“It’s all been about this mission we’re on. This is more than a business for us, you know, residential housing, where you live is probably the most intimate decision you can make in your life because you spend most of your time in your house raising a family, you know, building a nest, building a secure place for yourself and your family to live. So building the right product in a market that’s crying out for it, that’s our mission.”
Susan Freeman
Hi, I’m Susan Freeman. Welcome back to our PropertyShe podcast series brought to you by Mishcon de Reya in association with the London Real Estate Forum, where I get to interview some of the key influencers in the world of real estate and the built environment. Today, I am absolutely delighted to welcome Paul Oberschneider. Founder and CEO of Hilltop Capital Partners, Paul has been at the forefront of starting successful real estate businesses for over 30 years. He has a track record in property development, asset management and financial structuring and has transaction deals to the value of over 1 billion pounds in the UK and continental European real estate markets. Paul’s career spans working as a floor trader on Wall Street in the 1980’s to building one of the pre-eminent, fully integrated property companies across Eastern Europe. From building the first apartment in 1993, the business Ober-Haus grew to be one of the largest full integrated real estate advisory and investment businesses in Central and Eastern Europe. Until 2010 Paul was Chairman of developer and operating partner Hauser-Oberschneider working with International and private equity and real estate firms building housing, grocery anchored retail centres and a hotel chain across Eastern Europe. Paul is known for selling his real estate portfolios and businesses just before the global financial crisis in 2008. Coming out of retirement Paul founded Hilltop Capital Partners in the UK 4 years ago. Paul recently founded Hilltop Property Partners with former Greystar MD, Michela Hancock to deliver new build attainable multi-family housing across the UK and Europe.
So now we’re going to hear from Paul Oberschneider about what he’s learnt from his real estate journey spanning more than 30 year and his plans for the new business. Paul, good morning.
Paul Oberschneider
Good morning, how are you?
Susan Freeman
Yep, good. So I am intrigued, you’ve had such a diverse career from Wall Street trader to building one of Central Europe’s largest property companies and you are now into UK housing with Hilltop Property Partners. So, for the benefit of our listeners, do you want to talk a little bit about how you started your real estate journey and, and where?
Paul Oberschneider
Sure. I guess if you wind back I was 7 years old and I was sitting on top of my Schwinn bicycle in what is now Schaumberg, Illinois in a small town called Roselle. All the farm fields around this were being built into residential housing and there was a mall called Woodfield Mall, it was one of the first of its kind being built in the middle of this cornfield and I used to watch it being built from the top of the hill on my bike and that somehow made some sort of impression on the 7 year old mind and I thought that, that was pretty cool and I never really gave it much thought afterwards but eventually down the road that’s exactly what I was doing. So I started my career, it started as a part time job at the Chicago Board of Trade. It was the Options Exchange back in Chicago and what started as a part time job turned into kind of a career. I ended up being a market maker, futures trader in New York, uh, first in Chicago, then in New York, um, for a New York specialist firm and then later for a, a very well-known options trader, Steve Fossett, trading derivatives, equity options and futures and I did that for about 10 years in New York in the 80’s which was, you know, quite the party as you can imagine. And that career kind of wiped me out. I went to reinvent myself, I found I should go to school or go back to school. So I was on my way to grad school and had packed up everything in storage before school as going to start that fall and, um, decided to go visit Estonia which is where my father had originally come from. He was a sort of immigrant doctor in Roselle and, um, got on a plane on what was meant to be a one, two week holiday. I had four hundred dollars in my pocket and I was counting every penny as it needed to last. And I never came home basically. I stayed. It was a very exciting time so I sort of found myself, landed myself in this town or this city in Estonia called Tallinn where I knew no one, I didn’t speak the language, it was 1991. It was right after the Berlin Wall came down a few years later and it was very exciting and I started meeting people, you know, I helped people write some business plans and I made a little bit of money so my four hundred dollars went to eight hundred and then it went to fifteen hundred and sort of by the end of the Summer from April to August, I’d made these sort of shoe boxes full of cash, you know, which I was kind of keeping under my bed and in the meantime I’d met this young guy who was about 19 years old. He was starting a bank, you know, you could do those things back then, nobody kind of knew what they were doing and I helped him build the credit business of this bank really on the back of the Price Waterhouse Cooper’s handbook. We’d go home at night, read a chapter and then go back in in the morning and, you know, try to do that and, you know, we built this bank and so I took this bit of pot of money that I had and I decided to build myself a flat. Completely unintentional, I mean real estate had never been part of my agenda other than when I was 7 and saw that stuff being built and I built myself a flat and I renovated it and I never moved in. I leased it to the US Embassy for what back then was an ungodly sum of money and I thought, well that was easy I’ll actually do that again. And that was really the beginning of the journey, it started with one, one flat, you know, and then two and then three and then a building and then another building and, you know, along the line we were cap in hand trying to raise capital. So that was really how it all started.
