spent two years in front of the microphone. Then came that awful dilemma that only those in family business can properly appreciate – do they continue to climb the ladder in their chosen career or do they join the family business, with all that entails working with father, mothers and siblings? Iain Mercer was in his early twenties.
“I achieved what I set out to do in radio and broadcasting and saw its limitation for me in Scotland,” he says. “Do I move to London or take on a new challenge in the family business?” He decided to start work with Wallace Mercer and his mother Anne, who has worked as the group finance director in the business for 30 years. The deal was to give it a go for a year and see how it worked.
He says: “In the end we stuck with it and that’s when we began to build up and develop Cosmopolitan Investments, which is now the active part development vehicle of the group.” Iain Mercer’s life was jolted in 2006 when Mercer senior died of liver cancer.
“He was only 59,” he says. “He hadn’t been keeping in the best of health but we didn’t know what the indications were. When it was finally diagnosed, it was all very quick and sudden. People lose their fathers every day of the week, but not everybody has to deal with it in such a public way. There was enormous press coverage; we didn’t expect the amount that there was.” Iain and Anne vowed to press on, partly as a tribute to Wallace, and partly because there were few other options.
“We’ve worked very closely together taking a decision to carry on and to take our business forward,” he says. For Cosmopolitan, the double whammy was that the UK dipped into its worst commercial property recession since the 1930s. The baled-out banks were destroying overborrowed property companies.
How did Iain Mercer manage? “We survived by sticking together. We’ve hung in there,” he says. How did the banks view the business? Were they concerned? “We have had a long-term business relationship with the Bank of Scotland,” he says.
“There’s a trust there and a track record. I’d been in the business for a few years, and it wasn’t as if it was thrust upon me and I knew nothing about property.” But Iain Mercer conceded he was still building his own track record, to prove his own abilities.
“To an extent, I still am,” he says. “There’s no question the economic crisis has been enormous, so in some respects we’ve achieved a lot. We stabilised the business, we’ve done our own cost-cutting measures. We managed to keep the group portfolio together.” What did Wallace pass on? “I like to think that I inherited some of his drive and ambition. I’ve always been driven. He was extremely single-minded and once he made a decision that was it.
He taught me to surround myself with good people.
I think that’s important in business, especially in property, which is very much a personal business.” Cosmopolitan Investments still uses a lot of the professionals who were employed by Wallace Mercer.
The architect James Clydesdale has worked with the Mercers for 30 years, while contractor West Lothian-based Ashwood Scotland has undertaken all the projects.
The portfolio includes a mix of development from Axwel Yard at Broxburn; retail units in Dalkeith High Street; shops in North Berwick, Harbour Point at Musselburgh; offices on the Heriot-Watt University Research Park campus, to the flagship 70,000 office on the Innovation Park at Bellshill where Auto Trader and Balfour Beatty are clients and rentals are between £10.50 to £11 a square foot.
In all, the group has 30 properties in Scotland that it owns and manages. Rent values are over £1m a year, with valuation that hit £30m in the peak of the market. “Our strategy was to create value out of redundant properties,” says Mercer. “The first phase at Bellshill went extremely well but the second phase hasn’t flown. The second building, John Logie Baird House, was completed at the end of 2006 – 35,000 sq ft – but is still looking for tenants. This coincided with the start of the recession and competition from nearby Maxim Office Park and others in North Lanarkshire on the M8 corridor.
Across our portfolio we’re 85% occupied; our single biggest vacancy is at Bellshill. There is still a lot of space overhanging the market there.” Nearer to Edinburgh, Cosmopolitan’s fortunes have been much rosier with Birch House on the Bankhead Estate at Sighthill, one of Iain Mercer’s initial success stories. This was a redundant building which he bought, refurbished and let to Petroleum Geo-Services which took over MTEM Ltd in 2007 for £138m, the largest spin-out from Edinburgh University, raising £7.4m in 2004 from Scottish Equity Partners.
