It was skilled colliers at Sheriffhall mine in Dalkeith who hewed the seams of coal for the domestic hearths and smoky foundaries which gave Edinburgh its nickname: Auld Reekie.
In 1805, 111,799 cartloads, selling at £10,309, brought in net proceeds of £1,789, while the annual output from 1804 to 1808 ranged from 8,000 to 13,000 tons. The mine owner was the Duke of Buccleuch.
More than 200 years ago, Scotland’s landowning elite were making tidy sums from the abundance of coal in the Lothians and in Fife. Today, Scotland’s coalfields have been largely worked and exhausted, and a new kind of commercial enterprise is required to keep the grand estates of Scotland in shape.
David Peck, the managing director of Buccleuch Property, sits in the modern board room of his Silvermills courtyard office in Edinburgh. He is a chartered surveyor by profession but he is responsible for the commercial property wing of Buccleuch.
On the wall is a portrait of Walter Francis, the 5th Duke of Buccleuch, from 1806 to 1884, who was responsible for the building of Granton harbour on the Firth of Forth in 1836. It is a wonderful reminder of the continuity of an aristocratic family that has played a central part in the economic history of Scotland.
Today, near the former mining sites in Dalkeith, Buccleuch Property is involved with the creation of a new community at Shawfair, in the south-east of Edinburgh, with plans for 4,000 new homes, a million square feet of commercial development and three new schools.
The company, in conjunction with housebuilder, Mactaggart & Mickel, have bought the land from Edinburgh and Midlothian councils. It is one of a number of projects undertaken by Peck and his team.
He is responsible for what was once known as the ‘Fifth Estate’. In modern parlance, this title is given to the bloggers and social media commentators who fill the ether with their views. But in the days before the worldwide web, it represented the commercial property interests of the Duke of Buccleuch, head of one of Scotland’s most prominent dynasties.
Three of the Duke’s landed rural estates are at Bowhill, coupled with Dalkeith Country Park in Midlothian; Drumlanrig Castle and its Queensberry estate, and Eskdale and Liddlesdale on the tributaries of the River Tweed. These estates represent some of the finest upland and treasured landscapes in the south of Scotland and the Borders.
The 3rd Duke (1746-1812) made the grand tour under the tutelage of Adam Smith and created the Dalkeith Palace, which required local coal to keep its home fires burning. The present Duke, Richard Buccleuch, was Earl of Dalkeith, until his father died in 2007. The fourth estate is Boughton House and Gardens, near Kettering, in Northamptonshire, home since 1528 to the Montagu’s and the Dukes of Buccleuch. These are the four landed estates.
For the Duke, the ‘Fifth Estate’ was a miscellany of property assets which brought in valuable rental revenue, helping with the long-term upkeep of the other estates, but required a more methodical full-time approach to investment. In October 2003, David Peck was brought in to winnow and cultivate the commercial portfolio of what became Buccleuch Property, with a current market exposure of around £250 million. It has been a challenging decade for Peck, steering through the worst property collapse in recent history, but Buccleuch Property has now emerged as a strong, standalone investment division within the larger organisation.
“The investment portfolio at the time was around £100m. We probably doubled that and then brought the investment portfolio back down again to around £120million now on the investment side. What we have done is significantly grow all the other ventures. The current scale is a reflection of the de-leveraging over the recession. We’ve been investing new money into other ventures.”
Some of these are more diverse than many might imagine and include a portfolio of retail assets in Germany, a now sold business park in Sydney, Australia, and a joint venture with Vantage, a Texan-based property company.
“We even had a mis-adventure in Moscow but managed to get all of our money back with only a few roubles to spare!” he recalls.
The recent announcement about the acquisition of the land in Edinburgh and Midlothian’s south-east wedge is symbolic for the Capital. With huge pressure for more housing, both private and affordable, and the imminent arrival of the Waverley Line with a new station at Shawfair, the development will create a new town centre for a 21st century community, all built inside Edinburgh’s bypass. The work follows on from Buccleuch developing the SQA’s nearby headquarters.