Susan Freeman
And what did you build that business into? I mean, how big did it get and when did you exit?
Paul Oberschneider
Well you know there never was a 5 year plan. It was just very organic and things just happened by default. You know, as I built these flats people started following me around because they could see that I was buying stuff and selling them and renting them and so this little group of people became back then what was called Ober-Haus and, you know, it’s interesting because the name was really part of my last name and it just worked across all these markets because all these markets were traumatic so rather than having a local real estate company name, I luckily picked a name that translated well across many, many entities, Central and Eastern European markets and the brand was, sounded bigger than the business actually but so this little group of people were selling and renting the flats that I was building and nobody ever thought that that could be a business but, you know, over the next sort of 18-20 years it became one of the largest advisors in Central and Eastern Europe, we were across seven new countries with about 350 brokers on the ground and we were doing commercial and residential transactions and a lot of valuations for the local banks and Ober-Haus became my platform basically to, I was always interested in development. I like building things and I like structuring deals, I was kind of a deal junkie I guess you could say and so my interest was always in building and I had a partner back then right through to the very end who focussed more on building the advisory business and it complimented each other extremely well because the advisory business became sort of my pipeline for information and opportunity and on a Friday I might have been building residential and on a Monday I, I was building my first shopping centre. So it was all quite organic, it wasn’t like we’re going to do this in the next 5, 10, 20 years. It was like well what’s the next thing in front of us and what can we do. It’s not like we were doing anything revolutionary, I mean grocery anchored shopping centres yeah I grew up around as a kid and I saw all these things and all I was just doing was trying to replicate what I’d sort of seen didn’t exist in these markets and, you know, it wasn’t very common to buy corners of potato fields and build shopping centres on them in, in these communities around these cities and everyone thought, well who’s going to go there? And it was kind of a bit of madness for the local market so I had a bit of free reign in the beginning for quite a long time actually because everybody wanted to build in city centres, they wanted to build commercial and I was building sort of workforce, grocery anchored shopping centres with a lot of retail around it and then of course residential as well. I then got into the hospitality business because I’d been buying these, you know, old medieval and imperial buildings around different cities, around Central and Eastern Europe. We turned those into boutique hotels which back then didn’t exist either so, so we kind of hit that we were in the right place at the right time, we did the right thing and we had, you know, a wind of liquidity at some point that kind of hit us and it helped us throughout and so you built something one day and it was, by the time we were finished it was already worth more and you’d be able to re-finance it so we used the banks quite extensively, the local banks quite extensively to fuel our growth but, you know, we were on the wave, we were on the wave you know. We were building things that with cap rates of 19%/20% at one time and, you know, many, many years later we were signing the caps of 5% and I don’t think you’ll ever see that kind of yield compression again in our lifetimes unless something dramatic happens but we were well positioned to be on that wave.
Susan Freeman
So Paul, it sounds as if the business grew really quickly. How long did you run this business?
Paul Oberschneider
Well it, you know, it didn’t really run quickly, it, it, you know, it took almost 20 years to get to where we ended up and every day was a struggle. I mean for the first 10 years trying to raise capital was absolutely impossible and we were always only funding ourselves through flipping things to finding some local partners, local cash here and there but it wasn’t really until the early, well the late 90’s that we, we really started to be able to raise capital and that just came at a chance meeting at a dinner where someone introduced me to actually one of the guests that you’ve had on your show before, who everyone knows – Roger from Pell & Partners – and he was working with Apollo at the time so I became one of Apollo’s operating partners in that market and then that catapulted me into being able to raise capital from others. So eventually at the end of the day, anybody that was kind of doing business in those markets were JV partners of mine in different verticals whether it was hospitality, or whether it was residential or, you know, land banking or building shopping centres so we had multiple partners from multiple things and then of course Ober-Haus had its own partners as well and so we had a number of different businesses in all different siloes under one umbrella which later on proved to be pretty smart because we were able to buy for KLS and sells those individually just before the crisis in 2008.
Susan Freeman
So you, you actually sold out before the, um, the global financial crisis?