“We were the first speculative developers in five years to put up new property on the Heriot-Watt University Research Park,” he says. “The land is owned by the university and we lease the space. We felt we could put up new-build space at the right size and price.” Heriot-Watt Research Park has attracted the Scottish Environment Protection Agency, Scottish Water, Renishaw and Scottish Business in the Community. Cosmopolitan’s first development, completed on the campus in 2005, is fully let.
Then Mercer was asked by the Weir Group to build a new building for relocation from the Gyle. A third building site is awaiting better funding conditions.
“In my opinion, Heriot-Watt is the best located research park in East Central Scotland,” he says. “There’s a cross-pollination between academic and business life.
While the BioQuarter, on the south side of Edinburgh, has had a lot of money lavished on it by Scottish Enterprise and others, I feel sorry for the likes of Heriot-Watt University, who’ve been forgotten about and don’t get as much attention.
They are competing with the likes of Edinburgh University who have big pockets. We’ve actually built something here; delivered it and let it. We’ve done it and it annoys me when I see £50m of public money poured into a scheme where potential tenants I’ve spoken to don’t like the BioQuarter because it’s too expensive and in the wrong location.” Mercer makes his comments as the partnership of Scottish Enterprise, University of Edinburgh, NHS Lothian and Alexandria Real Estate Equities sees Allan Murray Architects launch a public consultation exercise and develop a masterplan to expand the £600m project.
“I’ve real concerns whether the BioQuarter can be a commercial success,” says Iain Mercer. “When academics – who are intelligent individuals – come out of the universities with their spin-out ideas, they get a shock when they face the commercial reality that they have to pay rent, rates and service charges. You can’t go on forever getting subsidised.
You need to provide good quality accommodation at a decent price. “The reality is the science and research and development sector in general is going to be a huge contributor to Edinburgh’s economy. I’m not sure we’ve got it set up right at the moment.” Mercer has ploughed his own furrow without any assistance from Scottish Enterprise or Scottish Development International, in attracting new companies into Scotland. “There has been a direct focus on Edinburgh BioQuarter and others and from, what I can see, not immediate help for others,” he says.
“I fail to see how Scottish Enterprise can put £25m into a new development at the BioQuarter when they are still sitting with a white elephant and a bio campus near the Bush, which was built and is still empty.
If you’ve a problem there, why shovel money down a black hole in an untried and untested location? Private developers with a track record who have delivered something are competing against heavily subsidised properties elsewhere.
That’s my main issue with it all.” He admits there have been some business failures – including retailers – over the last three years, but that tenants who have been running their business tightly have been pulling through.
“They are the ones who are surviving,” he says. “We’re fortunate to have a clutch of great partners.
It’s about balancing whether you want an empty place or renegotiate to help the business survive.” One of Mercer’s latest developments is the creation of a Sainsbury’s Local at Barnton on a site which has been in the portfolio since the 1970s. It stands behind the eyesore that is the old Barnton Hotel, a listed landmark which has been allowed to fall into terrible state of repair. He says: “We bought a red brick building at Barnton in 2001, when it was WHSmith and we redeveloped the property for Bell Security, now owned by Swedish company Niscayah. The company was looking for a way out and we worked with them. We’re now redeveloping it for Sainsbury’s.
“This is great because we’re finally back on the development trail. It’s a small development of 4,000sq ft but we’re funding it without any borrowing. We manage our portfolio and don’t farm it out to third parties, so we get to hear what’s happening on the ground.” Mercer says this was an opportunity to put in place a good covenant with a blue-chip client such as Sainsbury’s. He was surprised by the local community opposition – he had to knock down a tree to gain some more space – but eventually it went through planning in February 2011. The store is planning an opening soon.
“We need companies like Sainsbury’s to drag us out of this recession,” he says. “They are bringing new jobs and investment to the area. This local Sainsbury’s has re-invigorated the whole parade.” It’s clear that Iain Mercer is a sleeves-rolled up individual. He’s has emerged from a tough period in his life with plenty of the DNA that made his father so entrepreneurial and feisty. Time will tell if he can replicate Wallace Mercer’s success, but he remains, like his dad, his own man.
