INTERVIEW: Naomi Heaton on 25 years of finding returns in PCL

The CEO of London Central Portfolio shares her top five investment property picks, the three steps to finding value in PCL, and discusses the importance - or not - of timing

Property investment house and buying agency London Central Portfolio has been successfully navigating the Prime Central London market for over quarter of a century, regularly delivering healthy returns to investors around the world with a shrewd and highly-focused approach to acquisitions.

Founder and CEO Naomi Heaton tells PrimeResi about how it all started, the three steps to finding value in PCL, and the importance – or not – of timing.

  • You founded London Central Portfolio back in 1990; how did you get started in the property game?

After graduating from Oxford, I worked in advertising becoming a director of Saatchi & Saatchi. I got onto the property ladder as soon as I could. I found I had the knack of buying well and renovating stylishly – to make a profit.  I saw there was no service to help people like me navigate the market. As an entrepreneur at heart, this led to LCP – providing a one-stop shop for investors; acquiring, renovating, letting and managing their property.

  • LCP focuses on the PCL area, but Prime Central London has recently seen a real slowdown in property price inflation; how has this affected investors’ approach to LCP’s funds?

Growth has slowed overall but the mainstream buy-to-let sector has held steady. Comprising smaller units, it remains attractive both to international tenants and investors taking advantage of a weak pound. Last year, our funds showed 4.3% price growth, compared with falls of up to 10% for more expensive properties.

Investors have realised our funds offer tax benefits not available if you “go-it-alone”. They are not subject to non-res CGT, the new non-dom IHT or cuts in mortgage interest relief. UK investors can use SIPPs, SSASs and ISAs.

  • Many pundits are calling the bottom of the PCL market this year; what’s your view on where prices will go in the next 1-5 years?

A glut of over-priced and over-supplied “commodity style” property has led to falling prices

As the best capital in the world, alongside the Trump-effect and European vulnerability, London will remain a big draw. Low interest rates, weak sterling and a softer market is encouraging investors back in. However, the change in tax has caused PCL to splinter.

As Brexit shock and tax changes wash through, the mainstream sector started 2017 well. The luxury sector may take longer to recover given the greater buy-in costs and the new non-dom IHT. The new build sector is the most vulnerable. The tax changes have pulled the rug from under this market and a glut of over-priced and over-supplied “commodity style” property has led to falling prices.

  • Anybody can find returns in a rising market, but LCP has been in the property investment arena for nearly 30 years – and survived some turbulent times; does your strategy change with market conditions, and is there a “magic formula” behind LCP’s successful track record?

Our philosophy is that time “in” the market is more important than “timing” in the market

We have always targeted Prime Central London. Our tight geographic focus has played a large role in our success, as international demand coupled with the scarcity of stock has underpinned long term price growth. Our philosophy is that time “in” the market is more important than “timing” in the market.

Our strategy, however, has evolved. In 2001 and again in 2008, we saw tenant budgets fall as the financial sector contracted. We started concentrating on smaller units and now target property with individual weekly rents under £850pw. We continually refine our refurbishment and interior design schemes to meet our tenants’ aspirational lifestyles.

  • LCP specialises in acquiring 1-2 bed apartments in prime locations; what are the other key hallmarks of a strong investment property?

First, look for older property. New developments command a premium which can suppress rental yields and capital growth. LCP identifies unique heritage stock offering much greater growth prospects. Often “tired”, a refurbishment and interior design program will add immediate value.

Second, go for desirable features – outside space, garden squares, split-level apartments.

Finally, do your sums. Weekly rents can be estimated to within a few pounds and yields to a point of one percent. Over-estimating your rent by £25pw could mean over-paying on your property by £35,000.

  • You are perhaps best known for LCP’s property investment funds, but your private property search is a core part of the business… How does an investment search compare to a search for a principle or secondary residence?

As the only company to have launched funds targeting the PRS in PCL, we have a strong reputation as fund experts which gets lots of press coverage. But, actually, LCP was one of the first buying agents in the country and half of our business is from private clients.

For buy-to-let clients, our investment strategy is the same as for our funds. Although they may have their own specific mandate, we are so tuned into the market, we normally get it right first time.

For home seekers, we provide a one-stop service including interior design and concierge. However the process may take longer as their brief tends to be more fluid.

  • You brought some heavyweight figures in to LCP’s Board of Directors last year – including Triangle Group’s Rick Denton and Richard Crowder from Schroders, on your fund side. How have these appointments helped the business?

Rick and Richard have had prestigious, market relevant careers, increasing LCP’s stature, reach and connectivity. They are helping deliver our ambitious plans for growth, particularly in the family office and institutional sector. They also bring regulatory and compliance oversight, essential for the company, growing as fast as it is.

  • Residential property has been a staple asset for many investors – individual and institutional – over the last few decades, but is there a danger in regarding homes as assets first, and what can the industry do to counter negative perceptions?

