Moving in together works for property companies

LESS than seven weeks into the marriage of two of Scotland’s leading upmarket property firms, things appear to be shaping up rather nicely.

It’s never easy merging firms with long-established reputations and operations dotted around the country, but CKD Galbraith’s chairman, James Galbraith, claims the ride is proving to be a pretty smooth one.

"Inevitably, it takes a little time for people to recognise the new name," he says, speaking from the firm’s Edinburgh base.

"But we have had an extremely strong showing on the estate agency side from day one. It doesn’t seem to be taking clients too long to realise who they’re now dealing with and that we are a unified firm encompassing the whole of Scotland."

The new name came into being during the first week of April, following the merger of Cluttons Scotland and CKD Finlayson Hughes, a market leader in Perthshire and the Highlands with roots stretching back to the early 1900s.

Cluttons’ operation north of the Border had previously been run as a franchise partnership, operating primarily in the central belt and south-west of Scotland.

As well as its office in the Capital’s Dublin Street, the new company has branches in Glasgow, Perth, Inverness, Ayr, Aberfeldy and Cupar.

It also has a presence in London through its strategic alliance with CKD Kennedy Macpherson, a firm specialising in buying and selling sporting estates and rural properties.

"We’ve been very fortunate in having some high-profile sales taking place," Mr Galbraith adds, highlighting CKD Galbraith’s role as agent for the 23,000-acre Alladale Estate, 60 miles from Inverness city centre.

Described as the "jewel in the Highland sporting crown", the 36-square-mile estate offers deerstalking, salmon and trout fishing, grouse and ptarmigan shooting, a five-bed lodge and a main nine-bedroom house with a game larder that can store up to 30 carcasses. Yours for a cool 3.25 million.

The press coverage attracted by properties such as Alladale has certainly raised the profile of the firm, but its chairman, who was previously the senior partner of Cluttons in Scotland, is keen to highlight the other areas where CKD is building a strong reputation.

"It’s a speciality for which we are clearly recognised, but I wouldn’t say it is the core business.

"One of the areas where we’ve experienced significant growth over recent years has been the investment in commercial property for private land-owners," he says, pointing to a combination of factors.

"Firstly, rural estates have been under pressure financially since the mid-1990s because farming and forestry have been seriously on the decline.

"And, secondly, asset values have increased, so anybody who has a few cottages, or the like, has realised an enormous capital value, while the actual rental growth if they were letting these properties out has been minimal."

He continues: "It has been in their interest to sell off some assets on the edge of their estates and reinvest the money in commercial properties such as offices and shops. We have now undertaken that type of deal for quite a number of private landowners."

Recent reports on the state of the commercial property investment market have hinted at a possible cooling down later this year.

Last month, Fitzhardinge, the property agent better known as Colliers CRE, warned weak demand in the office sector could impact parts of the investment market, while Ryden’s latest Scottish property review questioned how low yields can go for property investments exhibiting bond and gilt characteristics before investors take fright.

However, the sector continues to attract demand from high net-worth individuals, as well as collective investment vehicles and dedicated property companies.

Investment Property Databank’s index for 2002 showed a total return of 9.7 per cent for UK properties, against a 25 per cent slump in equities.

Commenting on the state of the market, Mr Galbraith says: "Well-let commercial investments are extremely attractive at the moment. You can borrow money at about five per cent and buy investments that yield 7.5 per cent and be relatively secure. There is a margin on the money that you are borrowing as well as the fantastic return on your own investment. It’s very attractive to private investors."

One area CKD’s Edinburgh operation has shied away from is the city’s buoyant residential buy-to-let market, though the firm is quite heavily involved in domestic letting in Glasgow, Inverness, Perth and Ayr.

"There’s rather a lot of competition for residential letting in Edinburgh," Mr Galbraith remarks.

However, CKD’s specialist holiday letting and castle-based holiday units are going great guns, according to the chairman.

He says: "We are probably one of the leading agencies in Scotland in those fields, and can offer people some fantastic properties."

The holiday letting department has roots stretching back some 25 years and has more than 200 cottages, farmhouses, mansion houses, lodges and castles throughout Scotland on its books. All lets handled previously by CKD Finlayson Hughes are now dealt with by the new company.

The past few weeks have been understandably hectic for the 90 or so staff, as the practices bring together their IT systems and management structures.

While it’s still early, a number of synergies are beginning to emerge.

Mr Galbraith says: "One of the attractions of coming together was that both partnerships were growing significantly and the overhead of professional management is much more easily borne than it would have been by either of the two firms in their traditional forms.

"We have created, on the agency side in particular, a critical mass in Scotland. We are a Scottish firm, not an offshoot of an English one, and have offices spread throughout the country.

"When we advertise a property under the new name, it’s giving us a recognition that neither firm was able to obtain previously."

The enlarged firm is "spending a lot of time and money" creating an integrated IT system, and estate management software used for some time by Cluttons is being rolled out across the office network.

The firm is staying guarded over its financial targets for the current year, though Mr Galbraith stresses "there would be no point merging unless two and two made five".

So, with the CKD/Cluttons merger now progressing steadily, what are the chairman’s thoughts regarding further consolidation in Scotland’s property sector?

"I’ve been practising in Scotland for over 25 years and if you look back over the last couple of decades there has been a fair bit of consolidation," he reflects.

"At the same time as bigger firms are joining forces, you have the one-man outfits popping up, so the consolidation fragments a bit.

"The cost of entry is increasing, particularly if you intend to provide a broad service, but I think there will be more consolidation within the marketplace."

The benefits of knowing you have a roof over your head

CKD GALBRAITH has been formed as a limited liability partnership (LLP), with a total of 11 members and a further 80 staff.

Scottish start-ups have been slow to adopt the LLP format, which combines the characteristics associated with traditional limited companies and partnerships.

Like a company, the LLP is a corporate body with separate legal status and its members are not as a rule personally responsible for the debts of the firm. Chairman James Galbraith is enthusiastic about the relatively new business model, and says: "Every one of the 11 members of our LLP came on board with similar values and we all get on well together. For businesses joining forces that is very important.

"I was always from the background of doing the traditional partnership, where your shirt was on the line.

"But in this increasingly litigious age, I think there is some kind of comfort that you can head back home to your house at night knowing that it will be there. We haven’t done it because we think that is a likelihood, but it does provide security."

Mr Galbraith believes the operation can benefit from being structured more along company lines, with a much clearer hierarchy including a chairman, chief executive, and members working like shareholders.

He says: "When you have a meeting they are the ones who ultimately decide if the management is doing the job appropriately."