Paul Oberschneider
Yeah I had a Forest Gump moment, I had a Forest Gump moment coming in and I had a Forest Gump moment coming out, you know, and I’d like to sort of sit here and tell you that I had sort of thought it through and this was like an intelligent decision I’d made but actually it was one of those things again that just happened organically. I had built a pretty sizeable business at the time, I think we were almost 600 people across all these countries and we were, the business was running by itself and, you know, I really didn’t have a mentor or people that I talked with about these things so I had sort have felt that I had plateaued and I was spending a lot of time in South America and a lot of time on vacations and coming into the office sporadically and late, you know, at the end and, and I had sort of lost what I thought could be the next step and then the phone rang and it was a Finnish private equity firm and they wanted to talk to me about buying Ober-Haus and that was in 2007. And I remember the conversation back in 1992 that I was having of all places in, in a sauna with the Finnish guy and I was asking him why there weren’t more Finns in the market, they coming over on boats to buy booze and all this other stuff but there was very little Finnish investment. He said, you know, he said the Finns always come at the end when it’s too late and everything’s perfect and I was like okay, that’s interesting and I never thought about that again either. And then when that phone rang in 2007 and this firm called me up, I said, the Finns ae here you know. Anyway it was like a green light and I thought, alright well let’s start selling things and it was at the time that my peers and everybody else, they were getting listed, we had a listing pending with one of the big local banks that we had worked with and, you know, we were raising the European, essentially the European property fund and suddenly it’s sort of what seemed like the moment where everybody was just going to put the hammer down, I started just selling stuff and, you know, it reminded me of a moment in time when I was in the Merrill Lynch pit and I was selling options that were shooting through the roof and I sold them all and, you know, an hour later they were worth an eighth. So I got lucky, um, I did that. We sold our last business, we sold Ober-Haus actually in just like two weeks before the crisis hit and, you know, a week or two later I think the business pot would have been worthless but they paid me thank god. Some ten times future earnings at the time which was, you know, probably you’d never see that again today but, so we got incredibly lucky on the exit and, you know, I’d like to claim that I thought it all through but the fact of the matter was I just didn’t know what my next step was and I felt that I’d sort of won the lottery so I should just take it off the table.
Susan Freeman
That is a pretty amazing story and I’m not sure whether it is luck or good judgment but, um, I think you always need luck don’t you?
Paul Oberschneider
I think you do, you know, and I think that, you know, luck comes by just showing up every day, you know, there were days where I had no idea what was going to go on, what was going to happen. I mean, even at the end, towards the end, you know, we had this big operation, you know, Ober-Haus was keeping the lights on but you know the development business is very chunky so you, you work for 2, 3 years and then you get, if you’re a financer you get a pay-out but in between you’re paying everybody and, and I remember there was at one point, like two months, three months before we exited our first business, we had fifty thousand Euros of liquidity in the bank account with 600 people on the payroll around all these countries and I was selling shares of Ober-Haus to employees basically to help fund the day-to-day operations of the business and then three weeks later we had this huge liquidity event. So you kind of never know what’s around the corner and you don’t want to leave before the miracle happens so I guess what’s always kept me in the game is this idea that never leave too early and just show up the next day and see what is going to happen.
Susan Freeman
So after that experience, you know, I could imagine you not wanting to come back into real estate again but if we jump forward a few years, when and why did you start Hilltop Capital Partners in the UK?
Paul Oberschneider
Well that’s a really good question how I got here in the first place. It wasn’t really by choice, it was by default so I was married at the time and, you know, I was travelling all around the Central and Eastern European countries and London was a good base, it was English speaking, so we chose London as sort of the home base and then our son was born and so he was going to school here but then, you know, after we’d sold everything, rather than stay put or take a two or three month or one year holiday, which in retrospect might have been the better option, I just retired and, you know, I went off and lived in South America for the next 15 years or whatever and, you know, lived a pretty big life and a pretty glamorous life on the back of the things that I had made and isolated myself on a farm basically. Two farms and a house in Buenos Aires and did that so I took myself off the radar but as my son got older we wanted him to be educated in England so he started spending more time here and so then I pivoted back towards England and ended up here, retired with not much to do and I ended up buying a hotel in Oxford and, you know, I did a number of things. I started or I help start a firm called Vital Ingredient with a guy I met because I was buying food from his retail shop and I thought, well that’s a great idea so I got involved in a lot of things that I probably shouldn’t have got involved in, just