After the split
Thursday 8 December 2011 7:00
Peter Baber
St James Securities was half of the best known property joint ventures in the North. Now it has come to an end, BQ finds out what’s in store for the firm.
When you think of the really big schemes to have graced the Yorkshire commercial property scene in the past few years – the ones that can really be said to have been a game changer for the cities involved – one particular name, CTP St James, seems to have been associated with many of them.
Just think about it.
The joint venture between Leeds-based St James Securities and Manchester-based CTP – surely a happy Northern compromise if ever there was one – was behind the Round Foundry in Leeds, the Heart of the City Project in Sheffield, and the Wakefield Waterfront scheme, to name but a few.
So it comes as something of a surprise to learn that 2011 will go down as the year the joint venture came to an end.
The two companies have split up what remains to be done, which in St James’s case has left it with a couple of development sites in Wakefield and a site next to the existing Round Foundry in Leeds.
CTP took care of Sheffield.
Not only that, but the schemes St James Securities (SJS) director Paul Morris seems most enthused about at the moment are much smaller retail-based schemes.
When BQ came to interview him – at the company headquarters in Bridgewater Place, another high-profile SJS building has since sold on – the company was on the point of putting in an application to build a 32,000sq ft Marks & Spencer Simply Food store on the Leeds Road in Harrogate.
This is on a site vacated by Nidd Vale Motors which has, in turn, moved to the company’s St James Business Park in Knaresborough.
In retail terms you would have thought moving any food retailer into Harrogate was a real hot potato, given the furore over the council’s approval of Tesco moving into the genteel town last year.
Indeed, Morris concedes that Sainsbury’s attempt to locate a Sainsbury’s Local next to the Mile Post pub up the road has been meet with similar hostility.
The M&S scheme, by contrast, won 88% public support when SJS took it out to public consultation.
Does that not say something about the snobbishness of people living in Harrogate, I ask – loving M&S, but not Tesco or Sainsbury’s? Not a bit, says Morris.
“It says we made sure we chose the correct retailer for a gateway site.
It’s an incredibly prominent spot.” But come on, I ask, doing a 32,000sq ft food store here, or a new 70,000sq ft warehouse for Bettys & Taylors at the St James Business Park – it’s hardly the kind of earth-shattering development the company was used to in the joint venture days.
What has happened? Why has the joint venture come to an end? “The joint venture had reached the end of its raison d’être,” he says.
“The Round Foundry and the Heart of the City were very much around the lines of true regeneration with lots of public money, but it got to the point where there were no new schemes like that, and wouldn’t be for a long time.
Our focus was very much going onto retail.
You only keep in the joint venture if you are going to get another site and another site.” In fact, he says, such publicly-funded schemes were on their way out even before the recession and the new Government’s austerity measures put paid to them for good.
That was one of the reasons why the Wakefield Waterfront scheme – which former Yorkshire Forward chairman Terry Hodgkinson has admitted was touch and go for a while – proved tricky.
“These schemes do take an awful lot of time, and you need public money on that type of scheme,” says Morris.
“I really take my hat off to those authorities who did push regeneration.
The problem is that in those locations where you were putting in a lot of commercial office space you were relying on the public sector to take up that space.
There just wasn’t a sufficient market otherwise.
A lot of the latent demand got taken anyway by business parks such as Calder Park.
So when schemes were eventually delivered in the centre, they were all relying on government or quango occupiers.” SJS is still working on small new regeneration schemes.
Paul Morris says it is currently working on an un-named scheme in the North East that, once an 150,000sq ft supermarket is in place, will allow “£4m worth of infrastructure works which no one could afford otherwise”.
“What people have seen in the last 10 years were fantastic schemes,” he says, “but they were of their time.
This scheme I am looking at in the North East, for example, would have attracted a load of gap funding before, but we are not going to see that amount of money ever again in my lifetime.
We are going back to good, old-fashioned ways of getting a high value use in there, and that high value at the moment happens to be retail.
That in itself isn’t easy.
Supermarket operators are looking harder and harder at the deals they are agreeing.” He is keen to point out that SJS, which was founded by Roland Stross and construction boss Roger Quarmby in 1982, is perfectly used to such schemes.
“Where we are now is how we operated in the 1990s,” he says.
“We did very well out of the previous recession.
Recessions are good times for us.
In fact, the hardest time is when you are in a boom, because that is when you make terrible mistakes by buying the wrong thing at the top of the market and hitting as it falls out.
“Through the last decade we did embark on big schemes where there was ERDF money.
But before that, for example, we had probably done more retail in Bradford than anybody – we did Forster Square and Peel Park.
We did Seacroft in Leeds too – and that was a real working-in-partnership with Leeds City Council, having to get a compulsory purchase order to demolish the old Seacroft centre and come up with a new district centre.” But as for the older larger schemes that SJS may have hanging around, Morris says the company will just have to become more creative about them – and they may take longer.
Stross and Quarmby semi-retired from the business in 2007, and the old schemes are officially being looked after by Quarmby’s son Oliver, but Morris has some ideas about what might happen.
