Foxtons: Estate agent that gives estate agents a bad name
The firm is set to float on the stock market – cue joy for the staff who will be quids in, and despair for customers burnt by its controversial tactics
Cahal Milmo is the chief reporter of The Independent and has been with the paper since 2000. He was born in London and previously worked at the Press Association news agency. He has reported on assignment at home and abroad, including Rwanda, Sudan and Burkina Faso, the phone hacking scandal and the London Olympics. In his spare time he is a keen runner and cyclist, and keeps an allotment.
Tuesday 27 August 2013
When Foxtons continued its march across London's gentrifying neighbourhoods by opening a branch in Brixton earlier this year, an off-message objector wasted little time in twice redecorating the window of estate agent's cafe-style frontage. Shortly after the spray-painted word “yuck” was removed, employees arrived a few mornings later to find “yuppies out!” added instead.
The incident may have elicited a wry smile among Londoners who have grown used to headlines during recent years suggesting that Foxtons, renowned for its fleets of liveried Minis and robust sales techniques, had achieved the difficult feat of lowering estate agents in public esteem.
But proof that sharp suits - and accusations of sharp practice - are no impediment to commercial success was brought into sharper relief today when the company announced it plans to profit from the capital's resurgent housing market by floating on the stock market.
Amid a near 60 per cent rise in the number of smaller independent estate agents going bankrupt in the last 12 months and the rise of online property sites such as Zoopla, it seems that larger corporate property brokers and their managers are doing rather well.
As well as raising £55m and wiping out the company's remaining debt while valuing it at around £500m, the sale by Foxtons' private equity owner - BC Partners - is expected to realise a windfall of up to £100m for the estate agent's top management, who hold about 20 per cent of the business.
Among those set to benefit are chief executive Michael Brown, who was charged with re-shaping the business after its operating profits slumped by 70 per cent during the downturn. He was rewarded with a near-50 per cent pay rise in 2010 - bringing his package to £650,000 - after an overhaul which included the shedding of 200 staff.
The floatation will be the latest twist in the rollercoaster rise of Foxtons from its modest beginnings in 1981 when founder and former Army officer Jon Hunt opened his first branch in a former Notting Hill pasta restaurant to its status as one of the country's brashest property brokers.
Indeed, the sale is the second time the company has made multi-millionaires of its managers after Mr Hunt, who is no longer connected with the company, sold his 95 per cent stake to BC Partners in 2007 - an eve-of-recession deal that saw him vaunted as either lucky or a genius - for about £360m.
He has since tripled his money, amassing a fortune of more than £900m through property investments which has financed a vast subterranean redevelopment of his Kensington home to include an underground showroom for his collection of vintage Ferraris.
But the reputation of the agency he left behind for taking no prisoners in London's notoriously cut-throat housing market is hard won.
As well as complaints of practices such as taking down competitors' “For Sale” signs and posting its own outside properties that were not for sale in 2001, the company lost a High Court case brought by the Office of Fair Trading in 2009 over clauses in its contracts with landlords.
A judge agreed that the terms - which required property owners letting their properties to continue paying commission once the initial lease had expired even if Foxtons was no longer involved in marketing or managing a property - were a “trap”.
The company also flirted with disaster after the 2008 property slump left it saddled with £260m of debt and its bankers had to step in to take control from BC Partners, whose managers admitted their purchase of Foxtons in 2007 was a mistake, referring to the deal internally as the “F-word”.
Yet with some 40 branches in many of London's well-heeled quarters (and two more in similarly buoyant Surrey), Foxtons has since benefited from the robustness of the capital's property market where prices rose by nearly seven per cent in the 12 months to June, compared with an average of 0.8 per cent for England and Wales.
With the aid of its offices equipped with plasma screens and drink cabinets allowing its sales personnel to thrust a well-chilled San Pellegrino into the hands of prospective clients, the company has built up a substantial market share in some of the capital's swankiest neighbourhoods.
Anthony Cork, of accountants Wilkins Kennedy, who last week reported the 57 per cent annual leap in estate agent insolvencies, said: “The expansion of bigger regional and national groups like Foxtons and [recently floated] Countrywide has put pressure on smaller agents who just can't compete with the marketing spend and the economies of scales of the bigger agencies.”
In its pitch to prospective investors today, the Foxtons boasted that in the two years to December 2012 it had sold a third of houses on the market in the City, a quarter of flats in Ladbroke Grove and some 20 per cent of those offered in Chelsea. It plans to open between 20 and 40 new branches across London in 2018.
Describing “demand fundamentals” in the capital as “strong”, Foxtons said it believed “the limited geographical areas (and in particular its prime residential areas), combined with low levels of house building in London and planning restrictions on new building or redevelopment, have led to a constraint on the supply of residential properties and created excess demand which has resulted in resilient prices”.
In other words, the idiosyncracies of London's plutocrat-fuelled property market mean that Foxtons thinks it is once more about to make a killing for itself, its shareholders and its clients. Following underlying profits of £38.3m last year on revenues of £120m, its earnings for the first six months of this year were up 14.3 per cent to £19.4m and revenues rose by more than a tenth to £62.6m.
But profit has not brought universal affection.
As well as the graffiti on its Brixton branch, Foxtons has a Facebook group and Twitter account dedicated to chronicling grievances against it. A Facebook message from a university lecturer complaining about the alleged failure of the agency to address problems including a leaking roof and a broken television in his rented flat was an online hit last year.
Foxtons said it did not want to comment on previous criticism of its conduct or its floatation.
One agent who competes against the company in a prosperous south west London area said: “It's a bit unfair - they're no better or worse than anyone else in a crowded market. You have to differentiate yourself. But it would be preferable if they didn't do it with Minis and mineral water.”
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