to keep myself busy and, you know, Covid came and a lot of things came and the markets changed and a lot of my lifestyle changed before my eyes and things happened that I hadn’t expected. So I started Hilltop Credit Partners because, you know, I was looking for something to do, number one and where I could utilise my skills. I didn’t have time to really become a developer in the UK because I didn’t have the time to look at the market in depth the way I’d had before and I was conscious of where I was in my life but I thought credit could give me the opportunity to get an education of the market and learn about the market quickly because people would come to me and I saw this gap, this funding gap that was being created by all the banking regulations that were being put in place, development and lending was not the flavour of the day in the High Street banks so there was not a lot of liquidity and I thought, well the peer-to-peer lenders, the crowd funding people on the one spectrum and then there’s the big banks on the other side, let’s jump in the middle and see if we could create something. And like a lot of my peers that have gone into this business, you know, they’ve left big banks, they’ve left private equity, they’ve left with the rolodex of contacts and people. We started Hilltop Credit Partners with basically with a PowerPoint on a sheet of paper in a coffee shop. We had no capital, we had no partners, we didn’t know anybody, we didn’t even know the credit business and, you know, over the last 4 or 5 years we’ve been fortunate to raise some capital through large LP’s, we’ve learned the business the hard way, we’ve funded a lot of SME developers, you know, I spend an inordinate amount of my time now sort of working out my portfolio because of the market conditions and if anybody tells you they don’t have these problems, they’re lying to you. Everybody on the street has the same problems, you know, it’s easy to lend money, it’s harder getting it back and people forget that you know. So fortunately we had the skill set of being equity at one point, being GP’s at one point, understanding development. We’ve been able to, to a very, very good job servicing our portfolio as lenders but we spend a lot of time doing that these days. So that’s how I started Hilltop and HPP, Hilltop Property Partners was, again it was very similar to what happened with Ober-Haus and maybe intuitively I planned it this way but I wanted Hilltop to be my platform, or my pipeline origination or I got to see things come through me. So SME developers come to me for stretch senior credit and often times they won’t know their way around the capital stack or their way around Mayfair, how to structure the deal. They probably don’t even have all the equity they need these days so that gives me the opportunity to say, well actually why don’t we do it slightly differently. We had our first deal come through the door like this where I didn’t want to lend on 450 units for build to sell because I just didn’t believe in that market two years ago. So I said, well let’s just reposition this and turn it into a new build BTR product but instead of going sort of, and chase the sort of amenity heavy arms race that everybody was seemed to be doing, we’re focussing more on the middle of the bell curve. So, you know, if you look at BTR today, you know, on one side of the spectrum you have a diminishing mum and pop fragmented market which is not fit for purpose for people to live in and then on the other side you have the amenity arms race, you know, the high amenity product that PE’s and other institutions have built over the years which, you know, a lot of those amenities people don’t use and they’ll get old fast. So we wanted to build sort of workforce housing, again multi-family like I grew up with. I mean in the US multi-family as an asset class is huge. The rental culture in the US is huge, it’s 40% of the residential market. Here in the UK it’s less than 2%. So as an asset class it doesn’t exist here but I think the cultural shift is happening in the UK where the middle part of the bell curve which is normally people that have been on the property ladder at one point in their lives, they can’t get on it now. So they are being forced to look at alternatives like rent and this is a big shift from what was created in the Thatcher market which was, you know, every man’s home is his castle. Well that’s really not the case today and I think that shift is taking place but nobody’s addressed that sort of middle market.
Susan Freeman
So just, you know, journeying down a little bit, you describe your model as amenity light. So what you, you’ve seen of the build to rent market as it’s been developing in the UK, you see it as, as having two much in the way of amenities, it’s sort of unaffordable for a lot of people?
Paul Oberschneider
What’s unaffordable, I mean it’s the squeezed middle isn’t it? It’s the UK medium income is only £37,400 basically so with inflation that goes down every year so it’s really about being able to pay the service charges, being able to pay for, you know, all the things that people don’t use and it’s just not affordable so you have to kind of work backward from the demographic and say, okay if, if that’s your medium income, what is it that you can actually afford on a rental basis and it’s priced vastly different than the stuff that’s being built. And that’s the market. That’s the market that needs to be addressed.
Susan Freeman
Just looking at the market at the moment, I mean you’ve said recently that concrete demand is the lowest here since 1963 and that, um, you know, construction activity has fallen off a cliff.
Paul Oberschneider
It’s the lowest it’s been in over 13 years.
Susan Freeman
So how do you sort of work your way through that and build the type of accommodation that people need?
