Propertyshe podcast: Richard Croft Executive Chairman of M7 Real Estate

Posted on 27 October 2021

It is absurd, absolutely barking mad that it takes three months, or two or three months, to do a real estate deal.  In fact, I became obsessed that it was absurd three years ago when I went out to dinner with my eldest son, who said, we were sort of talking about what I did, and he finally said to me, he said, “Dad, why does it take two to three months to do a real estate deal?” and I went, “I don’t know.”  I’ve been doing this thirty years, “I actually, I really don’t know.” 

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 wonderful world of real estate and the built environment.  Today I am really delighted to welcome Richard Croft.  Richard is Executive Chairman of M7 Real Estate, a leading pan-European real estate investment manager, now owned by Oxford Properties.  M7 has over 220 employees in 15 countries in territories across Europe, the Middle East and Asia and manages over 570 assets with a value of around 4.1 billion euros.  Richard is responsible for the strategic direction of the company, capital raising and leads the real estate fund management function.  Prior to founding M7 Real Estate in 2009, Richard founded Halverton REIM LLP, subsequently GPT Halverton, the European real estate fund management business which was sold to the GPT Group, an Australian listed property trust, in July 2007.  Richard has been involved in transactions valued at over 12 billion euros across the UK and Europe during his 30 years of real estate experience.  In addition to his roles at M7, Richard is a non-Exec Director of IPSX, the International Property Securities Exchange, the Redcat Pub Company and the Pinnacle Group.  He is a regular speaker at conferences across Europe, covering real estate and economic topics. 

So now we are going to hear from Richard Croft about his innovative approach to real estate and the ups and downs of thirty years in the sector.  So, good morning, Richard and welcome to the digital studio. 

Richard Croft

Thank you very much, really very excited to be here.

Susan Freeman

So, I’d like to just start off with some background and really, you know, you’ve been in real estate for over thirty years and I just thought it might be a little bit interesting to talk about how you got into real estate because I understand that you know, initially you were an aspiring actor and whatever made you give up a career on the stage for industrial real estate?

Richard Croft

Well the truth is actually I was never really an aspiring actor, I was an aspiring, aspiring actor and my father, as I am sure you know, is the late, great David Croft who wrote Dad’s Army and Are You Being Served? and ‘Allo ‘Allo! and my family are steeped in showbusiness and when I was 17, I wanted to continue in the family tradition and be in showbusiness, be an actor.  My father came to see me in the school play, which I was leading in and I played a character called Mortimer in a wonderful play called Arsenic and Old Lace.  After the show he came in to see me and said, “Son, are you absolutely sure you want to be an actor?” and I thought I’d been epic in this show and I said, “yeah, I do.”   He said, “Okay, if you want to be an actor, that’s cool but I want to have a conversation with you first” and he said to me, “I want you to realise,” because in those days by the way, to be an actor you had to be a member of the thing called Equity which was the actor’s union, “There are 38,000 members of Equity, of whom 2000 work regularly and son, to make in this business you need to be one of two things, either supremely talented or supremely beautiful and you are neither.”  Now, whilst a little bit harsh, I laughed because I knew it was true and he was a very kind, gentle man and he said, “But you’re not without talent.  Take that talent and do something else with it.”  So, I didn’t go into real estate immediately.  I forgot to go to University by accident, for lots of complicated reasons I ended up in the City and I was a futures broker for a few years, well two or three years, until 1990, so despite the fact that I have been in real estate for thirty years, I’m still beautifully tender and young and I’m only 51.  Anyway, I was three years in, in the City, and during that time I was involved in a thing called the Property Futures Contract and I left the City in 1992, you probably remember there was a massive economic collapse and I was going to go travelling the world and, you know, have a bit of time off and I met a guy called John Simms who was obviously very well known in the industry at the time, who ran a company called Industrial Ownership and I was slagging off the real estate industry to him and saying there’s no way there could be a derivative market because the physical market is so disorganised and there was no, you know, all deals were done over claret, you know, there was, it was a very, to me, in 1990 seemed like a very unprofessional business, it was probably a bit harsh.  So, he said to me, “Well, come and work in the industry and you can find out what it’s like.”  So, I joined him as a tea boy basically in 1990, it was meant to be just for a few months to learn about the industry and I ended up working for him for fourteen years. 

Susan Freeman

Okay, and what did your father think about you going into real estate?

Richard Croft

He was much happier with that than me becoming an actor. 

Susan Freeman

So, I know your first company was Halverton and you sold that out I think in 2009 or just before. 

Richard Croft

No, no, no, so, no, so, so I left John in 2009 when John and I had unfortunately had a massive dispute because I, having been the tea boy rose to become, or rose, I effectively became his Number 2 and I built the European business of what was then the IM Group who became Property Fund Management Plc and we received a takeover bid from Teesnit which I was very against, John was very pro and John owned, well John was the Chief Executive and a big shareholder in the company, I was not the Chief Executive and not a big shareholder in the company and that particular power struggle was one that went badly for me.  So, I left and took my team and set up a company called Halverton with a wonderful man called Bill Sexton and another equally wonderful man called, partners Andrew Yates and it was the CFO of actually Property Fund Management PLC and Doug Gardner who was the previous Chief Executive of Brixton and we set up in business, effectively to do the same thing as Property Fund Management Plc, I just didn’t want to be owned by Teesnit and that was very successful for three years and we sold it to an Australian group called GPT in June 2007, so perfect timing for the global financial crisis.  That was the last good decision I took for eighteen months and then had a disastrous eighteen months with the global financial crisis where, quite frankly, you know if you rated our performance, my performance, during the GFC you would give it an E.  Actually, I’m probably being a, I’m probably being too kind, it’s probably an F or a U, it was just disastrous and I got fired by GPT in October 2008 or rather put on leave and my entire senior management team from out and, because by then it was quite a big business, resigned basically in protest and that became M7 and M7 was based basically on the blueprint of everything we got wrong at GPT Halverton so, you know, we started a businesses in the depths of the global financial crisis but having learnt some important lessons so, you know, the success of M7 is as much down to, well down to two things, one the wonderful team that was in but B, the lessons that we learnt from the failure of the previous business. 

