Page 310 - James Caan - The Real Deal

The Real Deal

50,000-square-foot office block with up-to-date technology used
to leave you with a bill of anything up to £1 million, but recent
innovations meant it now cost a fraction of that figure. This would
mean David’s business would be competitive, but it got better:
things like the phone system could be operated remotely, which
meant that the same operator could deal with calls in multiple
locations, which in turn meant that each of our buildings wouldn’t
need a receptionist, so there would also be a salary saving.
As David and I talked, I realised I didn’t mind that his idea was
a start-up: this was the right business at the right time, headed by
the right person. He then said something really, really interesting:
most of the operators in the serviced sector were themselves
leaseholders, and he had worked out a way to make more money
– so long as he could find someone to buy the freehold.
He explained that the value of commercial property isn’t just in
the land and the fabric of the building, as it is with residential
property, it’s also in the quality of the tenant that you get to sign
a lease. You could get two identical buildings, but the one with a
quality tenant would be worth more. If you had a blue-chip tenant
– a high-street name with a trading record, for example –
on a standard commercial fifteen-year lease, banks would lend you
money against the value of that lease, as well as the value of the
property because your tenant’s ability to pay the rent is fairly
secure. David’s strategy was to buy an empty building, install his
serviced office company as the leaseholder, and then refinance the
building once he had demonstrated his ability to pay the market
rent, which was what the banks would look for before agreeing to
additional lending. And that was just the property side of things:
the serviced office business was also extremely investible. It was a
brilliant plan.
‘Let me get this straight,’ I said. ‘The value of a building
correlates with who the tenant is.’
‘Correct.’

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