There are other significant projects, including the West Offices, an award-winning redevelopment of York’s original railway station, chosen by the ‘Railway King’ George Hudson and opened in 1841. A joint venture between Buccleuch Property and York-based Harrison Developments has created a spectacular £32million 150,000sq ft complex that is now home to the City of York Council.
Alongside is a new Hampton by Hilton hotel. The involvement of Miller Construction (UK) as main contractors, working in harness with English Heritage, makes this a multi-award winning project with a strong Scottish input. [“It was a very challenging project built through the recession.”]
While, at East Kettering, near Boughton, in Northamptonshire, Buccleuch Property is involved with a sustainable urban expansion of the town, creating 5,500 new homes and a new community adjacent to a major ‘energy park’ being developed by GE.
“This is a very similar situation to our proposals in south-east wedge of Edinburgh. We have an existing strategic landholding and are in another joint venture. We are tendering the first stages of infrastructure and finalising negotiations with major house-builders. Given it is only an hour’s train journey from London and house prices are below £200 per sq. ft, it is a good place to be putting housing for commuters, while also creating sustainable local employment,” he says.
David Peck has been in the property industry all of his adult life. Originally from England’s smallest county, Rutland, he studied Land Economy at Aberdeen University. He graduated in 1988 when the market was flying, and landed a job as a chartered surveyor on the Drivers Jonas training scheme in London. His first job was managing the Crown Estates’ Victoria Park in Tower Hamlets.
He worked as a management surveyor before joining the investment team in the City of London. But development dried up with the recession, and so did job opportunities.
Then Peck did something adventurous.
He quit his job, bought a Land-Rover and with a male friend and two female friends, all surveying people, took a year off and drove overland to India, driving through Iran, into Pakistan, via the Khyber Pass and on to Bombay.
“I don’t know if this was a reflection of my views of the property market at that time, or that I was footloose and fancy free. But it was a great adventure. We did a lot you wouldn’t be able to do in today’s political climate.”
“The Land-Rover was pretty reliable but it was the wrong vehicle, because you should buy a Mitsubishi or a Toyota when driving through the wilds of Iran, it’s easier to get spare parts if things go wrong.”
Back in London, he then worked for Taylor Woodrow Capital Developments and even took a job in a wine bar to fund renovation on a home he had bought when interest rates hit an eye-watering 15%, before deciding it was time to head north to Edinburgh.
More than many other professions, surveying and commercial property is about long-term relationships. And a key figure in Peck’s professional life is Alasdair Nicholls, then the managing director of the Taylor Woodrow division. Alasdair is now chairman and chief executive of Native Land, a specialist residential development company, based in central London. More of which, later.
“Alasdair is a great friend and a long-term venture partner with Buccleuch. I worked for about nine months with Alasdair and always hoped our professional lives would cross again despite the move north. David Peck started work with Iain Wotherspoon at his property consultancy RJ Wotherspoon & Associates, which became the Kilmartin Property Group in 1995. Kilmartin became closely linked with the Bank of Scotland’s corporate team, involved in a number of high-profile joint ventures.
“I remember once going through to Iain’s office and saying nobody knows whether we are a consultancy or a property company: I think we should be a property company. We got the map out and chose the name from a village on the west coast,” he laughs.
David Peck worked with Kilmartin for nine years, including being responsible for acquiring the site of the old Edinburgh Royal Infirmary, which was a joint venture in 2001 between Taylor Woodrow, Bank of Scotland and Kilmartin. “We acquired the site in competition with Miller and Grosvenor, securing planning consent for pretty much the development as it is today and re-branded it Quartermile.”
In October 2003, he was headhunted to join Buccleuch, interviewed by the current Duke and Michael Clarke, at the magnificent country home and estate, with its famous art treasures, in Drumlanrig. “Things were looking very interesting at the time. In terms of career progression, it seemed good to be moving into a managing director’s position.”
While the setting was grand, the property business started operations in a Portakabin in the middle of a farm yard on the Bowhill estate, near Selkirk.
