Episode 50: Ian Livingstone - Co-Founder of London Regional Properties

This week, on generating alpha, I sat down with Ian Livingstone, co-founder of London Regional Properties, one of the largest and most respected private investors in Europe. Ian and his brother have spent four decades building quiling deliberately, letting their results speak for themselves. This is only his second podcast ever. Ian grew up in Ealing, London as a son of a dentist. He studied optometry, qualified in 1984, and five years later opened his first Iowa store. Within three years, he'd acquired the David Cluelo chain growing it to 170 stores, including concessions, inherits, and self-ridges, eventually selling to Exotica in 2011. With a business he spent four decades quietly building a something else entirely. In 1987, at the height of the commercial property crash, Ian and his brother founded London Regional, buying distressed assets at half price while every institution was running for the exits. That contrarian bet became the foundation of a portfolio that today includes David Lloyd Leisure, the Hilton Hotel's in London. The lease hold unclived in house, a $2 billion development in Panama City, and the Fairmont Monocarlo among others. In our conversation, we talked about going from optometrist to entrepreneur, the conviction it took to buy when everyone else was selling. Four decades of family control, how he sees opportunity across wildly different asset classes in what the market looks like to him right now. This episode also marks a milestone. Episode 50 of generating alpha. Thank you to everyone who has followed along since the beginning. As always, if you've enjoyed this episode, please follow the podcast, rated five stars in Spotify, subscribe on YouTube, and share it to anyone who you think might find it valuable. I really enjoy talking to Ian, and I have you guys enjoy listening to this conversation. Thank you. Thanks, Ian, for coming on. I really appreciate it. OK. Good. I want to start where I always do the beginning. If I'm correct, you grew up in Ealing, London, the son of a dentist. Tell me a little bit of your childhood what that environment was like and how you think they might have shaped you. I think growing up most of our friends came from families where they were middle-class professionals, and that was the assumption that you became a professional. So you became a dog, a dentist or a lawyer or an accountant. And so, it's really towards careers. And it was very-- it was [INAUDIBLE] Eventually, I would say that probably half of them stayed in those careers and had to go down. Some in some to business aligned to that or something fairly close on. So the expectation was that you did much of the same. And if I'm correct, you started off in the business or in a tomatry at City University Qualified in 1984. Again, as part of being a professional, I was sort of what you want to do. And I decided that medicine was a bit too long of a slug, even though a lot of my friends and family were all doctors. I decided-- so I thought tomatry was better, because ultimately, you could have a business as well. And that was how I stopped it. And in 1989, if I'm correct, you opened your first uptometry store in Antarctica. Yeah, I worked for other people. OK. And then I bought my first store in '89. And then I started expanding it in 1991. And yeah, in three years, you required David Cluelo. And we're running a chain about worth around $20 million. Tell me about those early days. How did you decide to expand what was the expansion looking like? And yeah. Chopin. Well, I never had much capital. And so it was a question of eking out the cash flow, managing your suppliers, your creditors, borrowing a little bit of money from the bank. But keeping borrowings to an absolute minimum, because I didn't really want to be over leverage. And in those days, you could get stores. There was a bit of a financial crisis. I seem to remember one of many. And in those days, landlords had a load of empty shops, and they would give you quite big incentives. So you could end up with a package of a year, or two years free rent, and some capital towards your fits out. So it really cost-- in that case, in many cases, it cost nothing really to get the store open. And then if you traded profitably early days, then that was a great business. So for a while, we enjoyed the benefits of having the landlords on side. Of course, as the economy picked up, then those incentives evaporated. And you had to go and compete with everybody else. But overall, I have to say it was a good time to be in business, because the business was dominated by some groups that were not really that efficient, so that if you could be nimble in business, if you could be quick to change your products, quick to offer different services. And you could differentiate yourself. It was quite an easy time to expand the business. So you couldn't do that today. It would be much more difficult. And how did you guys differentiate yourself and why did you eventually, at the beginning, decide to build a business instead of become a pure practitioner? I think it was exciting opening a business, actually. I think it was exciting. It was challenging. It was fun. It was interesting. And don't forget, I'd worked several years for other people. And therefore, I knew who all the best staff were. And they wanted to come on. You could incentivize people to move quite easily. So we built up a really, really good management team very quickly. And that helps us expand, because I knew immediately who would be the managers of the next stores as we opened. We grew our own talent, we trained people. And I was very, very hands-on in the beginning of that business, very hands-on. I knew everybody, I knew what was going on. I knew all the turnovers of the stores every single day. Of course, as it got bigger, that was-- I became a bit more remote for it from it. And then I started working with my brother in real estate. But the foundations of the business were that, really, which was about customer service, about being adept, being quick to change, not being stuck in a particular business model. And I know what's fun. Yeah. And a few years before that, during '87, during the commercial property crash, you and your brother founded London Regional Properties. And everyone else was running for the exits. You guys had conviction to go up and buy a property in a brand new industry. How did you take advantage of a situation with-- you had some capital from the business, but how did you really take that? We didn't have a huge amount of capital. But at the time, we found