Residential property is beginning to revert to being a long-term hold, not a short term trade – The Property Chronicle
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Residential property is beginning to revert to being a long-term hold, not a short term trade An interview with Willie Gething, Managing Partner of Lennox Investment Management

Face to Face

Willie Gething, managing partner of Lennox Investment Management, helped to pioneer the residential buying agent business in the Thatcher years, sold his company Property Vision to HSBC in 2001 and 11 years ago moved on to launch his own central London residential property fund. While he has prospered, it has not all been plain sailing, as he explained when I met him to talk about his career in the property business and his thoughts about current Government taxation on residential property. 

How did you get in to the property business in the first place?

I set up my first property business in 1983, with a great deal of exuberance and very little knowledge. I was twenty-four at the time. I had been living out in South America, working for what was then known as the Distillers Company, which then became Guinness and then Diageo. 1983 coincided with the emergence of video and the battle between VHS and Betamax. You’ll remember all those colossal machines? Together with a good friend of mine called Charlie Ellingworth, I set up a business called Property Vision, which was at that stage going to make videos of houses, and we were going to try and revolutionise the way that property was marketed.

The idea being that if you were looking for a house you could see what you were looking to buy?

Exactly that. The idea back then was that video was going to change the world, cinemas were going to close, so much was going to be affected by this new medium. So, we persuaded a group of estate agents to fund our videos, which were remarkably amateur, made with the most enormous cameras that you and I wouldn’t be able to pick up now, but were seen as compact then. They had satchels and enormous spools. That was revolutionary because the camera was portable.

We then did some market research and some of the buyers we were going to service said, “that’s absolutely great, but we’re not really interested in looking at your films unless they tell us all the bad stuff about the houses” – in other words, to use them as a buying tool. In those days, we were focusing on houses in the country. There was no Google Earth, poor market intelligence and if you were looking for a cottage somewhere in Sussex, you could drive for two hours there and two hours back and see within ten seconds that the cottage was on the main road, so why am I here? Why am I wasting my time?

Out of that grew a buying agency. We were some of the first people to say that the buyer needs to be looked after. We were lucky because that coincided with Big Bang. And it coincided with the belief that asking for and paying for advice was no longer an irrational thing to do. The Brits disliked doing that traditionally. If you’d said pre-1984, “is it a good idea to get advice on what the house I want to buy might be worth?”, the answer was “Don’t be so ridiculous. We’ve got an estate agent we know.” Well, yes, but perhaps he’s acting for the other side…?

So, we built that up first of all in the country and secondly in London, into this new niche, which was only advising buyers. And we eventually became the biggest advisory firm in a very small part of the overall market – the top end of residential property. In those days, the top end started at £150,000. That was the threshold beneath which we wouldn’t go. That was thirty-five years ago. We then brought the business to London, covering the London market.

That’s a twenty-year story condensed into five minutes, with lots of dramas along the way, as you can imagine when you’re starting with no knowledge and you end up knowing quite a bit more about the market. We had about forty people working with us by the time we sold the business in 2001 to HSBC Private Bank. I was the CEO and I was very lucky to have a great group of colleagues as well as my wonderful founding partner, who I set the business up with and who is still a great friend of mine, although we no longer work together. Charlie had been working for Jardines out in Hong Kong, while I was working for Distillers in South America.

Why did you sell it? Were you taking a view about the market?

It’s a key question. We’d been doing it for nearly 20 years and we’d had quite a lot of approaches from various other companies to buy us. These things build a momentum of their own.  HSBC got to know us and felt we were a good add-on service for their Private Bank. They invited me to move to the Private Bank to set up and run a global property function, which I did, although my knowledge at that stage was mainly limited to London residential property.

In fact the cultures – theirs and ours – were quite similar. It was a very happy marriage for a while. It lasted for 10 years and I sat on the Board of the private bank in the UK for 11 years, which was fascinating. And they did produce a lot of clients for us. As far as they were concerned, we were a high value-add advisory service, which had a very good reputation with its clients. We tried very hard for our clients. After 10 years HSBC sold it back to the management of Property Vision because policies change in banks and the senior management in the bank decided that owning a niche property business did not fit with their strategy. But by then I was no part of that sale back.