“The family decided to recruit somebody for the role because it reached the stage where there was a critical mass of investment stock that had been managed on a part-time basis. The business was being managed part time by two people while also doing their days jobs as factors on different estates in the business. One, Nick Waugh, is a fellow board member and our investment director. The other still acts as a consultant to the East Kettering project.
At the time, the Buccleuch Property strategy was buying secondary investment stock for the arbitrage between the rental income and the cost of financing the borrowing. This provided additional revenue for the Estate to maintain its landed portfolio but did not involve longer-term development projects.
“It was a fairly blunt policy and it had a limited lifespan as a strategy. What it needed was some finesse because there was ambition to do other things. The Board realised it was getting to a scale where it needed proper full-time management,” he says. Buccleuch Property was given the scope to release value through development and joint ventures with other organisations.
A proper company infrastructure was established, including buying the courtyard office in Edinburgh and moving operations to Silvermills. Neil McGeoch, then a surveyor from Culverwells, and now managing director of MEG Renewables and an Ayrshire farmer, was recruited along with Sandy Smith, a colleague at Kilmartin, who joined as development director, while James Macleod took up the role of finance director. Buccleuch also opened a London office, in Charles Street, and appointed Bob Bowden, former investment director at British Land, as non-executive director.
“We now have a settled team of around 14,” he says. In the early years, the Duke chaired the board of Buccleuch Property and took an active part. When Michael Clarke retired after almost 20 years at the helm, John Glen, who had been chief financial officer with Air Liquide, took over as Group chief executive, and now takes the chair.
“When John took over, the family wanted to have a re-think and take a step back from day-to-day activities of the property company. The Duke works more closely with John on the rural side and I report into John. Other than that, we are in a ‘quasi-autonomous’ position with a corporate governance structure. We have a separate business plan and balance sheet. Our objective is to feed in dividends and profits to the rest of the group. This helps keep it ship-shape.”
Buccleuch’s rural estates include a range of tenanted farms but they are in some of the wildest and weather-battered parts of the Borders, where arable farming is never an easy task. The forestry business has been strong in recent years despite the larch disease decimating some woodlands. Compared to the prime urban real estate in central London of the Duke of Westminster with his Grosvenor Estates, Buccleuch is a commercial minnow.
Then in, mid 2007, as the raging recession began to howl, Buccleuch battened down its hatches and considered a major restructuring.
“We’ve had a very challenging few years. We could see that we were in for some form of correction. But given that we were long-term investors, we would ride the storm. While we hadn’t been acquiring much in the lead up and had made one or two strategic disposals to take some profit, the revenue stream was a sound one and we took the decision to work our way through the dip.”
Nobody knew how deep and hard the recession was going to get. David Peck says the assets were always cautiously valued but even this battered the portfolio.
“We looked at the fall in our asset value of between 30-35%. If we’d been more aggressive in a ‘top-of-the-market’ valuation then this might have been 45-50%, which is where the majority of the market went.”
Over the last eight years, Buccleuch has spent time de-leveraging over £120m of its bank loans with the Royal Bank of Scotland. This represents a halving of its bank debt. Here the Duke’s status might have helped as his forebears where among the founding signatories of the bank in 1727. Although, even in today’s harsher commercial world there is no guarantee of any favours unless the business plan and revenue projections are solid. [“I’m sure that helped – but were we granted special favours? I doubt it.”]
“We have a shareholder – as the Buccleuch family – who are pretty unflappable. The view was we had to face the financial crunch as a business. There was no pretending or hiding from what needed to be done and how we were going to tackle the problem. It’s a real team effort as a business,” he says.
One of the real success’s stories has been the collaboration with Native Land, which has been at the forefront of the prime residential market in central London. The London billionaire boom has played its part. According to the Sunday Times, in 2012-13, sales of prime homes in the boroughs of Westminster, Kensington and Chelsea generated £708m of stamp duty. That is £73m more than the receipts for Scotland, Northern Ireland, Wales and the north of England combined.