Perhaps it is an ethical dilemma but most homeowners want to profit from their largest single outlay. It allows them to trade up and supports natural market churn.

Investors are already playing an important role in addressing the chronic shortage of rental property. The industry needs to highlight that the housing crisis is due to a failure of Government policy. Clamping down on foreign investment will not provide more homes for the local market as they are too small and expensive. Leaving them empty will harm the economy, employment and the Exchequer and with no secure pipeline of sales, developers are already winding down new building starts.

  • Everyone from agents to national newspapers seem happy to dole out “investment advice” when it comes to property; what’s the difference between proper advice and someone’s opinion, and do you think the current regulations need tightening?

Given the sums of money deployed, there should be tighter regulations around property investment advice. Selling agents cannot provide impartial advice as they act for the vendor and not the buyer. The Government needs to address this.

LCP ensures clients seek advice from other professionals such as lawyers, valuers and tax advisors to support their investment decisions. Funds are, of course, a different matter and our investment arm is FCA regulated.

  • The private rented sector and build-to-rent is talk of the town at the moment; what opportunities and risks does this present for investors in prime London?

As people elect to rent, rather than buy, the PRS has come of age. Build to Rent has a role, but is an untried concept taking significant development risk. It could take a generation to become established.

With limited new build potential, PCL largely falls outside the Build to Rent phenomenon. It relies on a buy to rent strategy with the benefit of a proven track record and quantifiable returns.

  • There seems to be an increasing crossover between serviced apartments and the private rented sector; what other trends have you noticed at the top end of the private rented sector?

We have seen a growing demand from tenants for serviced offerings. However, location remains the key driver with well-designed properties trumping size. Think boutique hotel suite.

  • It seems that there are hordes of private buyers, investors and doer-uppers chasing every property in central London; how does LCP sniff out and secure the best deals and value?

With under 5,000  properties sold each year, stock in PCL is scarce whilst demand is high. Our local knowledge ensures we hear about the best opportunities first. We have an extensive network of contacts and with over 25 years’ experience, we can spot a deal immediately.

  • Overseas money is vital to the PCL property scene; what proportion of LCP clients are from overseas, and how important is Sharia-compliancy to the success of LCP’s funds?

90% of our investors are from overseas, mainly from South East Asia and the Middle East. We are proud to have launched the first Sharia-compliant residential funds in the UK but this is still a developing market. Our conventional investor base remains very important and currently Sharia-compliant investors make up 17% of our funds.

  • What you would you personally buy now, given a budget of a) £2m and b) £10m?

As you know, we advise investors to focus on small units. With £2m, I would buy two unmodernised one bedroom units in up-and-coming areas like Bayswater and Fitzrovia. The money left over would go towards renovation, furnishing, taxes and fees.

With £10m, I would buy a block of flats or mixed-use building with a commercial element. This would attract non-residential Stamp Duty, capped at 5%, and provide a diversified tenant base and income stream. A win-win.

Heaton’s top 5 investment picks

  • Five of the best investment properties on the market in Prime Central London right now, according to London Central Portfolio
One Bedroom Rental Investment:
Bayswater W2, £700,000
Located on a pretty garden square, close to the restaurants and local amenities of Bayswater, this property is situated on the first floor of a white stucco terrace. It benefits from high ceilings, large windows and a south facing balcony. At £1,551 per square foot, it is an attractive opportunity with potential for upside through refurbishment, its location and proximity to transport links.
Two Bedroom Rental Investment:
Marylebone W1, £1,125,000
An attractive rental investment which will appeal to blue-chip professionals and HNW international students, this two bedroom property is situated moments from Oxford Street and the boutique cafes and restaurants of Marylebone Village. The flat benefits from sought-after outside space and is attractively priced at £1,429 per square foot. It also has scope for complete reorganisation to maximise rental and capital returns.
Two Bedroom Pied-a-Terre
Knightsbridge SW1, £2,395,000
This two-bedroom, two-bathroom period property is ideally located, within easy reach of Harrods and the shops and restaurants of Sloane Street and the King’s Road. It benefits from a private roof terrace and has been renovated to a high specification – the perfect home for a buyer looking for a luxury pad with a trophy Knightsbridge address.
Freehold Building:
St James’s SW1, £5,000,000
An off-market opportunity to purchase a mixed-use building with significant planning upside. Centrally located for the amenities, shopping and transport links of St. James’s and Victoria, the property offers a large, income producing commercial unit with four residential flats. There is potential, subject to planning, to add an additional floor, which will provide an immediate capital uplift. It is an excellent buy at £1,329 per square foot.
Freehold Building:
Chelsea SW3, £8,500,000
An opportunity to acquire a rare Grade II listed period property, located near Sloane Square and the King’s Road. The building is currently configured as ten individual units, all rented out as serviced apartments, achieving a gross yield of 5%. Priced as a turn-key investment, there is opportunity to maximise returns by improving the decorative order in future.