Susan Freeman

And where did the name come from because M7 sounds like a motorway but I mean I know there isn’t…?

Richard Croft

Bizarrely, M7 is the motorway that encircles Sydney.  So some people thought that was a joke but it actually was and I didn’t know that at the time.  Some people thought it was named after The Magnificent Seven but that would have been a terrible idea because as you probably know, four members of The Magnificent Seven died, so they are a bad group to be named after.  It actually stands for The Munich Seven because, I won’t quite go into why my relationship with GPT ended as quickly as it did but the idea to start the business happened in Munich basically.  So, it’s The Munich Seven.  There were seven people involved in the very initial discussion.  Actually, there were twelve partners at the start of M7 but there were seven people involved in the very first discussion about M7 so M7 stands for The Munich Seven.

Susan Freeman

That’s interesting, that’s interesting to know. 

Richard Croft

Actually, we started it as a project name and then we couldn’t find a better name for the company so it just sort, it just sort of rolled in to becoming M7.  Originally by the way, we were not M7 Real Estate, we were M7 Investment Management but the red brace wearing Justin Urquhart Stewart actually threatened us with legal action if we didn’t change our name because he was worried that M7 would be confused with Seven Investment Management so, we actually changed our name to M7 Real Estate. 

Susan Freeman

So, having been through the financial crisis and having learnt a lot, I mean, are seeing parallels in what’s been going on with the pandemic over the last…

Richard Croft

No, no, they’re totally different events.  So, the global financial crisis wasn’t an economic crisis, it was a liquidity crisis.  Basically the oil that keeps the economic citizen going which is liquidity, basically ran out because all these debt obligations were sold down to the last common, the lowest common denominator and all the people who were funding the system basically ran out of money and Gordon Brown, whatever you think of him, actually probably and Ben Bernanke were the architects of stopping financial Armageddon, you know, they learnt the lessons from the Great Depression and flooded the world with liquidity.  Now what’s happened ever since is the world has continued to be flooded with liquidity and when the global pandemic hit, every Government around the world and every central bank decided to bank on massive fiscal stimulus and massive amounts of general liquidity.  So… or quantitative easing, and as a result the real asset economy, the asset economy, has performed very well.  The real economy has obviously had a very disastrous 2020 and it has bounced back quite a lot this year but, in my mind, it’s going to remain choppy for the next probably four or five years there’s going to be spikes of inflation, there are deliberately paused supply chain issues like Brexit, I mean I think it’s well documented that I think Brexit makes about much sense as ramming your hand in a car door repeatedly but we are where we are.  So that is going to be a supply chain issue.  So that’s specific to Britain, albeit there are supply chain issues all over the world because of the pandemic and because of the amount in the fiscal stimulus, we have labour issues albeit I am worried long-term about labour issues, not because there’s not enough labour which is the point at the moment but actually because businesses are amoral rather than immoral, businesses don’t have morals because they’re not people, they are run by people but they are not people and if wage inflation takes hold, which it will in the short-term, what’s going to happen is businesses are going to invest in automation far quicker than they were intending.  We saw that with oil when oil got $150 a barrel, people started focussing much more on not using oil than at any point in history so demand dropped off, you know what happened to the oil price, we are going to see the same thing with wage inflation and automation, which worries me so that, you know, in the medium term I am quite bullish but the long-term I am a little bit bearish because unless Governments start addressing the problems that automation will bring, which is simply this, if the vast majority of people just have labour to sell, which is the truth because the 1% do have most things and they are unable to sell labour easily which for me is a worry because automation has taken hold and a lot of jobs that currently exist, disappear, then you are likely to have wage deflation.  Now, that could be dangerous if Governments don’t have sensible policies to address the issue. 

Susan Freeman

So the pandemic seems to have had the affect of accelerating the number of existing trends which is affecting retail, affecting offices, I mean are you looking to repurpose any of your portfolio sort of taking into account you know what’s going on at the moment?

