Property developer is keen for more hotel deals
THERE are always winners and losers in the property game.
For Chris Stewart the bottom falling out of the market has done little to dent his enthusiasm for new deals.
Quite the opposite in fact. The 36-year-old has been riding the crest of a lucrative new property development wave which is largely of his own making.
In the past 15 years he has built up a sizeable empire.
By specialising in renovating listed buildings, Stewart managed to avoid the excesses of the property boom by investing in quality rather than quantity.
As a result the Chris Stewart Group has traded through the worst of the banking fallout relatively unhindered.
While he may not have seen the crash coming he had been offloading much of his portfolio in the years leading up to the credit crunch.
One example was almost doubling his money on the Georgian former council building on Edinburgh's Waterloo Place, which he bought in June 2006 for s7.5 million and sold just seven months later to Apex Hotels for s13 million.
That and other deals like it left him with a pot of cash to invest as prices began their downward spiral.
However Stewart had managed to keep himself largely under the radar until his recent announcement, heading a £45 million, 140,000 square feet hotel-led complex in the capital's Old Town on the site of the former headquarters of Edinburgh Council's economic development department.
The plans for the site also included 30,000 sq. ft of residential space, two restaurants and six offices.
German hotel group, Motel One, has already signed up for the site.
Originally Stewart had been outbid for the site but he never gave up on the idea he would win it eventually.
He said: "We kept track of the opportunity, and the company which ultimately bought the site went into administration. We alongside a number of bidders then re-bid for the site.
"By that time we had worked for two years tracking the development which gave us intimate detail as to the costs, ownership titles and those types of issues, which put us in a very strong position when we made an offer.
"At the same time we were already in discussions with a number of hotel operators. When we secured the development, we had already met with Motel One through Scottish Development International at the Hotel Investment Conference in Berlin.
"From that introduction we entered into a dialogue with Motel One on lease development discussions and ultimately structuring a deal with them."
Stewart sees the tie-in with Motel One, which has plans to expand outside its German and Austrian heartlands, to be a huge opportunity.
Indeed he hopes it is just the beginning of what he believes will be a mutually beneficial partnership.
He said: "From a European perspective Motel One is a fantastic operator.
"It is seen as highly desirable by institutional funds, such as pension manager, as it is very well capitalised, has a fantastic management team in place and is now looking to grow across Europe.
"The Edinburgh development is their first hotel outside of their home markets, but they are looking at other locations in Scotland and in London, which we would hope to partner them in as well.
"We have formed a very close relationship with their operational team and they are very keen to look at more hotel development opportunities, which is great for the industry in general and potentially very good for us too.
"Scottish Development International is playing a huge role in helping to bring hotel operators into the country to try to identify the opportunities for them, which is all very positive.
"In Edinburgh in particular, there has been a historic under provision of hotel beds for some time, and it is only now just starting to catch up."
Stewart formed Chris Stewart Associates 15-years-ago, aged just 22, with the backing of two of Scotland's most successful property entrepreneur Mike Rutterford and retail agent, Eric Young.
By then he was already a seasoned operator in property development, having made his start renovating listed buildings into residential flats before moving on to bigger commercial property deals.
With investor backing he specialised in buying property lots valued at between £1million and £2 million.
The portfolio he built up was valued at around £25 million with the bulk made up of offices around 70 per cent with the remainder in industrial and retail.
As the property market was reaching its peak, Stewart found he couldn't compete as speculative investors were driving prices way past what he considered to be viable.
This led to a shift in the overall business model in 2009, moving away from highly leveraged deals towards larger hotel developments which involved bringing hotel operators into the deals in order to spread the risk in financing the projects.
Offloading much of his portfolio helped pay off debts but also left him with a substantial war chest to fund his own deals.
He said: "I don't think anyone can say they saw the crash coming because the whole world seems to have been caught out.
"We always worked on the principle you buy at the right price, do proper due diligence so you know your costs and margins and always know where your exit will be.
"When the fundamentals of that changed and people were substantially over paying, I couldn't see how they could recover their costs.
"That was a sign to me the market was becoming unsustainable.
"So we took a more conservative approach. By dealing with commercial developments we were able to resell opportunities or deal with operators, such as hotel operators, so we could fix our costs to some degree.
"In a hotel development for example, we could sell on the lease into the investment market, which qualified much of our risk.
"We also weren't sitting with assets which weren't doing anything. We always had a plan for what we were doing with each deal, so we always had at least 50 per cent of a project to pre-sell.
"In the years leading up to the crash we had either sold or committed to sell the majority of our development stock.
"That meant we had clear exits for our assets and we paid back all of the debt we had outstanding with our lenders, which allowed us to look at new opportunities.
"That process took the best part of two years to work through which meant we came into the recession without a legacy problem weighing us down."
Stewart has maneuvered his group of companies into one of the few areas of property development where investment appetite has actually grown.
Pension funds and investment houses like hotel developments because they bring a long-term, steady return.
Stewart said: "When the residential market was clearly overheating and people were paying prices for sites we simply couldn't compete with, we decided to change direction because the pricing conflicted with our core values of what made a good property deal.
"Around 10 years ago we found we were doing more and more office developments because that was where the demand was and that lasted a good five years.
"The following five years has seen the hotel market really take off in Scotland. There remains a strong investment appetite in taking those types of projects on as hotel operators see Scotland as a good opportunity.
"Since then we have been involved in the development of more than 700 hotel beds in Edinburgh alone and we probably have another 400 we are working on across the country."
The Chris Stewart Group now comprise five subsidiary companies, including Crisp Investment to manage the larger groups of buildings held for development or sale.
Beaghmor Property holds most of the groups stock while Chris Stewart Associates looks after the asset management and administration.
Crisp Building and Renovation serves as the groups main contractor while Land Solutions UK is a relatively new subsidiary set up to buy distressed land deals.
Stewart isn't sitting back though and is pressing ahead with more projects.
He said: "We are now looking at a number of opportunities, but the key thing for us is quality, location, which has to be prime city centre.
"There are really good opportunities out there, but a lot of what was expected to come to market is being held by funds with no need to sell, which may be skewing the overall image of the market to some degree.
"A lot of the landlords holding those buildings are pretty stable. Yes there is distress, but mostly in the second tier tertiary stock, which isn't the game we are in.
"In every city there may be a handful of significant sites as a result of distress, but not of the quality we are looking for.
"In the market we operate in there are very few competitors at the moment, so we see this as a great opportunity to grow the portfolio and get involved in much larger deals."
Dunfermline born Chris Stewart was on the path to a career in finance before the lure of making deals steered him into property development.
He embarked on an applied mathematics and economics degree at St Andrews University after leaving school, but soon realised it wasn't for him.
After a brief stint with Bankers Trust in Edinburgh, Stewart left to develop his first property deals starting out buying flats which he renovated and sold on.
His first big deal was redeveloping an old Georgian listed building in Park Circus in Glasgow, which he converted into five flats.
That deal was to set the course for Stewart as a specialist in developing listed buildings, which larger developers tended to avoid.
He brought in investors for his next deal, redeveloping the old St Stephens Street school in Edinburgh.
From there he focused mainly on listed building development, with deals growing in size along the way to now focusing mainly on large, 100,000 square foot plus listed building developments.
The Chris Stewart Group now develops residential, commercial and hotel property developments, with 30 per cent of the portfolio now new build as opposed to redevelopment.
Away from work, Stewart keeps himself active with water skiing and wake boarding, which in the winter months he swaps for the slopes.
He lives in Edinburgh's New Town with his partner and two dogs.