EUROZONE: Bottom scratching

A hopeful phenomenon is underway in the UK. We can call it the “London & Stamford” effect, after one small firm's recent purchases, which are giving confidence to others to go out investing again.

You can be forgiven for not having heard of it, but London & Stamford is a listed property company whose market cap is so small that in ordinary times it would not even merit a flicker on the radar of multi-billion opportunity funds or Wall Street firms. Yet even these big beasts are sitting up to take notice of Lilliputian London & Stamford.

In January, London & Stamford stepped into the market and paid £74 million (€82 million; $106 million) to acquire an office at Fleet Place, not far from Goldman Sachs' European headquarters. It followed this up last month by acquiring a 50 percent stake for £170 million in one of the largest shopping centres in the UK – Meadowhall in Sheffield.

But it is not the details of the deals that have set tongues wagging. Instead it is the mere fact that the people behind London & Stamford feel that it is okay to go buy real estate again. The company was founded by British real estate veterans, Raymond Mould and Patrick Vaughan, who have made about two fortunes at different cycles of the UK market by getting their timing right. So people are registering their willingness to acquire now, viewing the pair's activities as a kind of sonar for property.

Personally, the first time the duo came to my attention was at the beginning of the century. I recall going to meet Vaughan – the younger of the two.

I confess that my abiding memories of that occasion were wondering why there were so many photos of horses (both are racing fans, indeed one of Mould's horses won the Grand National) and choking on the cigar smoke wafting around the room as Vaughan sat talking about retail parks. But he clearly knew what he was talking about. Several years later, Vaughan and Mould sold their retail park company, Pillar Property, to British Land for around £811 million at what turned out to be the top of the market.

Now even the European real estate head of a Wall Street bank is citing London & Stamford's purchases as interesting to see. He says his opportunity fund is also beginning to “dip its toes in”. He adds: “For the first time, we think limited partners are beginning to believe the market is approaching the bottom in the UK.”

That London & Stamford is buying does not mean we have reached the bottom of the market. Most people feel there is a way to go yet. However, what is clear is there's a slight change of sentiment among buyers who feel they could be scratching the bottom sooner rather than later.

Sentiment is hard to measure of course, but a data point did arrive recently to suggest the same. The Investment Property Databank said on 13 February that the pace of UK commercial property capital falls eased in January with a 3 percent decline according to its monthly index. That compared to 5.84 percent last quarter as declines got steadily steeper. In residential property there is a similar feeling.

As we reported on at the end of January, residential developers are starting to raise prices on distressed housing stock in a “clear early sign” that the housing market is reaching the bottom, according, at least, to property company Assetz.

That company believes the distressed property market had just passed its lowest point in terms of achieving the lowest possible price for buyers of residential property. Many house builders are running out of completed stock, it said, while others are successfully renegotiating their banking covenants, taking some of the pressure away to sell at prices well below build cost.

That story was an instant hit with our 10,000-plus readers. It shot to the top of our “most read on PERE” ranking within two hours of going live. This tells us a few things, but not necessarily that the bottom of the market has arrived. Instead, it tells us that people are desperate for a bit of good news.

If Messrs. Mould and Vaughan are right, there will be more good news to come.