Ordering Out

With the economic slowturn and a property market where the tenant in king, Julia Cahill talks to the managing and legal director at leading commercial property bank Palmer Capital about the benefits of adaptability

Three years after it was founded on a vision of becoming the pre-eminent merchant bank in the commercial property sector, Palmer Capital Partners is getting ready to brave its first real storm.

“It’s now clear that there’s been a very significant shift in the market,” says managing and legal director Christopher Digby-Bell. “Speculative forward funding is difficult to find. To achieve institutional funding you have to be able to convince the fund manager that he’s acquiring a real bargain. In other words, only sites that are good value for money are going to be capable of being spec forward-funded. The tenant is king – again.”

In this new climate, the development companies which Palmer Capital invests and takes a share in are concentrating on securing selective pre-lets and coming up with products for which there is a real appetite among funders. For example, an office scheme in Thames Valley – where a number of prospective US tenants have dropped out, largely due to the downturn – would not fit the bill.

Palmer Capital’s ability to adapt quickly to the changing market is something that Digby-Bell relishes after some 30 years in private practice. His career has included a spell as managing partner at Taylor Joynson Garrett and most recently as international managing partner and senior property partner at now dissolved Frere Cholmeley Bischoff. When the bulk of his Frere Cholmeley colleagues went on to found Forsters or join Eversheds in 1998, Digby-Bell teamed up with his long-time client and friend Ray Palmer, the former head of property agents Lambert Smith Hampton, to launch Palmer Capital. Palmer brought with him a development programme with a capital value of around £200m.

That figure has now grown to £725m and involves 31 schemes totalling six million square feet. Its unique strategy is built around providing private equity to start-up companies with which it can be involved long term and take a hands-on approach. Its rapid growth has pushed Palmer Capital’s legal spend up to between £1m and £2m a year.

Digby-Bell currently manages a team of around nine external lawyers. There is no in-house legal team. “If you only instruct external lawyers who you know really well, it’s exactly the same as having them sitting in your office, except that there are lots of advantages. You don’t have to provide them with lots of people for support,” he says.

Digby-Bell’s style aims to match Palmer Capital’s innovative approach. “I don’t believe in having a panel of firms,” he says. “I don’t really believe in law firms. I believe in lawyers and relationship lawyering. The lawyers that work for me are all lawyers I know personally and have worked with previously. A number of them are lawyers I have met when they were on the other side of the transaction.”

As a result, a fairly diverse group of firms is used. Digby-Bell is clear about what he is looking for: “A combination of a keen intellect, a fine commercial edge and a cool fighting spirit delivered on time and with professionalism.” Finding those qualities all wrapped up in one lawyer is no mean feat, particularly now that corporate finance techniques are so often applied to property transactions. “What it requires is property lawyers with a broader understanding of tax and finance issues and with strong corporate support from their firm,” says Digby-Bell.

As Wrenbridge and Frontier, Palmer Capital’s two largest companies, get involved in increasingly bigger projects, this grows in importance. It is up to Digby-Bell to ensure that they are getting the necessary back-up and support from their firms. Instructions are made jointly by Digby-Bell and the development company in question, and heads of terms always pass across Digby-Bell’s desk. “One of the things I’ve learnt in private practice and venture capital is that property entrepreneurs are not the sort of people who you can tell what to do. You can’t be prescriptive,” he says. “My role’s not to say which lawyer to use, but to match the deal they’re doing with the right person for the project. My role’s to make sure the relationship works.

“I don’t interfere with our lawyers. I let them get on with their job, but because of my background I can focus them on what I think are important things. I aim to get the best out of them. They need to be motivated like anyone else.”

Digby-Bell’s strongest relationships are with his former Frere Cholmeley colleagues. At Forsters, he instructs Smita Edwards, Helen Streeton, Martin Halling and Steven Sugar. Also rated highly by Digby-Bell is ex-Frere Cholmeley partner David Silva, who is now at Iliffes Booth Bennett, Simon Kenley at Berwin Leighton Paisner, Lawrence Graham property lawyer Philippa Satterthwaite and corporate partner Mike Smyth, John Burns at Wragge & Co and Penny Hubbard at Mills & Reeve. Most recent to join them at is Charles Russell property partner Juliusz Wodzianski, who is working for Thistle Land, the latest company to join the Palmer Capital stable. Of those advisers, Digby-Bell rates Forsters, Berwin Leighton Paisner and David Silva particularly highly for property finance work.

New additions to that list are imminent. “Because of the way Palmer Capital and our companies have grown, the demand for legal services has grown. The budget has increased. As I instruct on a lawyer rather than a law firm basis, I’m always on the lookout for talented lawyers,” says Digby-Bell.

A number of Eversheds partners are in the running, but he stresses that they are not the only ones under consideration.

Such plans for growth reveal an optimism about what the future holds for Palmer Capital, despite economic slowdown. “There are a number of private investors in the market who are trying to take advantage of the gap left behind by the absence of traditional institutional investors. Also, bank finance is readily available,” says Digby-Bell.`He adds: “With our strong equity backing, we’re well placed to take advantage of the new conditions. The irony is that some institutions are thinking of cutting back on new investment in property when it’s done so much better than equities over the past year.”

Palmer capital’s development companies`Wrenbridge Land was launched in 1993 and now has an established reputation for offices and industrial development, particularly business parks.`Current schemes: Solihull Business Park, a 27-acre site being developed as a 490,000sq ft office park; Cambourne Business Park, a 750,000sq ft high-tech office park near Cambridge being developed in a joint venture with Development Securities; Sentris at Priory Business Park, a 60,000sq ft office development in Bedford.`Advisers: Forsters, Lawrence Graham, Mills & Reeve and Wragge & Co.

Frontier Estates was launched by Palmer Capital in 1996 and was the second company to join its stable. This highly active company now has a development programme of over 2.25 million sq ft with an end value in excess of £260m.

Current schemes: Atterbury Lakes, Milton Keynes, where Frontier beat off competition from developers such as Slough Estates and Akeler to team up with English Partnerships for a 255,000sq ft office scheme; Slough town centre, where a £43m scheme is underway to provide a hotel, offices, a health and fitness centre, restaurants, shops and a multistorey car park; and a prime city centre office development in Birmingham.

Advisers: Berwin Leighton Paisner, Forsters and Iliffes Booth Bennett.

Opus Land was launched in 1998 and is based in Leeds and Birmingham.

Current schemes: 17,320sq ft office development on the main A45 New Coventry Road at Sheldon, near Birmingham.`Advisers: Forsters.

Danescroft Commercial Developments was set up three years ago by a senior development executive at Canary Wharf. It recently completed a major development at CIU House in Islington, which was pre-let to both McDonald’s and JD Wetherspoon.`Advisers: Forsters

Tewin Estate & Land was set up in the mid-1990s and is Ray Palmer’s own development company.

Current schemes: retail scheme in Duke Street, Henley, which was recently sold.`Advisers: Forsters

Thistle Land was launched in October 2000 by the former managing director of HBG Properties. Palmer Capital has allocated a £20m financing package which will be geared to support a £50m development programme by the end of this year.
Advisers: Charles Russell
Christopher Digby-Bell
Managing and legal director
Palmer Capital Partners

Organisation Palmer Capital Partners
Sector Venture Capital
Market Capitalisation Private company with a £725m development programme
Employees Six (40 including employees of constituent companies)
Legal Capability One
Managing and legal director Christopher Digby-Bell
Main location for lawyers London
Main law firms Berwin Leighton, Charles Russell, Forsters, Iliffes Booth Bennett, Lawrence Graham, Mills & Reeve and Wragge & Co