The Big Interview: Lomond Capital's CEO Stuart Pender

It's a Scottish property empire that has built up a £2.5 billion portfolio of residential assets, sells more than £600 million worth of property per annum and employs some 350 staff, yet was conceived less than seven years ago. But for Lomond Capital's chief executive, Stuart Pender, the journey is just beginning.
For Stuart Pender, the journey is just beginning. Lomond is really just coming of age, he says. I think the next three years will be a very interesting period. Picture: Jane BarlowFor Stuart Pender, the journey is just beginning. Lomond is really just coming of age, he says. I think the next three years will be a very interesting period. Picture: Jane Barlow
For Stuart Pender, the journey is just beginning. Lomond is really just coming of age, he says. I think the next three years will be a very interesting period. Picture: Jane Barlow

The Edinburgh-based company has only recently dipped its toe into the booming private rental market on the south coast of England – the result of securing a £37.5 million acquisition war chest from Clydesdale Bank and Tosca Debt Capital.

Part of that cash pile has bought Lomond a majority stake in Brighton and Hove-based estate agency and lettings group Brand Vaughan, marking the first of a number of planned acquisitions in a region where average rents sit at around £1,300 a month.

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Lomond, which has existing operations in Aberdeen, Edinburgh, St Andrews, Birmingham and Manchester, is also eyeing a push into the London market, with a first deal possibly towards the end of the year.

Coinciding with the drive south, the fast-growing industry consolidator recently appointed a new group managing director, Bruce Evans, who previously headed sector heavyweight Countrywide’s operations in London and the south of England.

Pender, who led a buy-out of insurance firm Paymentshield in 2004 before growing its profits substantially and selling it to Towergate five years later, has been a busy boy then.

“Lomond is really just coming of age,” the former actuary insists. “I think the next three years will be a very interesting period. If I’m honest, then the first part is the hardest thing to do – bringing the business to a scale that allows you to attract the best people. I feel we have now reached that point.”

Over the coming months, Evans is set to play an increasingly central role in the day-to-day running of the burgeoning core business, allowing Pender to oversee acquisitions and manage the relationships with key stakeholders. Ultimately, those twin roles of Pender as CEO and Evans as MD are likely to transition into executive chairman and CEO.

“At the moment we are a collection of successful regional business,” says Pender, who trained as an actuary with Scottish Amicable after graduating from Glasgow University with a first class honours in maths.

“Bruce is basically transitioning those businesses into one spanning five regions. He has 30 years’ experience in sales and lettings. My real motivation is growing things. You might even see me coming back into the insurance space as that was really my background,” he adds, choosing to play his cards close to his chest for now.

Pender stresses the importance of building a strong team, a maxim that was “absolutely drilled into me during my training”, he says. “You recruit people who are smarter than yourself.

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“When I trained as an actuary and worked for Roy Nicolson at Scottish Amicable he really instilled that in me. He was chief executive and would have Clive Cowdery working for him and James Crosby and Paul Bradshaw of Skandia. He surrounded himself with some really big names.

“That’s the bit I really enjoy – building the team. We are out in the market at the moment in terms of some other positions.”

The newly acquired Brand Vaughan business manages more than 1,250 properties and sells about £175m worth of property a year. Lomond is providing capital to fund the expansion of the operation and the existing management team will remain significant shareholders, with Pender becoming chairman.

Since its formation towards the end of 2010, Lomond has snapped up around 30 businesses of varying scale and after gaining a foothold in a particular geographic region, Pender is “very keen to continue to buy in”. Despite the current emphasis on the south of England, the firm has vowed to continue expanding in existing regions with deals said to be “on the go”.

The £37.5m in funding secured recently with Clydesdale Bank and Tosca Debt Capital follows previous private equity backing from MML Capital Partners in 2014 to accelerate growth in the UK residential rental property sector.

“We go into a region and are very careful about identifying the opportunities,” notes Pender. “Brighton is a fantastic market for us to consolidate. There are a lot of agents and a lot of stock. We can scale that business and offer a broader range of services and bring investors into that market.

“It’s about getting the right management capabilities but ultimately it’s about attracting investors into the sector.

“We are going to continue to grow in Scotland,” he adds. “We will take a look at Glasgow, but probably not anywhere else in Scotland at this stage.”

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The firm is tapping into a private rented sector (PRS) that shows little sign of cooling as a generation of potential first-time buyers find themselves having to save longer to afford a deposit, or frozen out of the owner-occupier market altogether.

Pender says the PRS market has grown by almost 60 per cent over the past five years as it sheds the stigma historically associated with renting and exploitative landlords.

“We see that growth continuing,” he adds. “At the moment, we have a housing gap of two million units, which is increasing by about 300,000 per annum. There are only three options – owner occupation, some form of social housing or PRS.

“We don’t really have the money to put into social housing. We have been very big in the UK on owner occupation but you now have to have a material level of deposit to basically get onto the housing ladder and the ‘bank of mum and dad’ is only for a privileged few.

“If you go south of the border, you have students coming out of university with significant debt they need to clear before they get into deposit territory. As a result, you are now seeing the average age of a first-time buyer moving out into the mid-30s.

“People will come out of uni into very good jobs and they will think about renting some nice property for a while until they feel like settling down.”

Another strand to the business is Lomond Investment Management, set up about 18 months ago. Two full-time partners oversee opportunities for a growing band of investors, working alongside local developers or snapping up existing assets to manage.

With his rejigged role, Pender is set to devote more of his time to the investment aspect of the business.

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“Residential assets over a five, ten, 15 or 20-year period outperform most other assets,” he observes. “As a sector we are very poor at getting that message out to high net worth individuals and need to make it easy for them to invest in the sector.

“In the States, for example, you will have hundreds of resi properties in your portfolio. If you package it up correctly then high net worths love the asset.

“We are running syndicates in terms of Manchester, Birmingham and have done one in Liverpool as well. Rather than buying the underlying asset outright, they can put say £100,000 to £250,000 into a syndicate, we put in the debt, do any refurbishment work necessary and they hold the asset and enjoy a return.

“From an investor’s point of view, Edinburgh has been fantastic over the past few years and we think that is going to continue,” adds Pender. “In terms of Aberdeen, it is probably a buying opportunity at the moment.”

The Lomond boss talks of a UK property agency market that remains very fragmented, with plenty of scope for further consolidation, while the service proposition is often found wanting.

“Go to an estate agent in Edinburgh and they might tell you where to buy in the city but can’t provide advice on where to buy in say Manchester or Birmingham – in the key locations that you might want to invest in, and then advise on how to leverage those assets,” says Pender.

“It’s not a comprehensive proposition for investors. If you go to the US, and walk in with a million dollars, then the people opposite can do everything for you; where to invest, the leveraging, sourcing, insurance, property management – the full proposition – and that is where we need to get to.

“It’s a great market and nothing has put us off in terms of the opportunities out there.”

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