Hot property in a buoyant sector
By Ian Fraser
Published: Sunday Herald
Date: April 23, 2000
Financial Editor Ian Fraser meets a man who has proved he can navigate the commercial market’s stormy waters
MAKING money out of commercial property seems like child’s play in today’s over-heated market but it is not always such plain sailing.
John Kennedy, who in the last 16 years has built Edinburgh-based property company Kenmore into a serious player in the UK property scene reveals that risk-taking and good timing are essential to break through the barriers to growth. Kenmore, which today has assets under management of £110 million, is currently offering for £23m of property stock.
Kennedy, 49, jokes that his company owes its name to the Scots for “know more”. Through a series of astute deals – notably the purchase of a redundant BT building close to the Edinburgh International Conference Centre three years ago which after reconstruction was sold for £19.8m (10 times its purchase price) – Kenmore has lifted pre-tax profits from £1.55 million to £9.9m in the six months to end of January 2000.
“Our reputation in the market is of a company that gets out there, doing deals,” said Kennedy. “We’re very careful not to let people down; as soon as you let people down, word gets out. The property market is a very small club and if you make a mess in your bed people know about it. So we try and keep a pretty clean nose. I would like to think that is why we are getting an awful lot of product through the door at the moment.”
In the process Kennedy has accumulated some of the trappings of wealth, although he doesn’t flaunt them. He recently moved into a turreted house near Carlops designed by the Victorian architect David Bryce and bought a 110 foot former British minesweeper in Thailand. However, he’s not above driving a black cab to the South of France in aid of charity.
“The intriguing thing about Scotland is that the wealthiest people tend to wear worn-out tweed jackets,” says Kennedy. “It’s one of the really healthy things about Scotland that people don’t flaunt their wealth. I know alot of very wealthy people who drive very humble motor cars.”
This is quite a contrast to Caribbean, where Kennedy, worked as a chartered surveyor for Smiths Gore. From a base in the British Virgin Islands he spent five years during his late 20s and early 30s buying and selling leisure properties, including project managing Necker Island for Richard Branson.
It sounds glamourous but by 1984 Kennedy was becoming disillusioned with the Caribbean way of life and in particular of the different ethical standards there. He returned to Scotland.
“The Caribbean is a very challenging place to do business,” he said. “When I came back it was a delight to be able to trust people again. This is something that people tend to take for granted.”
Initially he focused on small-scale residential conversions, but Kennedy’s big breakthrough came with the purchase of a disused Baptist church in Edinburgh’s Dublin Street. Initially, he intended to convert this damp-infested building into flats — he was specialising in converting Edinburgh town houses at the time.
But the capital’s office market was warming up and Kennedy chose instead to convert it into offices. The first tenant was Bill Gammell’s Cairn Energy and the building is now occupied by chartered accountants Chiene & Tait. “Our initial calculations were based on rents of £7 per square foot. By the time it was finished, we rented it at £14.30.”
Kennedy, who in 1989 bought the disused Duncan’s chocolate factory in Canonmills which he knocked down and turned into the Beaverbank Office Park, has since focused exclusively on commercial property. “The man has the Midas touch,” said former employee Colin Glynn-Percy. “He has the courage to proceed on a speculative basis when others are maybe less brave.”
Kennedy sees parallels with the booming office market of the late 1980s and today’s situation when, especially in Edinburgh, modern open-plan office space is at a massive premium.
“In the late 1980s rents were doubling each year because of a shortage of supply and people needed offices. I think we are in a very similar position now. Overall, however, Scottish property has never seen the peaks and troughs of the English market.
“But quite clearly at the moment, Edinburgh is unquestionably a boom city. A lot of businesses are coming in, squeezing the limited amount of space available in Edinburgh. Indigenous companies like Scottish Widows and Standard Life are still expanding very fast.”
One of Kenmore’s most prestigious current projects in the city centre is the conversion of the former Automobile Association building on Melville Street – which it acquired for £2.7m a year ago – into modern open plan offices.
Kennedy admits that “there were a few raised eyebrows about the price at the time”, but it now appears he may be sitting on a gold mine.
“Melville Street is arguably the best traditional office street in Edinburgh because Charlotte Square has gone rapidly downhill since the council routed the main road through there. St Andrew Square is back on the map but the best next street is Melville Street, because its so close to the Exchange.”
Kennedy is no fan of the traffic policies of Edinburgh City Council.
“Charlotte Square has, in my view, been wrecked by traffic. Queen Street is like a motorway. People with offices on Queen Street are really suffering. You have to wait to cross the road and noise levels are very high. We’ve deliberately not looked at prospective office properties on Queen St because of that.”
But Kenmore has not limited itself to Edinburgh’s tight little market. It recently bought a 120,000 sq ft building at Linwood and a 20,000 sq ft office building near City Airport in Barking. Kennedy says of the latter: “This was an opportunity that was brought to us where we felt we could bring something to the table in terms of improving occupancy levels, improving the leases and improving the way the building was used.
“The sort of opportunities we like to get involved in are those where we can actively work them; we will not buy a dry, boring 7% investment that we can’t do anything with. We always looking for ways of tweaking things to improve our income and ultimately the capital gain. The longest we’ve held on is eight years the shortest is seconds.”
Kenmore is also involved with a couple of joint ventures with US fund Apollo including industrial estates in England, industrial and retail in Scotland including the Great Mills unit in Paisley and Donibristle Industrial Estate in Fife.
Kennedy, who owns the company more or less 100%, cannot see the attraction of seeking a public listing. He says “a lot of the publicly-listed property companies would dearly love to go private at the moment.”
“We set up a London office in 1997. A lot of product comes through there. Believe it or not there are some properties sold in Aberdeen that the Scottish market doesn’t hear about it. They’re channeled through London so having a base there has been extremely useful.
Kennedy’s other main passion is sailing which fits in with his image as something of a buccaneer in the UK property market.
He is no stranger to adventure. After qualifying as a chartered surveyor at Cirencester Agriculture College in the early 1970s he set off round the world travelling by train through Ethiopia before crossing India by motorbike and working his passage across the Indian Ocean aboard a cargo vessel.
But, having been blacklisted by the Australian authorities, his ship sank 200 miles off the Australian coast. Kennedy lost his motorbike, his bagpipes and nearly his life.
Despite the episode, the lure of the seas has frequently proved more attractive to Kennedy than the lure of lucre. At regular intervals, he ups sticks and takes to the high seas on ocean-going yachts.
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Posted by Ian Fraser
on Apr 23 2000. Filed under Article Library.
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