LS Estates: It’s the right time to exploit arbitrage

“Arbitrage is now coming back into the marketplace,” says Mark Swetman, founding director of LS Estates, a co-investment and asset management company which focuses on central London office investment and outer London residential development.

Mark Swetman

“We are seeing asset values with short-term income streams getting down to prices – or getting close to prices – that allow our model, in terms of [the pricing of] debt and equity, to actually work.

“I think probably six months or nine months ago, it was too much of a struggle in terms of the entry price, because of [the higher returns needed for] value add and opportunistic strategies. We are not looking for trends, we are looking to effectively exploit arbitrage.”

After a period of inertia provoked by Brexit and subsequent occupational risk, one of London’s most respected developers is starting to once again take a more bullish view on value-add and turn around opportunities.

LS Estates launched 30 Moorgate, EC2, this month (watch the building tour above). The redeveloped office building, which comprises 26,000 sq ft of lettable office space, was acquired from Royal London Asset Management with investment partner York Capital Management in April 2016 for more than £21m.

It has since been repositioned, with an additional seventh floor, rear extension, a larger reception and a new facade.

Swetman, who was project director at Hines and oversaw the development of Cannon Place, EC4, before he left to focus on LS Estates in 2014, says he expects to be “much busier over the next 18 months or so, to exploit those positions where landlords have become unintended landlords for refurbishment or redevelopment positions”.

Originally acquired with the intention of seeking a representative financial services occupier, the EU referendum result and the advent of a new Crossrail station down the road at Liverpool Street West (due to open in December 2018) allowed the partners to pitch the offices to a wider crowd.

“While we are close to the Silicon Roundabout, clearly we  are not fintech and mediatech- orientated, but we are looking at the second and third generation of those tenants to basically fish them out from what is their core locations in the past to what is basically a mature location,” Swetman says.

He believes additional amenities such as superior shower and locker facilities, balconies and a larger reception area will entice a broader range of occupiers.

“The concept is these are floor-by-floor occupiers, they are international travellers, and they will use the facilities in the building, as opposed to going to a hotel. So it’s very much an add-on benefit for the occupiers; it’s a small amount of extra money, but we think it’s worth it for ensuring the quality and usability of the building.”

Swetman, who started as a developer in the City in the late 1990s, thinks the biggest challenge now is working out how to cater for occupiers coming out of serviced office space.

“We are going to have to give complementary buildings to what they have been used to for the last five years.

“Those buildings are incubators for what I consider tenants of tomorrow.

“We will not be doing free beer, but we need to take some of the ideas of the significant serviced operators or co-working operators to ensure our future tenant, which probably will come out of one of those organisations, understands where we are, and we can maintain and engage them in a way that their workforce respects and wants going forward.”

What is LS Estates?

Founded by Mark Swetman in 2013, the co-investment and asset management company has two strategies: value-add London offices and outer London residential development.

The company employs just seven people and outsources all of its support staff, from IT, human resources and accounts.

“You see what you get,” Swetman says. “It’s a very defined team, we have construction, asset management, capital markets, debt and a couple of analysts. So, basically we are very focused to deliver the product to our clients and our partners.”

The company usually puts a small amount of equity into its projects so it acts as a co-investor, and has also built up relationships with several investors from Hong Kong and Shanghai. It is currently in advanced negotiations for a site in Southwark, SE1, for a residential scheme with a gross development value of around £10m and is actively bidding on three or four other assets.

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