You weren’t tempted to go back to Property Vision?

No. I feel quite strongly that life is a series of chapters, some good, some bad. I’d left a whole lot of younger people in Property Vision and it was their turn. I thought that it would be quite wrong to go back and buy back the old business, because in a way, you’ve done that, you’ve got to move on. It was the right decision. Property Vision is now a thriving partnership, and all the people who were young when I was there are probably looking at me and saying, “God, I wish he’d stop banging on so much”. It’s their turn now.

How different is it being an investor in property rather than a buying agent?

They are fundamentally different. It’s taken me ten years of investing to realise that and to come to terms with that. When you’re a buying agent, what you’re really trying to do is to read the tea leaves and understand what people want, including understanding the dynamics in a relationship where two people might not necessarily want the same thing. I had plenty of very amusing conversations over the years, when you were taken on one side by one or the other who’d say, “let me tell you what we really want.” You’re trying to understand that dynamic, then find it for them and finally accelerate the process by which you pay the right price for it. You’re not trying to buy it cheaply, you’re not trying to be clever, what you’re trying to do is to get to reality as fast as you can and prevent people from making an error.

The aim is to minimise regret…

Yes. To minimise the client’s risk, assuming that you’re not going to go and try to buy the house for 20% less than it is worth. It is highly unlikely that you can do that. You’re there to give comfort and safety when there are five people who want to buy the same house. You hope to increase the likelihood of them getting that house when other people want it. Given that most people are greedy about what they think their houses are worth, then there is a process to get to reality that I think Property Vision helped to bring about. If the owners were asking £2 million and it was patently worth £1.5 million, we validated that process by saying, “no, it’s never worth £2 million. The reason it’s worth £1.5m is the following ten transactions. Let’s have a debate around the £1.5m mark because that’s what it’s worth.”

Until buying agents came along, that kind of conversation didn’t really happen. There might have been some friendly whisperings by the selling agent – “I think they might take slightly less” – but it wasn’t a science. We turned it into an accepted process. I suppose the balance we were always trying to strike at Property Vision was to make sure that in the end people got the house they wanted without tripping themselves up. The temptation was sometimes to over-negotiate, because that’s what we prided ourselves on. We began a culture of our colleagues going off to Harvard Business School; we had talks about the art of negotiation, and so on.

But I remember a wise man saying to me, in the middle of a negotiation “the clever guy is the guy that gets the house. You can be the cleverest man in the world in negotiations, your skills can be absolutely amazing, but actually, if they want it and you lose it and it goes to the next guy, it doesn’t matter how clever you are, they’re not going to toast you. They’re not going to be saying, ‘Thank goodness for Willie. We didn’t get the house we wanted, but at least we didn’t overpay!'”

All of this leads directly into the issue of investing, because I think that the skill set – the reason why it’s a very complicated transition from being an advisor to being an investor – is that when you’re an advisor, the yardstick of your success should be whether your client ends up with the house they want, whereas when you are investing, you must not be afraid to walk away from the deal.

“When you’re an advisor, the yardstick of your success should be whether your client ends up with the house they want, whereas when you are investing, you must not be afraid to walk away from the deal.”

So now you were about to set up as a property fund investor. Was the motivation in part about being fed up with having to deal with all these people?

No, it was the next phase for me. Having said that, when you have been advising clients for a long time, then you must be careful not to be too strong with your advice and say, “I know from experience that you should just buy this house”, because that won’t always be helpful. I always think if you’re running a good service business, you end up by looking after the clients who you aspire to look after, I wanted to create the top buying agency in the UK and with the huge help of my colleagues, I think we achieved that. But maybe when you’ve done hundreds of these property deals, then you say it’s time for the next challenge.

Nothing to do with the kinds of people who you were having to deal with?

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