Richard Croft

Well, I mean, so I don’t buy this thing that people aren’t going to work in offices, I just don’t, I mean I say that sitting at home for those listeners, I’m sitting at home not because I want to sit at home but because I am currently a carrier of the SARS-CoV-2 virus so I am self-isolating.  No, I mean, you know I got to our offices, or did before I… you know, they are busy.  People want to be together, you know I am sure people want to work from home occasionally but that’s occasionally, not all the time, you know humans are social animals so whether you need an office three days a week or five days a week, you still need it and you still need the same amount of space and you know, certainly what we’re doing with our offices and I see a lot of other companies doing the same is we’re making them slightly more fun places to be but I mean, again, I think I’ve been well documented in saying that work should be a fun place to be, you know, if you don’t like the people you work with and it’s not fun then productivity is going to be poor so it is incumbent on businesses and, not just landlords but businesses, to make the office an environment that is collaborative, safe, I know that’s an overused word, but fun, you know, it is something where you should aspire to be so, the thing that I think is at risk post the pandemic is this idea that, or it’s the long-distance mass transit commute, I think people might want to work nearer from home and as a result of that we’re quite bullish regional cities over London because whilst, you know, I’ve never bet against London, it seems foolish anybody that has done, has lost their shirt.  My personal view is that the regions are going to outperform because their level is so much lower and I think London has gone ex-growth because I think the growth opportunities in Birmingham and Manchester etcetera, Liverpool, are much higher.  If you look at, I’m sure you do, the demographics of somewhere like Birmingham, it’s a much younger city than London in terms of its average age and that’s important and it’s got five major Universities and 50% of the pupils that go, or the students, that go to Birmingham University stay there to live which is why you are seeing companies like PWC, Goldman Sachs, BT open up large offices in Birmingham, it’s a very encouraging trend.  So, we’re quite bullish offices in the regions, we’re neutral London, only because I think London has got, it’s A, very expensive, I mean it’s still a very important city, I think Brexit doesn’t help London and the Government’s views on some issues probably don’t help London either.  I, you know, one of the things that I found extraordinary about Brexit, and it happened, is whatever one thinks of the situation in Hong Kong, one of the places we should definitely be trying to be friends with if we are going to be global Britain, is China and they’re the first people that our Government picks a fight with and you know, you look at that you go I do wish somebody would tell me what the plan is because they are keeping it really well hidden. 

Susan Freeman

So, M7 has recently been acquired by Oxford Properties which is the real estate arm of Canadian pension fund, OMERS.  How did you come together and what sort of clinched the deal for you?

Richard Croft

We came together by accident.  I was introduced to Jo, I mean I’ve known of Jo, for a while obviously and David Matheson and David’s obviously just gone to Starwood, as you’ve just read.  But I mean, I didn’t know them or certainly didn’t know them well, and Oxford had an investment in a business called ERG which was a developer out in Japan, run by the chairman of Rangers Football Club, Stewart Gibson, randomly, and this is where we got introduced and Stewart and I decided to have breakfast October last year to talk about things we could do together and Oxford were invited to that breakfast.  I met Jo and David and within about twenty minutes of meeting Jo and David, it became really apparent to me that they were exactly the company I was looking for to put M7 into.  There are lots of reasons, I mean, you know, I think they are fairly well documented that the last two or three years I have been looking for a capital partner for M7, I thought M7 was a, I mean it’s a fantastic business, I mean I would say that but I really do believe it could be, but it was in a dangerous size, 5 to 6 billion AUM and an independent manager is a dangerous size because you’re not big enough to be amongst the superstars and you’re not nimble or small enough to be amongst the niche managers who I think, you know, the world’s going to separate into two chunks, the premier league and then the niche.  I think the middle size managers have long-term problems so, us included, and I wanted to become part of the global organisation with global fire power and capabilities and I met Jo, liked her a lot, I liked David, and so literally about an hour after our breakfast I phoned Jo and I said, “look I know this is a bit random but you wouldn’t like to buy the business would you ?” and she said, equally randomly, “I was about to phone you to say would you like to sell the business?”   So, we came together and we did the deal pretty quickly so, we actually, I mean, so we first met at the end of October, we exchanged the deal in December last year, we actually only completed a few weeks ago because of all the regulatory approvals needed but it was a very happy transaction and I have to tell you that of all the all the organisations that I partnered with, dealt with, many of whom are fantastic by the way, wonderful experiences but they’re just really nice, good people, who care very much about what they do, they care very much about how they do things and I have to say it is sort of, it felt like a really instinctive partnership so I’m hugely excited about what the next five years holds for M7.

Susan Freeman

That’s great and actually I interviewed Jo for the podcast a few months ago so, yes, I am a great fan.  And will M7 remain independently managed?  Will things…?

Richard Croft

Yeah, no absolutely so we had Michael Turner who is the, our global President over last week and he was very keen to make the point to me and to David Ebbrell, Chief Executive that, you know, that he wants David and I to continue to run the company with our senior management board, you know, and for Oxford, we will be an Oxford business but run independently of the main Oxford business, Jo and James Bow will sit on our Board, which you know we very much encourage so we will be an extension.  I suppose the best way to describe this will be a semi-autonomous region so we’re kind of like Wales or Scotland, you know we have our own Parliament but ultimately, we answer to Oxford. 

Susan Freeman

Well that sounds, that sounds great and I was intrigued listening to an interview that you did, you were described as having a Rasputinesque ability to attract and retain talents of very good friends and I mean that did sound quite interesting.  Is that true?

