Eatonfield Group

Source: Stock Market Digital

Date :07/07/2008 17:28:17

Planning for the future

Written by Ian Armitage and Produced by Kiron Chavda

A year ago Exec spoke with the Eatonfield Group plc’s founder Rob Lloyd about the company’s flotation on AIM and how it was growing. We learnt that Eatonfield, founded in 1998, has expanded rapidly, becoming a successful property developer with a track record in identifying, acquiring and adding value to property development opportunities on both Greenfield and Brownfield sites within the commercial and residential sectors.

Unless you’ve been visiting relatives on the moon, you will have no doubt noticed that since then the housing market, and consequently construction industry in general, is struggling. That has had a huge impact on all sectors.

The global credit crisis is beginning to hit lenders and that is having a knock-on effect on the property market and the economy, leading to talk of debt, repossession and the prospect of a housing crash. This is having a negative effect on house builders – many of which are putting projects on-hold until conditions improve.

However, it isn’t bad for everybody and, as in most tricky scenarios some clever souls actually return a profit. It just so happens, Eatonfield is one of those.

“That’s right, it is great for us,” says Howard Jones, Group Finance Director, who joined the group last June as financial controller and was instrumental in the production of its first annual report as an AIM-listed company.

“But it is dreadful for the construction industry; the reason it is dreadful,” he adds, “is that mortgage lenders are restricting the flow of mortgages. It is nothing to do with supply and demand. In fact, there is more demand out there than there is supply of new houses.

“Some housebuilders have houses in the middle of being built, which they can’t finish or sell because buyers can’t get the mortgages to pay for them. So, it is nothing to do with demand - it comes down to the mortgages. Until the market intervenes and plugs the gap you kind of stall the situation.

“Markets always find a way through, though,” he says.

Although the picture for housebuilders is pretty bleak, it actually presents Eatonfield with an opportunity. “For the last 10 years, we have made a lot of money when we’ve been able to buy sites of a distressed nature from people in debt or fearing recession,” comments Jones. “At the moment, lots of people are very distressed, so by that nature, we have a fantastic opportunity.”

He stresses Eatonfield is very much the opportunistic buyer and “the sheer number of distressed sellers” means there is a lot of opportunity. “We hope to take advantage,” explains Jones.

Adding value

So, what is it Eatonfield actually does? “We tend to buy Brownfield sites, which are former industrial sites and are currently unoccupied and we add value to that by changing the planning consent on that site, usually to a mixed-use scheme and then we sell it on to different developers to develop up that scheme.

Indeed, Eatonfield acquires commercial investment properties and land for potential gains in value, arising from the restructuring of leases, refurbishment, achieving planning permission, negotiation of rent reviews or letting of vacant space. Easy to see why the faltering economy presents opportunity!

“We have the capability to move quickly to exchange, which is a real blessing,” says Jones. “If we can pick up a site at rock bottom price today, it can take between 12 months and two years to convert that planning and take it through the planning process.

“If you go back 20 years, planning could have theoretically taken eight weeks. But it has become just harder and harder to get planning as you have to consult with more and more people.

“Housebuilders want what we call an ‘oven-ready site’, with detailed planning permissions. So it is challenging,” he says. “Clients want to buy it from us and be pouring concrete within a couple of weeks.”

Although Eatonfield has expertise in a number of different areas, Jones believes planning is most definitely one of them. “You have just got to be flexible enough to understand and react to the different planning scenarios that are thrown at you,” he says.

“Our future success will be determined by our ability to get planning permissions, quickly,” he continues. “It will also depend on the ability to buy at a distressed price and the ability to add value to it in the planning process and recognise the exit route. That is our business model and if you stick to that business model then we should do ok.”

The company has successfully stuck to its business model and is reaping the rewards. “I think we focus on what we are good at,” says Jones. “I also think we have lots of good people in the areas that they work in and we have speed of decision making.”

Bigger deals

He believes that Eatonfield will do increasingly bigger deals in the coming years as it is one of only a few companies in its domain. “There are really only two other companies in the country that do what we do and we have found a niche. We are becoming an increasingly popular choice, so it looks like the deals will get bigger and bigger.

“We understand the particulars involved and there is a lot to be said for that,” he says. “We do the things people either can’t or won’t do.

“At the moment it is a very, very good market for Eatonfield.”