By Edward Jones, CEO, PMB Holdings
With the global economy continuing to struggle and the Eurozone in particular seeming to be on a knife edge, it’s easy to see why so many are taking a pessimistic view of the health of the property market today. Contrary to this however I believe there is a great deal of opportunity out there for those who are willing to seek them out and take risks.
Now more than ever it’s vital for investors to adapt to the times, rather than simply sticking with what they know. This approach has been at the core of PMB Holdings over the years, and is on display in our diverse portfolio of commercial, leisure and theatre operations.
Seeking new markets
In 2006/2007 PMB Holdings sold around 80 per cent of its portfolio, enabling us to reinvest back into the UK market during the downturn. We continue to look for new growth opportunities, and it was with this in mind that we first looked at the datacentre market three and a half years ago. As a market It is not particularly well understood by the property sector, but we felt it would be an excellent way to tap into the growth of the technology sector. Technology has really exploded over the last few years, and it is arguably the growth sector for property investment today. The demand for storage space is growing exponentially, and this is a trend that will certainly continue.
Despite the huge opportunity, the market presents significant barriers to entry due to the extremely strict criteria for data centre locations. This relates not only to physical risks such as flooding, but also the availability and cost of electrical power. The server racks and cooling equipment require a huge amount of electricity, despite continuing advances in energy efficiency, control and monitoring techniques and environmental temperature regulation options. Energy costs, availability, sustainability and reliability are therefore of the utmost importance. Likewise, the availability of fibre connection networks is vital, preferably with access to a number of different high-speed carriers.
All of these factors means there is a very small number of suitable sites in the country. We found this to be a very interesting challenge however, and it made it quite rewarding when we eventually found the right location in Milton Keynes for our datacentre, the MK DataVault.
While there are certainly opportunities for investment in the property sector today, gathering the financial support necessary to take advantage of them is easier said than done. Banks are still notoriously reluctant to offer credit, particularly for riskier ventures. This wariness frequently extends even to more reliable businesses with solid ideas.
Those that continue to face a financial brick wall despite a sparkling background and well-laid plans may be able to find a solution by looking further afield. In January 2010 we funded the purchase of a large City of London office redevelopment with Bank of China — their first UK real estate deal.
Many overseas banks such as this are faring much better than those closer to home and may be more willing to offer credit where European banks have refused. This is not to say that foreign banks such as Bank of China should be considered an easy route however; it was not only the quality of the deal that attracted the Bank, but also PMB Holdings founder Peter Beckwith’s reputation as a developer in Hong Kong in the 1980s with his original company London and Edinburgh Trust.
This goes to show that investment should be part of a long-term strategy, and that reputation is incredibly important wherever finance is sought. Those known for a history of integrity and sound decisions will clearly have a better time cementing a bank’s trust. That said, the unstable economic situation means that even well established companies with good plans can still be denied credit, sometimes for no good reason.
This challenge can be overcome though, and one of the best ways of doing so is creating a strong personal relationship with your bank. Communicating regularly about future plans and sharing the business’ vision for the future will pay dividend. Honesty is absolutely the best policy here — and this includes frankly discussing any risks or negative issues.
The gloomy economic outlook understandably causes many investors to baulk at new ventures and risks, and attempt to stick to safe, familiar ground. But while the rest of the market hesitates, those who take the time to seek out new markets and are willing to take risks can discover new opportunities with highly attractive returns.
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