Paul Oberschneider
Well that’s the challenge, you know, building is not the complicated part. It’s two things really; it’s making the numbers work and I think one of my colleagues in a recent business article said that you, you know, the, the returns aren’t high enough to even service the debt but I’d slightly disagree with that a little bit but it’s really about giving consented land and being able to get starts on site and increasingly that’s becoming more difficult. I mean it’s always historically been difficult but now with these new regulations of Gateway, it’s actually frozen the market because nobody understands it and nobody knows what to do. The law firms don’t even know how to explain it. The Governments not prepared to explain so it puts everything in a state of limbo and then of course the flip side of that is well, you know, capital. You know, unlike 2008 when we had this crisis and there was a massive liquidity vacuum, we’re not in the same position today. There’s plenty of liquidity around. The problem is the capital moving around quickly, it moves to places that are friendly. The UK doesn’t seem to be a very friendly place right now and I don’t want to get political about this but it’s just not a very friendly place so people are kind of sitting on their hands and saying, let’s wait and see what happens. In the meantime you’ve got this growing demand for housing and nothing being done. One, you need to be lucky to find land that’s consent has actually gone through Gateway or be able to fund the Gateway promises and two, investor expectations have to take a view that their return expectations may be a bit high for the product that we’re actually building and, you know, the way I look at this is you need to be building a product where you’re trending or you’re running yield in 5, 10 years is constant not going up because property has a lifecycle, it has a duration period and so values go down quickly as cap rates go up. So you have to build a product that actually services the middle part of the market. Here capital has to have a different expectations than the return for product that’s going to have longevity is what I’m saying and instead of looking at where we are today, we have to look sort of 10 years out and say, well what’s the housing market going to be like and certainly there’s going to be growth because there’s a lack of supply and increasing demand.
Susan Freeman
And the problems that you’ve outlined seem to be multiplied in London. Are you looking, you know, with the new business to be developing in London or is it more likely to be in the regions?
Paul Oberschneider
So the short answer is in the regions, in the secondary cities I think. You know, more and more young people are finding the affordability factor to be an important part of their lifestyle decisions and so moving to Leeds, moving to Manchester, moving to Birmingham, even Liverpool and Sheffield and places like that, I think these are the cities that, you know, university cities as well that need housing post-graduation. I think students need a place to live, they can’t continue to go back to their parents’ house and they want to have a certain sense of independence and flexibility of movement rather than sort of being locked in on the property ladder where they can’t budge. So London isn’t affordable in my opinion to make the numbers work. Secondary cities, the numbers are just working but for a lot of investors they’re not, they’re not robust enough. So people are waiting to see what happens but the demand is there and like I said, you know, putting up a building, that’s, that’s the easy part. Getting it done, that’s the easy part. There’s no rocket scientist behind building, whether it’s a shopping centre or residential building. With a good contractor and good designers and good, you know, people that doesn’t take genius to do. It’s putting all the pieces together.
Susan Freeman
I think the, the concern is with all the, um, constraints on sites and, and the figures that we end up with new homes that aren’t necessarily good quality because, you know, there is less money available to, to build them.
Paul Oberschneider
No that’s right, that’s right. So, you know, what HPP is hoping to do and, you know, I think you, we’ve talked about this before, there’s been a lot of press around Michela Hancock joining us from Greystar, Michael Savard who came from Telford Homes, we’ve built a pretty good team here, delivery team so I think from the investment side the first question is, well okay deals might not be the greatest where the returns might not be but is the team capable of delivering the product and I think within our team, you know, we’ve delivered over the course of the last 10 years, over 10,000, 12,000 residential units and commercial retail in Europe and here in the UK collectively and I am not sure there are many teams out there that actually can say that. Obviously some of the big house builders can but as individuals, there are very few teams like this in the market that can actually deliver a product that’s of quality and execute the way we can. In my opinion.
Susan Freeman
Yeah you’ve got a great team. I am also interested to know how you and Michela met? Were you working together?
Paul Oberschneider
Well we, we were and we weren’t. So one of the things that I quickly realised was as we were trying to develop this low amenity product, affordable product for the marketplace I really needed an asset manager and I don’t have the resources to build that capability and you have to have scale in order to do that properly so I needed to find an asset manager to work with me and I chose Greystar and they had actually just positioned themselves with the acquisition of Fizzy Living so I thought, well okay we could, we could probably leverage off of their brand name. So that’s how I got to meet Michela, she was at Greystar running those relationships and we went to see a number of sites together, we got to know each other, she really liked what we were trying to do and one morning I got a text message from her, I think it was about 7.00 in the morning. She said, can we talk? And I actually thought I’d done something wrong, I thought, oh gosh okay here we go, Greystar’s not going to want to do this with us. And she got on the phone and she said, you know I’ve been thinking a lot about this all night, I’ve talked to my husband, I want to join your team. I kind of looked around the room and was wondering who she was talking to and I was like, okay and so that conversation continued for a while and I said, look I can’t really match what you’re getting at Greystar, there’s no way I could do that, you should stay exactly where you are and I really discouraged her from leaving her job and one day she just showed up and said, you know, I’ve left Greystar, I’m here. And that was it and we worked everything out since amongst ourselves and then a week later Michael who had worked with her at Greystar and who was at Telford and built their sort of, investment division and moved them away from a single family home builder to multi-family, he joined under the same sort of conditions that she did. So it’s all been about this mission we’re on. This is more than a business for us, you know, residential housing, where you live is probably the most intimate decision you can make in your life because you spend most of your time in your house raising a family, you know, building a nest, building a secure place for yourself and your family to live. So building the right product in a market that’s crying out for it, that’s our mission. The business almost is secondary so I think we look at this more as a mission than we do as a business and we’re, we’re very keen on doing that and I think when you have a story like that and people buy into it, it’s not about the money, it’s about can we get this done and I think that’s what we’ve created here is this sort of feeling that we can.