Richard Croft

I’m not quite as evil as Rasputin, I mean Rasputin, well Rasputin and Machiavelli are probably the two greatest politicians in history, if you like, at least in their ability to bend people to do their will.  It’s very… I know who said that, it was Tony Hidgley.  I’ve been very lucky in my life, I’ve had… work has coincided with meeting a lot of very fantastic people who have become very close friends.  I wouldn’t say that it’s my Rasputin-like ability, I think it’s the power of the group, I was saying this to somebody last week actually, the thing that has made M7 very different is this concept of team that we’ve all had, we’ve all shared, which is that you know, it’s like your University friends, you know, or I didn’t go to University but my close friends from London when I first moved there, once you are together you stay together and you know we’ve had a tremendous camaraderie, Jack Thom, Andrew Jenkins, Hugh Fraser, Tom Pearman, Teresa Dyer, David Neville, I’m trying to think who I haven’t mentioned, John Croft who was my brother, Ollie Farago who all, you know, some of the founding partners of M7, we’ve been together, the vast majority of us, for 20 years and it’s not any one of our ability, it’s been all of us who have wanted to stay together, wanted and we wanted to do what we think was right for each other and it is very rare that you get that in a team but that wasn’t me that created that, it was everybody.

Susan Freeman

So, it does sound like a really good match with Oxford because I know you described them as innovative, collegiate and fun so, I…

Richard Croft

Of course and in Jo they have a leader in Europe who is… if that’s the right word but I mean, who is, you know, has exactly the same to what I’m looking for here, I mean, she has exactly the same ambitions as we did and, you know, so it was very easy to get on board with that because somebody who had the same views on the world broadly and the same views on how business should be done and so if you have that and you have that degree of commonality, then it’s quite easy to be able to mesh things together.  It’s quite difficult to mesh things together if organisations have different styles and different cultures but you know I have no problem, bizarrely, well not bizarrely but surprisingly, our culture was actually very similar to Oxford’s. 

Susan Freeman

That’s so important and the other thing I was intrigued by was reference to the ring.  You apparently have a ring which is very important.  What is…?

Richard Croft

This is a podcast and nobody can see me showing you the ring.  It’s my father’s ring and for the first two and a half years of M7’s life, to describe this as a minnow, it’s doing a disservice to a minnow but I don’t know what’s smaller than a minnow, a sprat I suppose.  When we were tiny and we survived by the skin of our teeth, I mean I kid you not, we literally every day we were thinking innovative ways to keep, so we had 12 partners, 6 members of staff, we managed a couple of portfolios and we hung on in there and in 2011, so my father died in September, September the 27th 2011, so this is 2012, early 2012 my Mum invited me to lunch at the Wolsey and my Mum was a wonderfully gregarious woman – I hated her politics by the way, she and Atilla the Hun would have got on very well but everything else, she was fabulous, intelligent, bright and as I say, gregarious.  Anyway, so I turned up to lunch at half past twelve and she was already well into lunch with her friend who she was having lunch with and there were a couple of bottles of Bollinger in and I sat down and she literally shouted, “Darling!” as I sat down and the entire restaurant stopped and she took this ring out of her bag and she kind of threw it at me and said “This is your father’s ring.  He wanted you to have it because he was very sad that he hadn’t lived long enough to see you recover from 2009 but he had no doubt that you would so he wanted you to wear this ring because he wants to help and guide you through the next few years.”  Now, ever since I’ve worn this ring, M7 has been blessed with outrageous amounts of good fortune.  You know, I’m not particularly spiritual but it’s difficult not to, you know, so if this ring was to ever be lost, I’m retiring instantaneously, I have absolutely, you know, I would have nothing left to offer the real estate industry because it’s better to be lucky than good and M7 has a huge amount of luck and it has had all it’s luck since I’ve worn this ring.  I do believe Dad’s up there helping us, kind of. 

Susan Freeman

You hold onto that ring. 

Richard Croft

Literally.  Its here it literally does not leave me. 

Susan Freeman

So, let’s talk a little bit about M7’s innovation and particularly in relation to technology because I always quote M7 as an example of a property company that has created its own, you know, proptech ability in-house because you always hear about tech companies coming along to save the property industry so, you actually developed what is now Coyote in-house and I know it’s now, you know, launched as an independent business.  How important has Coyote and that platform been to the development of M7 and how does it affect your decision-making?

Richard Croft

Well let me be very clear, without Coyote we wouldn’t be here either, I mean, so a lot of the luck that I talk about and the sort of things that happen to us and the decisions that we took and Coyote was a… I can’t underestimate or overestimate how important it has been but when we got… when I got fired by GPT and the team left and we had six months on gardening leave so we sat in the basement trying to work out what M7 would look like, so one of the things we talked about was management of data was a tech capability to manage our transaction process better and we talked about all the things that we wanted tech to be able to do.  My legendry former boss, John Simms, used to say well surely we can just push a button.  I have no idea what he actually meant by that but actually the concept of just pushing a button is a good one, right?  It is, if you want information, just push a button.  You need to know which button to push and you need something to do all the calculations behind the button.  So, it was that concept that sort of caused Coyote and Coyote is called Coyote because my first job for John, the first two years I worked for him, is I was IO Group’s roadrunner and what that meant is, I literally every week got in a car on Monday, drove to some random part of the country and for four days lived in motels and took photographs of every industrial estate I could find – not the most exciting job I’ve ever had – and go around with maps, take photographs of the… take a note of who the managing agent was and on Friday when I got back to the office, I would phone the managing agent and I would find out who owned the industrial estate and then I built this database, except it wasn’t a database, it was a great big filing cabinet behind my desk with lots of photographs and notes and we knew who owned every industrial estate.  So, when IO got into fund management in ‘94/’95 we marketed our funds on the basis of what we called the roadrunner database, which was my head and a whole load of photographs and maps and notes in a massive filing cabinet behind me.  But people believed that we might actually have a database so the concept for Coyote came from that and the reason that Coyote got called Coyote is after Wile E. Coyote who chased the roadrunner all over the place so, an homage to. Anyway, because Ollie, and you know Ollie Farago who is the Chief Executive and David Ebbrell who is the other Chief Executive of M7, were considerably cleverer than I am.  We took that very original concept and then Jack Thom and the rest of the team started thinking, well if we can do it for acquisitions, we can do it for asset management and we built up this entire suite of software, which is still being built, and I think Coyote is the reason that M7, or one of the reasons, that M7 became so successful because when we were first working with Starwood and HIG and Oaktree, we had capabilities that other operating partners just didn’t have because of this and they got very excited by our systems because we could control data, manage data, interrogate data far better than anybody else they had ever seen and, you know, we’ve kept going with that because, you know, one of the things that I learned during the global financial crisis is that losing control of your data is a catastrophe.  So, we’ve put data and the understanding of data right at the heart of our asset management and investment management decisions because the more data you have, the more information you have, the better the decisions you will take, in my opinion. 

