Real estate boss Matthew Cheyne tells Martin Walker about an £ 11m acquisition of Aycliffe Business Park land in an EXCLUSIVE interview...

The positive vibes continue to reverberate around Aycliffe Business Park. This really is a new era in more ways than one.

When multi-national real estate corporation Valad decided to sell off 700,000 square feet of land in Aycliffe, London-based asset management firm M7 spotted an opportunity and was quick off the mark, snapping up the stock for a handsome, but bargain, £ 11m.

The land and properties incorporates 47 tenants- including some high-profile firms such as Palram, Stiller and Tyne Tees Packaging- which is all now owned by Empire 1 Sarl, a joint venture between M7 and real estate fund managers Europa Capital Partners, based in London.

Matthew Cheyne, a partner at M7, is now solely responsible for the land and tenants- which equates to about a quarter of properties on the business park- while Vine Property Management will continue to manage the properties.

His first mission will be to breathe new life into some of the run-down and empty units around the estate- most notably those at Northfield Way, just off Horndale Avenue- as Empire has ear-marked up to £ 1m to regenerate unoccupied areas.

He’ s also promising to be“ visible” for tenants who want to contact the landlords for whatever reason.

For many firms on Aycliffe Business Park- who will already know about the deal- it will represent positive news indeed.

Property consultants Sanderson Weatherall and Jones Lang LaSalle, acting as letting agents in the deal, invited me to join them and Mr Cheyne for a coffee and an exclusive interview at the Xcel Centre.

Mr Cheyne outlined in detail Empire’ s plans to improve the stock it has just purchased while maintaining rent rates wherever possible. He also says Empire’ s protracted purchase has enabled them to ring-fence cash for some refurbishments without passing on cost to existing tenants.

“ We’ ve acquired about 700 square feet of space, and rather than treating it as a single holding, it’ s our intention to treat it as a series of separate estates and improve them individually,” he said.

“ There are parts of the estate, most notably Northfield Way, which we intend to invest quite heavily in regenerating it as its own entity. We’ ve actually ear-marked between £ 700,000 and £ 1m for further investment and invest in the stock we’ ve already bought, to refurbish it.

“ Most industrial stock over the last five years or so has been starved of regeneration purely because of the economic situation.

“ We want to invest in our stock and improve it, to give local occupiers more choice, and from our point of view we’ ll reap the rewards of having improved stock.”

M7 is one of the UK’ s leading industrial real estate asset managers, with a portfolio consisting of £ 400m-worth of industrial properties from Penzance in the South to Dundee in the North.

M7’ s joint venture with Europa Capital is one of 18 multi-let deals it has done across the country, acquiring estates in Hull, Telford, Cannock and East Kilbride as well as Aycliffe. The portfolio, totalling £ 37m, consists of 258 units across the 18 estates and provides over 1,640,000 sq. feet of predominantly industrial accommodation.

Mr Cheyne explained:“ The stock that M7 buys is generally secondary industrial estates. We were established in 2009, after the property crash, and the experience of all our partners is all in the secondary market, where we buy unused stock, improve them and get tenants into them and generally have better packages for longer-term investors.

“ When we’ re appraising an estate we always consider what could we do to improve it, so the aim is to purchase the stock while factoring in revenue to pump into regeneration as well.

“ The hope is that the stock will be appealing to new tenants, but we also want to show our existing tenants that their landlord is paying some attention to their property and improving their environment.

“ There are options for us to change tenancy agreements and pass on the cost of improvements to them, but in most cases

we don’ t do that, we see it as part of the purchase price.

“ We want to show companies and the local community in Newton Aycliffe that we want to improve the Business Park.

“ Our pay-back will be increased occupancy levels, a rental growth and, when it comes to the point of job done in five or 10 years time, selling on much-improved stock for a return.

“ We don’ t see this as a gamble. We see it as a very calculated, sound investment.”