Susan Freeman
It’s exciting, I mean it’s all, it’s all pretty new and I mean talking, you know, and hearing you talk about sort of multi-family build to rent, I sometimes wonder if it’s understood yet in this country. There was, um, there was an article in The Sunday Times at the weekend about Grainger becoming a REIT and they kept referring to buy to let in the article which was all about build to rent and I think there still is, as you pointed out, it’s still, you know, after what 11, 12 years, still, you know, a small part of the market.
Paul Oberschneider
I mean this doesn’t even exist here, it’s an asset class, it doesn’t exist and nobody seems to understand it but, you know, a lot of people talk about it and they call it different things but it really is a product as an investment asset class it doesn’t exist.
Susan Freeman
Maybe it needs a re-brand, maybe it needs, um, you know, now some of it’s been built, maybe it needs a new, a new name?
Paul Oberschneider
Maybe, I mean we call it multi-family, that’s what it’s called in the US but, you know, here they call it a number of different things.
Susan Freeman
So you talked about the importance of scale. I mean looking ahead, what sort of scale would you want to build Hilltop too? And are you looking beyond the UK into Europe?
Paul Oberschneider
Well we are, I mean the problem is endemic, it’s, it’s you know whether it’s Southern Spain or whether it’s the UK, you know capital flows. You have to follow the capital and where is capital going? Capital is going to places that are tax friendly, where there’s no geo political risk, no threat of intervention by banks or Governments. So capital moves quickly these days. A press of a button and capital is gone. And you read about it in the paper all the time, people are leaving, people are exiting going to Spain, they’re going to other markets, they’re going to the US, they’re going to Asia. So capital moves very quickly unlike it did 20 years ago and it also moves towards sunshine because investors, people, not that they are relocating but partially yes, you know, capital moves for tax, capital moves for geo political reasons and capital moves for weather. And that’s become more paramount in the markets today and I think so there’s a shift towards Southern Europe. A lot of people are looking at Italy as well so I’m positioned down in Spain these days part time and we’re looking for deals down there so I think there’s a lot interest in the Southern Spanish market. And there again, you know, property prices have multiplied significantly since 2008, 2009, 2010 in city centre hubs and workforces being forced further and further out of those cities because they can’t afford a place to live. So if you go out an hour from Marbella and some of these towns north, west, east you find opportunities to build this kind of product. So we’re looking at those opportunities but right now our focus is in the UK and probably in Southern Europe, in Spain specifically. And scale, well, you know, I have no idea because if you’d asked me how many square feet of shopping centre space I was going to build when I was building my first one, I wouldn’t have been able to tell you and I could have blown smoke at you and said, well this and that but, you know, it starts with 1, it always starts with 1 and I’m, it always frustrates, me when I sit down at these tables with these large institutions and they say, tell me about the scale? You know, I can say I can build thousands and thousands and thousands of these but, you know, I would just be spinning a story you know. I think the most important thing is to build one, get the business model to work and prove that the product works and then you build the second one and then the second one works, you build the third. So that’s always been my sort of old fashioned and least historically way I have done things and maybe I’m a dinosaur and I don’t know any better but I’m always amazed that the big numbers everybody throws around and frankly if, if you look at 5, 10 years later you go back to some of those people and you say, well actually how much did you build and how is it doing? I think you’ll find that most of that is disappointing news.
Susan Freeman
Yeah it’s an interesting point and what do you reckon will be the first site for Hilltop?
Paul Oberschneider
Well it will either be Leeds or Manchester I think, you know, they are kind of running neck and neck. There’s some issues with both of course but as always but we’re working our through them but, you know, we’re seeing pipeline in every day, we’re just trying to stay focussed on one or two things.
Susan Freeman
There’s so much sort of going on at the moment in technology, innovation, do you think that innovations in design technology or just the way services are provided to tenants are going to sort of change the way we, we build or is it going to be sort of very much continuing as we build at the moment?