Susan Freeman

So, you make it sound as it if, you know, it just… that is the way it happened but clearly M7 is innovative in many ways and we’ll talk about IPSX in a minute and you’ve invested in that platform which is the first regulated stock exchange dedicated to real estate and I think you’ve also invested in Unissu which is the proptech marketplace and Jasper…

Richard Croft

Jasper, Proder, Cama, I mean we’ve invested in a lot of proptech but we are focussing now more on our core investments in the proptech space so, you know, Coyote and IPSX are the two things.  So, Coyote is obviously, whilst an independent business, still part of the group and IPSX, I’m on the Board of and let me tell you I absolutely believe, a bit like winter, unitisation of individual assets is coming and it’s not just coming, it’s coming in a big way, tokenisation, you know, the reality is that democratisation, if that’s the right word, unitisation of single assets is necessary, you know, people need to build to invest in real estate in a world that is shorn of income and it is shorn of income, you know interest rates despite inflation are going to remain very low so, dividends and income yields are going to be hugely, hugely important and if you could get to a world where 20 or 30% of the world’s major buildings are listed, you deal with two issues, one liquidity, it is absurd, absolutely barking mad that it take three months or two to three months to do a real estate deal.  In fact, I became obsessed that it was absurd three years ago when I was living with my eldest son who said, we were sort of talking about what I did, and he finally said to me, he said, “Dad, why does it take to two to three months to do a real estate deal?” and I went, “I don’t know.”  I’ve been doing this 30 years, or at that point 27 years, and I’m going, “I actually, I really don’t know.”  So, there was that and then the second thing is, the frictional cost of real estate trading is barking.  So you pay stamp duty, land tax, agents fees in and out, legal fees in and out, environmental fees, structural fees, some other fees that I haven’t even thought of so accounting fees you know, so the frictional cost is probably 10% and if your average real estate deal is 60% levered, which it is, 25% of the equity disappears first day of the deal, disappears.  So, if I came to you with an investment idea and said look, I’d like you to give me £100 but I’m only actually going to… £75 is going into the deal, the other £25 is faffing off.”  You’d go, “Um, I don’t think that’s a great deal.”  But real estate, we do that every time.  So, if you could change the capital infrastructure or capital market infrastructure and say right, the same entity is going to own the building forever but you’ll be able to trade in and out of shares in the building so, this works for major commercial real estates or homogenised portfolios, and you’ve got fixed cost management but you can benefit from all the yields and the pension funds, benefit from and private equity groups etcetera.  How exciting is that for investors and you don’t have to rely on overpriced management and you know and the truth is that if you look at the public markets in the UK at the moment so the universe, imagine it’s very expensive or whether they are overpriced, that’s probably, that’s probably unfair for me to say but pejoratively, the expensive.  If you can invest directly into buildings with a fixed cost management contract, you know exactly what you are receiving in dividends and, you know, take the mailbox read which was the first thing we listed, it pays a 7% dividend, it’s got a fixed cost management contract with M7 and there’s no chief executive being paid millions of pounds of year regardless of performance.  I think that’s very positive.  That doesn’t mean to say the wrong for a mixed use REIT on the London Stock Exchange but I do think that there is a reason for there being a wide range of buildings to be available on a stock exchange where you can just take part in investing directly with real estate.  I think that is A, necessary and B, hugely appealing for a lot of people and when you add in the move to blockchain and tokenisation, I think IPSX has a stunning future, I mean I’m, you know, whilst I’m a non-exec, I’m sure you know we M7 listed the first building, we’ve been very instrumental by actually also listing a second thing on there and the exchange, there will be an announcement next Monday about the first non-M7 issue on the exchange and we expect three or four things to be announced before the end of the year.  People are getting on board with the idea that unitisation, democratisation, tokenisation, call it what you want, is coming, you know, it is, and the question is not whether it’s going to happen because it is 100%, the question is whether IPSX is going to be the primary beneficiary of that but we are a recognised investment exchange, I mean, for those of your listeners who don’t know what that is, there are very few of them, London Stock Exchange is one, we’re one, London Metal Exchange is one, you know it is a proper, functioning exchange, it’s not a crowdfunding platform, this is a proper exchange with market makers, two-way pricing, this is the kind of thing that as soon as we’ve got to five or six listings to look after you trade on your phone.  Once we’re on Hargreaves Lansdown.  You know, this is, you will be able to treat real estate as you do every other asset class and all we’re doing is bringing real estate into the 21st century, you know, and so the things that we’re doing with Coyote and the things we’re doing with IPSX is I look at the world, or we look at the world, M7 looks at the world, and says okay, you know real estate is a, we’re the biggest industry in the world by miles, 35 trillion dollars, trillion dollars, that’s such a big number I don’t, you know, even Donald Trump would struggle to think of words to describe how big that is, how humungous that is, and $300 trillion of total real estate in the world, $300 trillion, we dwarf every other industry and yet we are, we are behind the curve and I found that, now, that’s changing very fast.  I’m speaking at CreTech next week and tech is sort of… and real estate are finally deciding that they should get together and work things out and I think we should be pleased by that and, you know, the environmental and the ESG angle to real estate is going to speed up and these are all wonderful things and, you know, I’m pleased that M7 is at the vanguard of it and I think probably the greatest decision that we as a management team ever took was to accept that tech was going to have a really important part in what we did and IPSX and Coyote are just two examples of that. 

