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How I invest in commercial property – exclusive interview with Jeff Morton of Seneca Property

[Music] Hello, I’m Alex Davies of Wealth Club. Today I’m with Jeff Morton, managing director of Seneca Property.
Hello Jeff. // Hello Alex. Can you tell me first off a bit about the Seneca group – who you are and what you do? Yes, of course. So, Seneca is an
independent investment manager, we have around £700 million of
assets under management, we’re headquartered
in the North, we have around 70 business professionals and we offer a wide range of investment product and services. One of those products and services is actually UK real estate.
So I head up Seneca Property, and we look for commercial real
estate opportunities anywhere in the United Kingdom. And we source these
properties and then we package them all up on a deal-by-deal and syndicated
basis. Now, we’ve only been going or incorporated less than 12 months but
actually we’ve been successful in acquiring around £50 million worth
of commercial investments. And what’s your background
before joining Seneca? My background before Seneca is
I’m a chartered surveyor, so I’ve been running people’s money
and a fiduciary pretty much all my working career. I’ve worked for some very good companies,
had great training – in fact I used to work for the company that owned this building, so that’s
CLS Holdings, I was head of UK property. Post that I was at Merrill Lynch –
Merrill Lynch Investment Managers, that portfolio was
about £2.2 billion. I was a director and I was head
of transactions and also head of asset management. And then Merrill Lynch of
course morphed into BlackRock, the world’s largest investment manager, and I
was a manager, managing director, head of the team and that portfolio now is about
£3.2 billion. Then I left in 2012 to join a private equity vehicle, I was the last
private— I was the last equity partner to join, and we grew a business
capitalized at about £100 million when I actually joined it – when I left
five or six years later it was £1 billion. And now I’m at Seneca, and I feel
I’m very much at home. So what sort of properties do you,
what sort of properties are you looking for? Properties we look for… always, it’s pricing,
so we’re opportunistic and we like value. So we like probably more secondary
property than prime property, we’d like to buy properties at lower capital
value per square foot than let’s say the replacement costs, and really the
north of England is a good hunting ground for us because there is better
value there. So we look for offices, we like serviced offices very much, we’ve
been buying some serviced offices recently, we also have a quasi retail
trade park investment as well just outside Greater Manchester, we like
a lot because that’s got very good property fundamentals, very well
located and so forth. So you seem to concentrate largely
on the North, is that because as a company you’re based
in the North, or is that because that’s where the opportunities are,
in your opinion? I think it’s a good question, erm–
Just because the company is based in the North, it’s irrelevant,
because we’re actually agnostic in terms of the type of deal
and where the deal’s located. We’re looking for value, but
the North does actually offer better opportunities, I think, than the South
having spent a lot of my career in the South, and although the company is North
I actually live in the South, I spend three days a week in the North. And I
think the South, with the weight of money that’s chasing investment opportunities,
is actually overpriced. We get very good rental growth in the North and we get
higher income – income component is very important to me – so I suspect, although we
are agnostic, we’ll spend a lot of our time looking for good quality deals
still in the North. And is there still
value to be had? Yeah, there’s good value to be had,
and what you’re betting on basically is a good stock picker,
and I think we pride ourselves that we are good stock pickers – so
there’s value to be found, you’ve just got to go and find it,
you’ve got to go and hunt for it. And in terms of the
risks, obviously they you can make an awful lot of money in
property, but there’s a lot of people who lose a lot of money in property… How
risky is the sort of stuff you’re doing? In terms of property risk, we try and
make sure that we acquire investments that are particularly well priced, so we
don’t overpay. We look very closely at the capital value per square foot,
we also look very closely to the correlation of investment value and
vacant possession value, and because we’ve got a very good team where
actually if there was a downturn a lot of our team are very experienced and
actually can get close to the customer, the tenants, and ensure that we can
manage your property through a recession. And so what, in the last recession – obviously,
it wasn’t through Seneca, but, you know, how did
you cope with that? OK, we go back to those fundamentals that you have to have bought well – if you haven’t bought well, you’re in difficulty, frankly. So before, in the last recession, I mean most capital values dropped something like 40 percent
so that’s an awful lot. What you need, and what we have as well,
is great checks when you’re doing your due diligence and
making your acquisitions, that you’ve got good property fundamentals etc., you’ve
checked your tenant covenant risk, but also most importantly that your team
around you is very professional and can get close to the customer and actually
manage the risk through the downturn. So as an investor, if I think about
investing in your fund, how— or, not your fund, in your
portfolio of investments – how do you typically
structure these deals? OK, so we structure our deals
a mixture of third-party debt and investor equity.
We set up a limited company and the investors participate and we provide a
loan note as well, so they can actually get a coupon on their money, and of course
as they’re shareholders and they own the majority of the shares, they enjoy the benefits
when we deliver the business plan. Now all your deals are different but what,
typically, would be the cycle of a deal? I put my money in, and how long would it take
for me to get it back, would you expect? I think the same as most
people or most firms, you know you write a business plan and
actually it gets delivered between three and five years. Five years is probably the end,
the longest part of that time period. So Jeff, it’s a new fund but what’s your
track record, and what can investors pin their decision
to invest with you on? OK, well I think they can pin their
decision on the basis that I got to the top of BlackRock
as head of investment, and prior to that, you know, I’ve been
in the public domain running money for a long time. The performance of
Merrill Lynch Investment Managers has been top class – always an upper-quartile
but really a top-five fund – that’s exactly the same at BlackRock.
I left Blackrock in 2012 and I joined a company called Henley and our track
record there, we made lots of exits, and made lots of acquisitions
but our exit performance was a 40% deal IRR and a 1.7
cash multiple over the period. And skin in the game,
do you have any? Yes, I always invest every time
in every deal that we have. So I’ve got a bit of money to invest,
why should I invest it with you? Can you give me
the “elevator pitch”? OK – well, we’re a good fiduciary, and
we’re good stock pickers. We’ll treat your money, Alex, just as if it’s our own.
We’ve got a professional team and I think, succinctly – you wouldn’t invest
until you’ve seen the deal, because it’s deal by deal, and you’ll have a first-class
business plan, and we’re the company that would deliver the base case
scenario at least. Jeff Morton of Seneca,
thank you very much. You’re welcome. [Music]

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