Mr Cheyne, having already done his homework before our chat, already knows all about the work of the Aycliffe Business Park steering group.

Smiling, he says:“ Yes, I’ ve heard of John Finley and the steering group! To have tenants working so proactively is music to our ears, and we want to work with them as much as possible to make sure we continue to improve the park on the whole.

“ All our stock will continue to be managed by Vine Property Management and we’ ve retained the services of Joyce Steel, whom a lot of tenants will already know very well, and anyone who wants to contact us can do so through Joyce- but we aim to get round to seeing all our tenants in due course.

“ There are parts of land which has nothing to do with us, but we’ re actually responsible for, so there are grey areas. While we’ ve invested in bricks and mortar, we want to match that with having pride in where we work.”

Ultimately, Mr Cheyne’ s remit is to increase occupancy levels, so the last thing they want is to lose tenants. He wants everyone onside. And while a lot of businesses-owners will be tired of empty promises, this bold and positive new approach must be refreshing for tenants.

Mr Cheyne goes on:“ Out of the 700,000 square feet of stock we’ ve purchased, around 125,000 is currently vacant, which amounts to about 18 %.

“ It’ s our aim over the next 18 months, through marketing the properties and making all the improvements, to get the vacancy levels down to between 7.5 and 10 % which is about the average figure for an estate of this size.

“ If we can do that without impacting on current tenants, and maintaining those who are already here, it will automatically increase revenue and that’ s where we’ ll start seeing a return.

“ We want to improve the service we offer, we want to be around so our tenants can contact us, we want to be good landlords for businesses here in Aycliffe.

“ It’ s important for them to actually know who the landlord is- real people- and our stock in Aycliffe is my sole responsibility. I hope it’ ll be reassuring for tenants to know that.

“ Clearly we’ ve acquired these assets to make money for our investors, but doing that by improving the quality of stock. If we end up selling our stock on for profit at a later date, it means we’ re improving it, and that has to be good news all round!”

Although based in Edinburgh, Mr Cheyne is no stranger to County Durham.

“ My two eldest daughters went to Durham University, so I’ m already quite familiar with the area,” he says.

“ The benefits here at Aycliffe Business Park is its accessibility. It’ s straight off the A1, there are two ports not far away, two airports... so in terms of location, we see this as a very strong one.

“ Manufacturing is at the heart of this business park but there are also a lot of good service providers and SMEs on the park, which all makes for a good mix.”

We can’ t conclude the interview, of course, without talking about the‘ H’ word.

Mr Cheyne added:“ Of course Hitachi will be huge. The fact they’ re coming here was a major factor in our investment. It wasn’ t

necessarily the only factor, but it played a big part.

“ One of the driving forces behind us reducing our void here will be inward investment. Demand is what it’ s going to be, but our general game plan is to work within the local economy. If you make your property more attractive and better quality, then people will come to it in favour of something else.

“ If you’ re doing that against the backdrop of something like Hitachi, then of course it’ s going to make that job a little bit easier, so we think from a timing point of view, buying now is quite a shrewd move.”

Jonathan Sanderson, from Sanderson Weatherall, told Aycliffe Today Business:“ M7’ s acquisition of the estate could not have come at more exciting time for the estate.

“ Arguably at this moment in time occupancy levels on the estate have never been as good, with take up exceeding 1m sq ft over the last two years. Much of this activity has been buoyed by the strength and growth of manufacturing in the North-East.

“ Having been heavily involved with the estate over the last seven years I am now looking forward to working with M7 on the next chapter of the estate.

“ The change of ownership also coincides with the planned investment from Hitachi, and whilst in its early stages we already starting to receive enquiries from companies within the supply chain, which is further evidence that our client has made a shrewd investment in the business park.”

More details about M7 can be found at www. m7re. co. uk, while more details about Europa Capital is at www. europacapital. com

• Vacant properties will be marketed at www. m7propsearch. co. uk