Susan Freeman

I’m very excited about IPSX, I’ve been following it you know along the way.  I just wonder why it’s been quite so difficult because I know you describe the Mailbox float as…

Richard Croft

Everest in my underpants.

Susan Freeman

Yes, and you know the greatest achievement of your career.  I mean, why was it so hard and why, you know why has it taken so long for others to follow?

Richard Croft

Well, that’s easy because, I mean, so I won’t name names but somebody who I respect enormously and he wasreal estate has been working perfectly well for five hundred years, you know, people have been trading things, you know, people made money, we’re all happy.  So, inertia is why, you know, things haven’t changed but he did also say at the accept that the time had come probably for change but as we were doing the Mailbox, you know people were saying well what happens if it trades at a discount, you know, what happens if this happens, what happens if that happens?  And so finding people who wanted to go first to be part of the first thing and I’ve probably spoken to 10,000 people about IPSX, I kid you not, 9950 think it’s a great idea, 50 go why would you bother.  But out of the 9950, the amount of people said yeah we’d love to be involved in the first one, none.  It’s like we’d like to see what happens.  In fact everybody said we’d like to see what happens and so the reason that I bought the Mailbox, or M7 bought the Mailbox, initially was to list it so that when we listed it, we could say well this is what happens.  Now I’ve now got six months’ worth of data about what happens.  Mailbox tracers for premium it’s delivered on its dividend.  Every trade that is needed to happen has happened so, probably £1.3 million worth of shares have been traded as of close of play tonight but that’s every share that’s wanted to be sold, has been sold.  So liquidity is working, I mean it’s not massively liquid, I mean service is liquid as it can be, every trade that has wanted to happen, has happened.  So, the unitisation has worked.  There has been no discount because why would there be?  The reason there is a discount on some of the REITs is people don’t believe me.  When people talk about asset value, so you remember when Intu was trading an NAV of -90%, well that’s because nobody believed V, V was a mapper, you know, Eden Blyton might have well provided the V number.  So, on a single asset though, V is really easy to understand, it’s just the single asset and people can work out the yield and so there’s no reason to discount and if you think how much money there is available to real estate at the moment and if someone says, you know, if you were a fund manager and I came along to you as a lawyer, so I phone up Mishcon de Reya and I say, “Susan I’ve got a building, it’s worth £100 million but I can buy it for 80, can we get it done quickly?”  You’d go “Great idea, let’s get it.”  So, on a single asset REIT, if the discount became 20%, affectively what you are saying to all buyers is you can buy this building at 20% off.  Who wouldn’t buy that with all the money that they have at the moment?  The answer is nobody.  I mean, everybody would buy it so, well sort of nobody wouldn’t buy it.  It is, there can’t be a discount whereas on a multi asset REIT where you don’t understand all the assets and people don’t believe the valuation and this development and you know, it’s easy to get the discount and then you’ve the discount for management sometimes, you know, where maybe the management isn’t as well regarded as it could be but it’s very expensive and investors.  So my view is that single asset REITs are much, or homogenised REITs so, if you look on the London Stock Exchange, which REITs are doing well?  The homogenised REITs, the REITs that only do one thing, you know, and that’s where we’re trying to get to with IPSX is it’s owner managed so there are no really expensive management that say doesn’t provide value to investors and B, homogenised and/or single asset REITs.  So you the investor can choose what you are investing in, you know exactly… and you’re investing directly into the real estate, that’s the point of a REIT and so you can take benefit from the capital value growth if there is some to come and from the income and it’s really important that we provide that access to individuals and to pension products. 

Susan Freeman

And Richard, you have two platforms on IPSX don’t you, the Wholesale and Prime.  Can you just explain for our listeners how, what the difference is?

Richard Croft

Yeah, so Wholesale is… so I’m listing one of our funds on Wholesale actually so, it gets REIT status because it’s listed but it’s basically only available to professional investors and Prime is the market that’s available to the general public.  Broadly, that’s the difference so the wholesale market requires less free float and it requires, well you can allow for higher levels of gearing currently and it allows investors to take slightly more risk management, take slightly more risk but it’s only available say for professional investors whereas the primary market, or Prime market, is for the general public and you know it is more tightly managed.

