Business

Profile: UK’s grandest property dynasty wants to co-invest with family offices

Drawing on a lineage stretching back a thousand years, the Duke of Westminster’s Grosvenor Estate takes a long-term, sustainable, view of investing and wants to co-invest with people who share the approach.

“I think we could do more with family offices,” says chief executive Mark Preston. “They are natural bedfellows for us, due to their long-term perspective.”

Grosvenor has developed a string of successful partnerships with institutions but Preston questions the sector’s staying power: “They say they are long term but every time a chief executive changes, the strategy changes. With family offices, there’s a stronger probability that if they want to invest with us they will commit for years to come.”

Starting points

The Grosvenor family can trace its history back to 1066 when it arrived in England with William the Conqueror of Normandy. The family acquired land in Cheshire during the 12thCentury. Through marriage, it took on pastures west of London in the 17thCentury, now Mayfair and the West End.

The family owns real estate in England, Scotland, Canada, China and many other parts of the world. Its family office owns farms, residences, art, stocks, bonds, philanthropy and a smattering of private equity. Hugh Grosvenor, Duke of Westminster, aged 30, is a UK resident reported to be worth £10 billion.

Preston joined Grosvenor Estate in 1989, latterly becoming executive trustee as well as chief executive of its £11 billion property business, Grosvenor Group. Former M&G chief Michael McLintock chairs the estate. Its investment chief is Jonathon Bond, former chairman of Norwegian family business Skagen Group in London and founder of private equity firm Actis.

The Grosvenor portfolio is dominated by real estate and Preston concedes its allocations would be more conventional if it were starting with a blank sheet of paper.

But he has no interest in betraying past achievements: “We have a fantastic portfolio and we want to continue to make the most of it to generate good returns and deliver something unique to the communities in which we are active.”

Co-investing opportunities

But he adds Grosvenor wants to spread its interests within, and beyond, real estate by taking its expertise into related areas.

“I think we could do more with family offices,” says chief executive Mark Preston. “They are natural bedfellows for us, due to their long-term perspective.”

A classic example involves putting money into food and agricultural technology to bolster the quality, and quantity, of food cultivation.

This AgTech opportunity was turned into Wheatsheaf Group in 2012, where Preston believes the estate has the most opportunities to co-invest with other families. Harvard graduate Graham Ramsbottom has led Wheatsheaf since inception and its chairman is Alex Scott, who once ran multi-family office Sandaire.

According to Crunchbase, Wheatsheaf has backed 28 ventures, most recently Oxbury Bank, Agriwebb, a data-driven cattle rearing initiative, and Benson Hill which uses genetic diversity to improve crop yields.

Preston’s favourite investments include AeroFarms, the world’s leading vertical farming business; Ostora, which cleans up sewage to create phosphate fertiliser and Enterra which feeds food waste to flies to generate animal nutrients.

Grosvenor is cautious in its approach although it sometimes leads funding rounds and occasionally buys outright control of ventures.

According to Preston: “We prefer to participate in a wide range of opportunities. But I think that could change over time and become a more concentrated approach.” Wheatsheaf’s AgTech is available to the Duke’s rural estate in Cheshire, Lancashire, Scotland and Spain, to maximise cross-border opportunities.

Preston is cautiously optimistic: “I think we can claim to have one of the more experienced teams in the area. Our voice is beginning to be heard. But we don’t want to get ahead of ourselves.”
Grosvenor has also diversified into new real estate sectors in recent years.

Its indirect investments include student accommodation, medical centres, parking lots, international shopping centres and a rail freight interchange in Stafford, developed with local landowner Piers Monckton.

Some ventures – like Stafford and student housing in Brazil – are likely to be one-off ventures. Others are evolving into new business streams, notably logistics, where Grosvenor has backed teams in Poland and Australia. It has also used joint ventures to expand its commercial estate, most recently in China where it has just formed a venture to develop property in Nanjing, with Shui On Land, owned by Chinese billionaire Vincent Lo.

