Corporate Outsourcing Group Mapeley this week added the final touches to its bid for the transfer of Abbey National's �480m property portfolio by arranging the structured finance for the deal with Royal Bank of Scotland.
Last week it met with Abbey National - the first meeting since August when it was announced as the preferred bidder for the former building society's 55,740 sq m (6m sq ft) portfolio. On Friday, the company, headed by former merchant banker Robin Priest, will move into new offices at 40 Portman Square, W1. The move out of space rented at 86 Jermyn Street from Mapeley shareholder Fortress Investment Group into its own offices is indicative of the group's plans for rapid expansion.
The company - backed by Soros Real Estate Investors, Fortress and its new landlord Delancey Estates - will expand to employ 250 core staff by April 2001 when the strategic property transfer of the 723 properties from the estate of the Inland Revenue and Customs & Excise departments - STEPS - is due for completion.
In return STEPS will see Mapeley manage the government estate for an annual fee of up to �100m.
The Inland Revenue contract, along with the Abbey National portfolio, has allowed Mapeley to emerge from the shadow of its competitor Trillium and it has gone some way towards exorcising Priest's memories of losing to Goldman Sachs-backed Trillium when the Department of Social Security's giant estate was outsourced in 1998.
Large landlord
Financially, the STEPS contract for the management of the 130,060 sq m (14m sq ft) estate - worth �2bn to the company over the next 20 years - and the transfer of ownership of Abbey National's 1,700 properties, makes Mapeley one of the UK's largest landlords.
But Priest is not sitting still. The company is moving inexorably towards a flotation or a trade sale, although Priest says it will only float if it is classed as a service, not a property company.
'Property trading doesn't drive our business. We are not a property company in an important sense even though we own a lot of property. The service is not an add-on to the property, it is the other way round.' said Priest. He is keen to underplay the potential for redevelopment and property trading in Mapeley's 1.9m sq m (20m sq ft) portfolio.
Although flexibility has been built in to the Abbey National bid, one rival bidder said that the properties the bank is likely to vacate is a 'small percentage' of the entire portfolio.
Priest admits that no one knows the true impact of e-tailing on the retail banking sector, in particular the number of high street shops that will be required. Most of the 1,700 properties in the Abbey National portfolio are high street outlets.
Priest also still hopes that the relationship with Abbey National will extend to service provision as well as estate management.
With the STEPS portfolio, Priest said there is likely to be more flexibility. 'In terms of development opportunities there are a few, not a huge number. It's more a case of looking at marriage value-type opportunities, property investment rationalisation. There aren't any screamingly obvious development opportunities.'
As well as finalising the STEPS and Abbey National contracts Mapeley continues to work on other bids and expanding into new areas.
STEPS and Abbey have made Mapeley the favourite to win the property transfer of the BBC estate. The broadcaster will decide on its shortlist of three bidders next month.
In a consortium with British Land, Mapeley is competing against five consortia: Morgan Stanley Real Estate Funds and London & Regional; Trillium and Land Securities; Amey and CIT Group; and Carillion, British Telecom and MWB.
Loss leader or sour grapes?
Losing rival bidders argue that Mapeley's aggressive bidding on STEPS and Abbey National was a loss leader, calculated to establish Mapeley in the sector. Priest refutes the accusation. 'I don't think our shareholders are people that do things that don't make any money and I do not believe the government would have accepted bids that would have shown zero return or even losses. Financial robustness was very much part of the bidding process.'
Mapeley is now considering a move into more hi-tech markets with potential entry into the ownership and management of data centre facilities aimed at hi-tech occupiers.
Priest says: 'Our interest is in high-quality corporate clients that are in rapidly changing businesses - the financial services, IT, the media and telecommunications.
'All these are areas in which the flexibility is greatest and the value we can offer is greatest,' he says. We're not interested in helping weak covenants to raise capital.'
Retailers with high exposure to the high street, said Priest, are unlikely to be top of Mapeley's list of potential clients, however, data centre operators struggling to find space in the key locations could soon become an area of interest.
ROBIN PRIEST'S CURRICULUM VITAE:
PROPERTY WEEK
22/09/2000