Susan Freeman

So the Mailbox, the Mailbox float…

Richard Croft

Is on Wholesale but it will, in due course, move to Prime.  The reason it’s on Wholesale is that truthfully, we decided to keep 70% of it so after the takeover from Oxford and I won’t go into the basis of the deal but it was more beneficial for M7 to keep 70% of it which was not our original plan and so going onto Wholesale was more appropriate because of the free flow.  And so in due course it will move to Prime but for the time being it went on to Wholesale because, you know, it… we placed it without our own LPs, professional investors who were keen to get involved and we decided that the… that we wanted to keep 70% of it.  But as I say there will be announcement on Monday, a private equity group will be listing a new building or will be announcing the listing of a new building and that will be the first thing on Prime. the first on Prime and we have a huge pipeline so, basically, my view is, it’s kind of feels like rolling a boulder up the hill, you know, and we’re quite close to getting up the hill and once we start rolling down the other side, this is going to pick up pace because when this starts happening and people realise that IPSX is about disruption of the private treaty market to get rid of this absurd notion that it takes three months to do a deal and also, you know, there’s 10% frictional costs, you know, which is catastrophically expensive.  Once you’ve done that and it will allow people to invest in real estate much more quickly, much more efficiently and people will understand that IPSX is here to disrupt the private treaty market and will provide an alternative, I think people are going to get on board with it very quickly and also agents can understand, I hope, that they can be placing the stock so they can earn fees every day rather than having to wait three months and all the risk, you know, to be honest the natural brokers, the natural placers of the stock to their clients are the Knight Franks, the Savills, the Jones Langs of this world, the East Hills you know, they can earn, they should be having affectively investment banking divisions because we are the largest, I keep banging on about this, but the largest industry in the world and yet we don’t have an efficient piece of capital market infrastructure.  That is madness.

Susan Freeman

So, you talked about pushing a boulder up the hill.  Do you have another boulder that you’re thinking of disrupting the…?

Richard Croft

I think one boulder is plenty.

Susan Freeman

Okay.

Richard Croft

I mean, if I’ve learned one… you know, M7 was my, our first boulder and IPSX is the second one and I think, you know, I have a five year strategy with Oxford to build M7 and with David Ebbrell our Chief Executive, you know, I mean we want to take it to a manager, we want to create a premier league manager out of that, which is sort of 15-20 billion, we’re about 5 at the moment.  IPSX is a big part of that but also growing Coyote is a big part of that but I think, you know, as I look at M7 for the next five years, I think we have enough to be going on with, you know, and to deliver on without us getting a little, without thinking of new things that we can do because we’ve got three major, major parts of the business to grow and succeed on and whilst I’m all for new ideas and all for enterprise and entrepreneurialism, there comes a point where the expression, “He who hunteth two hares, catches neither” starts applying and, you know, at M7 we’ve got this great break up, so you know Ollie Farago runs Coyote, David Ebbrell, I’ll be involved in all of our external stuff and then Hugh Fraser runs our credit business so you know we have all the right people doing the right things but I’m very keen that people, both me personally and the team, we don’t take on too much because what ends up happening is you end up achieving very little, so we’re all focussed on what we need to be focussed on. 

Susan Freeman

And earlier in the conversation you mentioned ESG and Oxford is committed to reduce its carbon emissions globally by 30% by 2025 which is only four years away.  What’s your approach at M7 and, you know, are you doing things any differently to embrace that?

Richard Croft

our Chief Operating Officer is beginning to lead our review into ESG but totally honest, every business is going to have to address its carbon footprint, every business is going to have to provide a comprehensive ESG policy.  I cannot say quite yet what ours is going to be, you know, we’ve got to look at everything, whether it’s the amount of flying that we do, whether it’s the way we are going to invest in our buildings from an environmental perspective, you know, to the way that we support our staff to heat their homes, I mean, literally there is nothing that is off limits and not only just in the environmental side but the gender diversity and diversity throughout the business, you know, the reality is ESG is an essential part of the investing future, as it should be, you know, I mean I think as an industry again we have tended to ignore things like environment and diversity more than we should have done and it's not because I’m, you know, I’m getting on a woke bandwagon here, it’s something I actually, genuinely believe and, you know, M7 has always employed quite a diverse group of people and I think we had 38 nationalities at our peak and I think 44% or 42% of our staff were female.  We didn’t have enough staff, female senior staff, I mean 25% of our partners were women, that’s probably not quite enough but you know, it’s something that we are working on and we will continue… and again, one of the reasons that we decided to partner with Oxford is that they could probably help us achieve our goals, you know, the goals that David Ebbrell and I and the rest of the team had personally, were quite… they’re quite difficult to achieve as a small business or a medium sized business.  With the power of Oxford behind us and with their willingness to embrace the changes necessary, it was going to be easier for us so, you know, that was another attraction to Oxford.

Susan Freeman

We talked a little bit at the beginning about your experiences during the GFC and Halverton but I just wondered whether there was anything that you would regard as your least favourite business moment?  Obviously there have been a lot of…

Richard Croft

There have been quite a lot of lows, yeah.

Susan Freeman

Is there anything that stands out?