He thinks the unexpected success of the new Hepworth Gallery in Wakefield – “150,000 visitors in its first five weeks, when they were expecting that in a year” – means they might try to introduce a leisure use to the remaining sites there.
As for Shaw Lodge, a large mill complex SJS is converting in Halifax, ideas are even more distant, but Morris takes inspiration from what happened at Saltaire – always conscious that Halifax already has one development like that in Dean Clough.
“You have to think outside the box,” he says.
“When Jonathan Silver first bought Saltaire, people must have thought, ‘This guy is mad.’ They had just come out of the worst recession ever, and manufacturing was decimated. OK, he happened to be good mates with David Hockney, but I can imagine people in the Wool Exchange laughing their heads off. But you have got to have a vision, and if you believe it, the next biggest hurdle is getting other people to buy in and believe it.” The most important thing to realise, he says, is that such schemes don’t happen overnight, which is why long-established companies like SJS have an advantage.
“There was a plethora of wannabe developers that emerged throughout the 2000s,” he says, “and that was a problem because they weren’t developers.” Morris, more than anyone else in Yorkshire, should know, because he has only been a director of SJS since January last year, having come to work for the organisation on a peripatetic basis during 2010. Less than two years before that he was working for one Simon Morris, perhaps the most notorious of all those property “wannabes”, and was there when the Morris Properties empire collapsed amid allegations of fraud.
Simon Morris is now serving an 18-month jail sentence after being convicted of blackmailing a former business associate over an unpaid debt.
The Serious Fraud Office investigation into Morris Properties collapsed amid much publicity, and Paul Morris thinks it was right that it should have done so.
“The deals they were investigating had all had panels of valuers approving them,” he says.
“Do you think they would all have let such gross fraud through?” He thinks Simon Morris was badly advised, even by members of his own family, who he says knew nothing about property.
“The first time I went into their headquarters the first thing I noticed was the heavy gloss black walls in their reception,” he says.
“It was exactly what you would expect from an entrepreneur, but we property people would never do that. The gross to net on that must have been appalling.” He says he only agreed to join the company because he wanted to get a taste of property development after a career being a property agent. But he never actually became a director of the company.
“I only invested in special purpose vehicles because I knew there was no risk,” he says. The two Morrises are in fact unrelated, and Paul says he would usually point this out near the start of any meeting the two of them attended. (I can only imagine that having to do this must have become tiresome quickly – and perhaps not just for him.) Nevertheless, he remains bitterly angry at Anglo Irish Bank, who he claims initially promised to back him in an attempt to carry £20m of Morris Properties’ debts into a new company, and then reneged.
“They were convinced that Simon was backing me,” he says. “Nothing could have been further from the truth.” As a result, Paul Morris spent nearly a year away from property, investing instead in a retail venture. However, the bug soon came back and within a few months he was knocking on SJS’s door with property ventures he thought they would be interested in. “As a joint venture partner they were top of the list,” he says.
“I knew this wasn’t a company that would go behind my back, even if I didn’t have anything locked on.” Soon he was working there full-time, and enjoying what he says is a flight to quality in the market.
“We have the experience here, and the knowledge and the quality,” he says.
“So we have gone back into schemes that other people have been working on – schemes where perhaps they have acquired interests in land, but are not in a position to take them forward. We have a good relationship with some of those authorities they have been dealing with, so we have been able to go in and immediately get their respect by saying, ‘We are going to partner with these people, but actually the scheme you wanted to see isn’t really going to happen. However we believe we can deliver it like this.’ And immediately you have the doors open and senior executives want to talk to you.” These must be interesting meetings, because Morris’s opinion of local authorities – at least in Yorkshire – is not exactly heartening. He likes his current work in the North East, he says, because councils are much more accommodating there.
“The difference between local authorities in the North East and the ones here is that the ones in the North East will open the doors and say: ‘What can we do for you?’ They want jobs. Certain authorities down here have not cottoned on to the urgency.
The agenda wherever you are surely has got to be jobs and growth.” This is one of the reasons why he is ambivalent about the changes to the planning system.
Not because of the Government’s enthusiasm for localism, although he is worried about that, but because he thinks certain authorities will use it as an excuse to delay and do nothing.
His opinion of central government isn’t much higher, however, as he believes the new proposed enterprise zones – what he calles ‘Enterprise Zone-lites’ because they are scaled-down versions of previous schemes – will do little to lift the UK out of the doldrums.
He says: “If you look at previous Enteprise Zone activity businesses just moved from one to the other. Instead you could drop corporation tax to 5% for companies that want to locate there, but not for every company – not for property – but for those doing R&D for things like wind energy.
“Even then that might not be enough, because who’s to say the scheme won’t get knocked out after the next election. So make them an Enterprise Zone-turbo – write into the law surrounding them that for 15 years such companies who locate there will only have to pay 5% corporation tax. That way you will get the Nissans we got in the late 1980s.” Needless to say, he can see a role for SJS here, in building the business parks that would be in hot demand as a result.