“It’s been a boom to us during that period because it is a market that has sustained itself handsomely,” he explains.
Native Land, in which Buccleuch has a shareholding and co-invested in every project to date, buys and develops significant sites, such as NEO Bankside in Southwark, which has a gross development value of £400m, and another in Chelsea worth £200m and due for completion this year. “The scale for these projects is far too much for us alone, so we tend to bring in a consortium of like-minded co-investors and align ourselves with another major partner, such as Grosvenor or more recently, well established Asian investors. That’s the way to get into these schemes.”
David Peck is a non-executive director of Native Land and works closely with Alasdair Nicholls.
“We rekindled the relationship when he was still at Taylor Woodrow and I was at Kilmartin, when we successfully acquired the Quartermile site in Edinburgh. We secured the original planning application and brought in Foster + Partners to do the master plan. We named it and then this was the point when I left to join Buccleuch and Alasdair set up Native Land.”
In Peck’s view, Quartermile was a very challenging site with remediation work – including the delicate removal of tonnes of asbestos - and he says he would be surprised if any of the developers has made real money as yet. [Taylor Woodrow’s stake was sold to Gladedale, which became part of Lloyds Banking Group’s battered property assets, while Kilmartin collapsed in 2010. The site and some outstanding residential development and offices, was sold last year to Moorfield.]
“I would contest that it was sold cheaply as some critics maintained. Barry Sealey, who was chair of NHS Lothian University Hospitals Trust, came in for a lot of flak at the time and unfairly so. I think he drove a hard bargain and did a good job in getting the deal over the line. It is to his credit. No one made a lot of money. One of my regrets is that I was never able to see that site all the way through.”
However, the strong working relationship with Alasdair, co-director Jonathan Mantovani and Native Land is more than a compensation.
“Native Land really established itself as a development management business. I was new into my position at Buccleuch and suggested a structure where we could feed capital into the business and really make it a development business. It very quickly morphed into what it is today. They have done an amazing job.”
Outwith London, Buccleuch has been entrepreneurial in buying ‘unloved’ investments which can then be improved through asset management and traded on the market. In mid-2010, it also saw an opportunity in north-east Scotland with the Aberdeen Science Parks, which it bought from Scottish Enterprise.
“They were definitely a little unloved but it wasn’t a distressed purchase. Scottish Enterprise had taken a view that they needed a private sector partner and we bought into this. It came with a real mix of ground leases, existing accommodation and development land. The buildings needed refurbishment and there was a lot to do. We’d love to do more.”
Buccleuch has been able to build three new properties on the now rebranded Energy & Innovation Parks and this investment asset is now on the market with Knight Frank. In Edinburgh, Buccleuch and Cruden have re-awoken a dormant joint venture called Queensberry, and we are looking to grow this business significantly into the mid to upper end of the market across Scotland; they are partnering Telereal Trillium, in a £50m prime residential development known as Woodcroft in the prestigious Grange area of the city, on the former site of a BT telephone exchange, and have also acquired the former Edinburgh Academy boarding houses. Nick Waugh looks after this relationship for Buccleuch.
“One area we do see potential is the retirement market which as an industry is woefully under-provided for and we have an established relationship with Audley Retirement to develop their assisted living concept in Scotland and hope to bring forward a site soon,” he adds.
“While we’ve had our problems to manage at Buccleuch, we’ve been very active. We are focused on delivering value and finding the opportunities. While there are 14 of us here, indirectly we have been employing hundreds of people in Scotland and across the UK. These strategic projects have significant overheads in terms of the teams of architects, surveyors, engineers and builders. The spin-off is massive,” says David Peck.
Our politicians and perhaps the public at large, underestimate the value and the multiplier impact of developments by companies such as Buccleuch. Big strategic projects are vital to maintain the multiplicity of skills required to keep the property sector moving. David Peck and his team are also playing a key part in ensuring the wider business continues to invest in their rural assets and help sustain the communities that are fundamental to its existence.
In all, not an inconsiderable task.