Richard Croft

Yeah, I suppose there are, yes, I mean, but I’m not sure how comfortable I am telling the story but if… I mean, yes, there was a call in October 2008 with my bosses in Australia and they told me that they were… they weren’t going to support the strategy that I had for saving… let’s be honest, in 2008, October 2008, Halverton that I had sold them, had massively underperformed, I was the Chief Executive, the funds were not performing because they were and I had come up with a plan which I thought was a good one to sort of try and save the business and they said no, and by the way, all of the people involved at the time, all made the decisions for the reasons they thought were right, there was, you know, they were not bad people to any of us.  I say one of my regrets in life is that we didn’t end in, on better terms than we did, you know, because they were good people who were just sort of in the wrong place at the wrong time and during 2008 and 2009, I sort of kind of felt like Nero, fiddling whilst Rome burned but not because I’d started the fire, just because I didn’t know what to do and I felt, for two or three years, pretty impotent because I couldn’t explain to our investors what had happened properly.  Now, we took away from that wreckage a lot of, I think the current terming is ‘learnings,’ we took a lot learnings from that and you know we tried through the pandemic last year, the learnings we took were very, very helpful, I think we dealt with the pandemic almost better than any other manager, but I would say that but I genuinely believe it to be true.  But, yeah, I mean 2008, 2009 were horrific actually and also, you know, my falling out with John Simms, that was, you know, I wish that hadn’t happened because he was a good man and, you know, I.  So, you know whenever you have a sort small falling out or I don’t know, deals go south, they’re always very, very low moments and, you know, we’ve had a few things where deals have fallen out of bed at really inopportune times but they’ve been… I tend not to dwell on the bad things because there’ve been a lot of them but if you dwell on them then… I tend to ignore them on the basis that the successes are more fun to think about.  But, yeah, have there been plenty of not successes?  Yes. 

Susan Freeman

And as you say, you learn from them.  And so, I mean, if you are talking to younger people, you know thinking of coming into real estate, I mean, what advice do you give them because obviously the sort of, you know, learning that you’ve had going through various ups and downs isn’t necessarily available to everybody, you’ve also illustrated that you need a certain amount of luck but I mean, is there any advice that you would give to young people coming into the industry?

Richard Croft

That’s a really good question.  I mean, this is, what advice would you give young people generally?  I mean for, to my children, I mean who, remember not to take things personally because most things aren’t meant personally, the majority of people are good people, I mean there are some people that aren’t but the majority of people are good and you know when people say unkind things, they don’t really mean them and, you know, and when things go wrong, dust yourself off and start again, I mean you know, deals do go wrong, you know, strategies do go south but it’s learning to accept that failure is part of growing, I mean, I’ve had plenty of failure in my life and plenty of successes too but it’s remembering not to let the failure get you down.  I know that’s easier said than done, I mean I’ve had some, you know, you’re talking to me at a time in my life where things are pretty good but, you know, if you talked to me in 2009, I was a miserable bastard, god almighty, so you know, it’s all well and good saying you know don’t let it get you down, that’s tough but if you can just sort of… I think the best thing is remember to laugh as well and also, you know, make sure you’ve got friends around because when things are really rubbish, going out and having a proper drink or not if you don’t drink but I mean, a proper good time out with your friends and remembering to laugh, is probably the most important advice I could give anybody, and also, you know, friendship and family are worth so much more than business and it doesn’t matter how successful you are, if you don’t have friendship or family, you don’t have wealth. 

Susan Freeman

I think that’s, I think that’s brilliant advice and I think a lot of us, you know, maybe over the last eighteen months haven’t had as many opportunities to laugh as we should have had and so, Richard, that’s great and I think a good place to finish so thank you so much for your time and I wish you better. 

Richard Croft

To be honest with you, I feel absolutely fine but it is only that I keep having positive lateral flow tests which means that I’m locked up in this room and can’t go anywhere but anyway it’s… I’m hoping that at some point I will have a positive, or sorry a negative test and that by Sunday, I can release myself from myself in this prison. 

Susan Freeman

Okay, I hope so too.  So, thank you very much. 

Thank you, Richard for a really unique take on successfully navigating the ups and downs of European real estate whilst somehow managing to have a lot of fun along the way.   

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, and on Spotify and whatever podcast app 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 Twitter @Propertyshe and on LinkedIn for a very regular commentary on all things real estate, Prop Tech and the built environment.

Richard Croft is Executive Chairman of M7 Real Estate, a leading pan-European real estate investment manager. M7 has over 220 employees in 15 countries & territories across Europe, The Middle East & Asia and manages over 570 assets with a value of circa €4.1 billion.

Richard is responsible for the strategic direction of the company, capital raising and leads the real estate fund management function. In this capacity he sits on the GP board and investment committees of all M7’s funds in addition to numerous other M7 JV boards. 

Prior to founding M7 Real Estate in April 2009, Richard founded Halverton REIM LLP (subsequently GPT Halverton), a European real estate fund management business which was sold to The GPT Group (an Australian listed property trust) in July 2007. At the time of the sale, the company employed circa 180 people across 10 European offices and managed over €2 billion of assets. Richard remained as CEO of GPT Halverton until 2009.

Before his time at Halverton, Richard was International Investment Director of The IO Group Ltd, Property Fund Management PLC (now Cromwell), responsible for setting up their international infrastructure.

Richard has been involved in over €12 billion of transactions across the UK and Europe during his 30 years of real estate experience.

In addition to his duties at M7, Richard is a Non-Executive Director of IPSX (the International Property Securities Exchange), The Red Cat Pub Company and The Pinnacle Group.

He is regular speaker at conferences across Europe covering real estate and economic topics.

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