Sustainable aspirations

Preston says that Grosvenor retains financial partners in 60 real estate ventures, half of which are institutions and the rest corporates, sovereign wealth funds and family offices. Grosvenor benchmarks its strategy on financial and sustainable returns.

This approach is in line with modern financial priorities but Grosvenor developed it from the 19thCentury when Grosvenor developed social housing in London’s Pimlico. It is currently developing mixed housing with a large social element in Belgravia.

It has just signed a £1.1 billion revolving credit facility with a syndicate of banks that charges less interest if its business hits environmental targets.

In 2020, due to Covid-19, Grosvenor suffered a pre-tax loss of £311 million following a drop in property values and income shortfalls, partly relating to a social decision to waive rent obligations for its struggling shops and restaurants. In revenue terms, however, it registered a profit of £25 million, against £66 million in 2019.

But Grosvenor’s balance sheet is solid, offering capacity to invest £1.7 billion in its property business. Grosvenor has provided equity, and debt, to tenants with plans to grow after being brought low by the pandemic. It is making the money available through a Tenant Investment Fund, as featured in Family Capital on 19 May.

Preston says: “This is new territory for us so we’re only taking baby steps. But it is very much a function of a shorter-term lease structure, where tenants may be struggling short term but can still offer a viable long term business model.”

He believes that tenant demands for five or ten-year break clauses in leases, amounts to the greatest revolution the real estate sector has seen since the Middle Ages. Rather than sitting back to collect their rents from their long leases, UK landlords now need to be proactive in finding ways to nurture their tenants and keep them loyal. Grosvenor has just unveiled a serviced offices initiative near London’s Victoria.

On the environmental front, Grosvenor has invested in green cement businesses free of carbon emissions, plus a green development in Tokyo with net-zero emissions. It sees a promising future for property made out of timber. One of its developments in Madrid makes extensive use of wood.

Grosvenor has commissioned a report by Willis Towers Watson which shows the impact of two and four degrees of warming on its business.

It can’t make comfortable reading. “We are digesting the implications,” says Preston. The group’s energy consumption fell 18% in 2020, as buildings emptied but Preston wants to progress towards his 2050 net zero target, which could ultimately involve the use of carbon offset strategies.

Preston says: “We are committed to commercial and social benefits and a lot of my time has been spent making sure the team knows we are not looking at an either/or situation.”
Grosvenor is spending £90 million to retrofit commercial buildings in Mayfair and Belgravia, although it has encountered problems in installing double glazing due to listed building restrictions. Preston concedes will also take time to convert tenants from standard to green leases.

He adds it is hard to come up with a green metric that can stretch from the social needs of tenants in North America to vertical farming. Preston is hoping, but not expecting, the review of sustainable accounting by the International Accounting Standards Board will help him out. But he is not holding his breath.

Commercial reality

But reform can only stretch when commercial interests are threatened. For example, Grosvenor is less than keen on the UK government’s proposal to eliminate long leases, retained by many families to generate ground rents.

Preston is in favour of simplification and negotiated deals on ground rents. But he cannot see why landlords should sacrifice their income with no compensation, to the potential benefit of investors speculating on their purchase of a ground lease: “We’re quite concerned about that.”

Preston also remains confident in the future of offices, citing recent lettings and the argument that working from the office is a vital part of commercial life. He agreed that occupancy requirements would change but argued that quality offices would hold their own along with requirements for mixed-use developments which are needed to make the West End vibrant.

Mixed-use will buoy future retail centres and Grosvenor has produced a stunning template through 42-acre Liverpool One, an open-plan development that puts pedestrians first. Preston says: “It’s a fantastic example of urban regeneration, but we lost an enormous amount of money on it because the local authority could not afford sufficient public sector support.”

Grosvenor has no plans to repeat the exercise.

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