Paul Oberschneider
No undoubtedly and you know modular is another thing that I think is really fast coming in this market, you know, you can prefabricate and build modular very quickly with technology already built in, you know, you don’t need fifteen people on a building site, you know, smart technology can do a lot of things for you but we’re not there yet and that’s not the product we’re building. We are kind of still building the old fashioned way but of course as time goes on, you know, these things will, will replace manpower and it will reduce time. Financing modular is not easy, it’s difficult but it will become, you know, it will replace the traditional house builders way of doing things for sure.
Susan Freeman
Yeah we’d expected it to, so far it hasn’t been, uh, going terribly well in this country but, um, I’m sure, I’m sure we’ll, we’ll work it out.
Paul Oberschneider
Well I know in Scandinavia and Eastern Europe they’re doing it already and doing it successfully.
Susan Freeman
Obviously you’ve talked about your, your early days as a, um, as a property developer in Eastern Europe, so you have been a developer for, um, you know, quite a long time and I just wondered if you had any thoughts on something that comes up quite a lot in these podcasts and that is why developers aren’t better appreciated for, you know, what they do, you know, the properties that they build and was it any different in, um, in Easter Europe?
Paul Oberschneider
Um, yes. Maybe the lack of competition at the time could have been, I mean we were making big changes with things that people hadn’t seen before so I think there was a lot more focus on, you know, what was being delivered into the market. I mean, the UK is a highly competitive market, full of intelligent people all trying to do the same thing. So is there a stand out individual or product in the UK market? I think the answer’s no. Everyone has the same information, technologies made that arbitrage disappear, you know, we all look at the same data, we all look at the same statistics. We all have access to, to the same news so the way news and information flows today makes, it’s like what happened with the Exchanges, you know, you used to have market makers and traders on the floor in clearing houses and people providing liquidity and computers took all that over and today arbitrage is almost non-existent because prices between the bid and ask are, are very thin. You have to take a longer term view than a short term view because that’s the only way you’re going to find that wave to get on. You can’t find the gaps anymore, it’s too tight. So you either have to go to markets that are wide open and blue skied or you have to, you know, find a product that’s different and you have to take a macro view. You know, where’s housing going to be in 10 years, where, where’s this unmet demand going to go, who’s going to provide that product and is it sustainable, is it a product that’s going to be sustainable? Again, you know, we’re not doing anything revolutionary here whatsoever, we’re just trying to fill and unmet need.
Susan Freeman
So you have run and sold many businesses over the years, what is the most important lesson that you’ve learnt and, and are there things that with the advantage of hindsight you would have done differently?
Paul Oberschneider
Mm yes, hindsight is painful sometimes um but it teaches you lessons. Well the first thing we talked about and this kind of segways into I just did a talk at a succession planning conference recently and we talked about a topic which, which I think is a topic that people really don’t talk about very much which is the dark side of success. And, you know, whether it’s on an exit or a transition or a retirement, you know, we spend an inordinate amount of our times doing due diligence on deals but when it comes to planning our own exits and what happens next, we kind of wing it, we don’t spend much time thinking about it. So I think one of the big lessons is, you know, if you are really good at something and you’ve done something and I know this is just talking from my own experience, someone once said to me, never leave your chair and I said, well why? And they said, because as soon as you leave someone’s going to take it and getting it back again is very difficult. So when I retired, um, when I was 47, that tells you how old I am, back in, you know, 2008 and went off the grid in the radar I had to decide who I was going to be or, or I didn’t decide who I was going to be after I was the person that I am. If that’s sort of philosophical. But the question is, what’s next and I think, you know, we spend 24/7 for 20 years building up businesses and then suddenly, you know, you can’t pick up the phone and talk to all those people anymore because they’re not there or they’re doing other things and so I think Founders and successful executives and CEO’s get to a point in their lives where they need to plan for the future and I know I winged it, I know a lot of people that have winged it and you need to be able to transition into that next phase elegantly and, you know, maybe that’s not leaving your chair, maybe it’s, it’s taking a chair and moving it somewhere else but, you know, I know from my own personal experience starting Hilltop Credit Partners from a piece of paper again from zero after having had the platform that I built behind me, was a very difficult transition for me to make. So I think that rings true and I think people should think about that. The other thing that we touched on was this idea of just showing up every day. Opportunities kind of find you if you’re there. If you walk away before the miracle happens then they’re not there because you’re gone and someone else is there so what keeps me going every day is I just don’t know what’s going to happen tomorrow and I’d like to find out so I keep the lights on and I do the best I can and if an opportunity shows up then, you know, I might go that way and I might pivot. The one thing that’s important, it’s not so much the business, it’s the team around you that you build because you can pivot into a number of different things and I think you have to stay flexible given where the market opportunities are. So those would be my two lessons, don’t leave your chair and, you know, show up every day.
Susan Freeman
Can you show up every day whilst working from home, I mean that is, that is the big question isn’t it?
Paul Oberschneider
Well that is the question and I’d say yes and no. You know, we have a work schedule here where we all in Monday, Tuesday, Wednesday and then Thursday and Friday we can work from home and we can take care of things that we would normally do for our personal lives and I think that work life balance is very important, you know, I used to work seven days a week, 24/7 all the time and that kind of drive I don’t know if it’s healthy, I don’t know if it’s good, it does get you places but I think at this point in my life I’d rather not do that again. And I don’t think it’s necessary, I think in technology and Zoom and Teams and it made it easier to work from home but I do think you need to be around a table with people because that’s where ideas are generated. I know if I am on a Teams call after 15 minutes I’m doing something else and I’m just listening and looking at 12 people on the screen and I’m not paying attention and if I’m like that then probably everyone else is doing the same thing so I don’t know how much, how much is actually getting done over the screen but I think if you’re in a room and you’re with people and you’re talking, then things do get done, ideas do get generated and that’s where the magic happens, is being around people and exchanging ideas and I think you can only do that when you’re together.
Susan Freeman
And, um, talking about that, you are, um, assembling a very interesting group of, of people tomorrow to talk about what’s going on in build to rent. And amazingly everybody’s getting together notwithstanding the um…
Paul Oberschneider
Strikes.
Susan Freeman
…the tube strike. Do you want to just say a few words about, you know, why you’re getting people together and what, what you hope to achieve from it?
Paul Oberschneider
Well sure, so we want to do these quarterly breakfasts with industry leaders to actually sort of under sort of the Chatham House Rules concept, sit down and talk about what’s working and what’s not working for people, you know, here are my problems, this is what I’m dealing with. You know, what are your problems, what are you dealing with, how are you solving them. You know, is there a way we can solve things together, you know, but it’s really kind of an open discussion amongst people within the industry, specifically BTR residential, um, or multi-family and talk about how can we actually position this product, how can we re-brand it, how can we provide influence into the market, you know, what can we do, if anything to do that and again I think sometimes the best ideas are generated around the table so we’d like to make this sort of an ongoing thing; invite people, not the same people but perhaps some similar but different people every quarter to, to talk about these topics openly without fear of being discussed outside this room. So what, what’s talked about in this room sort of stays in this room if you will. And then by agreement we can decide what we want to do with that information.
Susan Freeman
I think it’s, it’s a brilliant idea and, um, looking forward to it and is something we did in the very early days build to rent here, before it was actually called build to rent and in fact I think we came up with the name at one of those round table dinners so, uh, I think, um, it’s a very, very good idea and I mean you mentioned the word, re-brand there. So you, you think it’s, it’s time for some sort of re-brand?
Paul Oberschneider
Could be, it just needs a new skin, it needs to be position in the market and, and I think the market’s getting there slowly but just organically because I said before, you know, the middle squeezed market that we’re trying to address are the people that normally would have been on the property ladder. So that middle market never really needed to be addressed but now it does you know? So by default it’s going to get a lot more attention, it’s getting a lot more attention and there will have to be a solution, whether it’s the elimination of Gateway or whether it’s doing something differently or incentives for sponsors or developers to be able to make the numbers work, something has to give. Otherwise you’re going to have a problem. Well you already have one but it will get bigger.
Susan Freeman
Paul thank you, I think that’s probably, um, a good place, a good place to end.
Paul Oberschneider
Well it’s been a pleasure talking to you.
Susan Freeman
Thank you.
Paul Oberschneider
Thanks so much.
Susan Freeman
Thank you so much Paul for talking to us about your far ranging real estate career to date and your thoughts on the future of our nascent build to rent sector and the UK housing market. Very best wishes to you and Michela for the new business.
So that’s it for now. I hope you enjoyed today’s conversation. Please join us for the next PropertyShe podcast interview coming very soon.
The PropertyShe podcast is brought to you by Mishcon de Reya in association with the London Real Estate Forum and can be found at mishcon.com/PropertyShe along with all our interviews and programme notes. The podcasts are also available to subscribe to on your Apple podcast app, Spotify and whichever podcast platform you use. Do continue to subscribe and let us have your feedback and comments and most importantly, suggestions for future guests and of course you can continue to follow me on LinkedIn and on Twitter @Propertyshe for a very regular commentary on all things real estate, Prop Tech and the built environment. See you again soon.