one or two lenders that were prepared to back us who believed that long-term we would be right and that prices would recover. And property, at the end of the day, to some extent is a leverage game. If you can't put leverage in, you can't make really serious returns on property. And so if you had no leverage, we couldn't have done it. But at the time, we found one or two smaller banks that were prepared to back us, giving us decent amount of loan to buy distressed properties. And then, of course, your equity multiplies very, very quickly if you've got debt. And what gave you the conviction as someone who wasn't necessarily in the business before and new to it to go the completely opposite way that everyone else was going? My brother was at the time-- I think he started at Richard Ellis before it was CBRE-- and he'd been in the investment market. He'd seen the values. And we could just see distress. And when you see things where prices have halved, then I think that you look at it and you think, well, there's something wrong here. Either the market is going to collapse completely. And tenant demands going to dry up. Or you think it's going to come back. And we were fairly convinced it would come back. And things were mispriced because of panic selling, really. And through the high level, I'd love for you to walk me through the evolution of London Regional Properties from '87 until today. What's been the biggest milestones or crises that most shaped what you guys are today? I think one of our big businesses was selling the sale and leaseback model. And we did many transactions without going into details. But we did most of the big sale and leasebacks in Europe for several years. So that was a great business for us. We had what we called at the time, triple net leases and mission critical real estate very often, where the business took place in the asset. Um, so there were things like that. was a strategy we got into hotels quite early and we started to understand operational risk quite early. We did a bunch of deals, PPP deals with the government. Again, we understood that transfer of risk when institutions weren't prepared to do those kind of deals because they weren't institutional. And I think you have to remember the backdrop of all this was, but real estate in those days was a business controlled by pension funds, large public property companies, and PE was minimal. There weren't really any big PE funds in real estate in those days. And so if it wasn't institutional, like sale and lease backs or hotels or whatever, the big public companies and the institutions, the life funds, all those sort of things, were just not interested. And so you could create that, you could find value very easily. Now, every niche is being picked over by a fund who's deploying usually other people's money, desperate to get money out of the door and fees for AUM. And it's not clear, you know, with all of them that they're going to be successful. Some will be very successful. Others won't. And how was your approach to making money developed over time as that kind of evolved? It was just we were contraceptical. If you did nothing else, but buy when the institutions were selling and sell when they were buying, you could make a very good living. It wasn't much more complicated than that. And then it evolved into buying niche things that they didn't, that they weren't interested in. As I said, it could have been hotels. It could have been doing a sale and lease back of a, I don't know, a sports club or a cinema or a petrol station or something. They didn't get it. They just said that's not institutional. It doesn't fit into our bucket. Now, of course, it's very different because private equity, VC, whatever you want to call it, you know, they're looking for returns and they'll buy that stuff. So the market's much more crowded than it was. And it's harder to differentiate yourself. And one of those specific hotel deals was the Fairmont Monte Carlo, which you guys bought, 2007, one of the more iconic hotels in the world. I'd love for you to tell me the story behind that purchase and kind of how you've built it over the years. It's not a great deal to say about it. You know, it was owned by a consortium that included Prince, his name is Saudi Prince. The Monaco one or? Yeah, Monaco. No, no, no, no, no, no, no, the consortium that owned it was the Saudi Prince. NBS? No, no, no, no, no, no, no, no, no, no, no. I'll will lead. Oh, yes. I'll lead Ben Talao. So he owned it in a consortium with Fairmont and some private equity. Anyway, they rebranded it to Fairmont. And they just wanted to resell it because it was a short-term play for them. A long-term play for us. So we bought it from them. There was no great secret. We spent recently a lot of money refurbishing the hotel that's doing well. And we're very happy with it. And I live in Monaco and it's nice to own a big hotel here. It's one of the biggest in this part of the Med. And you just mentioned something that the Saudis were trading versus you guys kind of had long-term approach to. And you've talked about distinguishing between those two kinds of assets for yourself. How do you think about that split and what moves something from like one category to another? I think as we develop our business, we have in my mind, not physically, but in my mind, we have two pockets. And the first pocket is deals that we buy, which we don't think we want to own very long term. But we think that there's a way to turn them around and resell them or sell them in a few years and make a profit. And that's kind of trading stock. And that's what most property companies do. But given the fact that we've been reasonably successful, we look at some assets as assets for our family office, for our kids, for the future, which are very long-term. And we can take much lower returns on those because we're in it for the very long-term. And it doesn't really matter whether the income is up or down over the next five years. Because you're looking at capital value, I'm just going to go and sit here. It's a bit cornerstone. You're looking at capital value appreciation or safe haven assets. So I think that if we ended up with for our family office, a bunch of safe haven prime assets, that's a good place to be. Before we go back to the episode, I want to take a short break to talk about my sponsor, Row. The generating alpha podcast is presented by Row, the all-in-one banking platform for startups. Thousands of startups like Braplexity, Product Tunts, and more use Row. You get everything you need to manage your startups cash, fast banking setup, cards with a 2% cashback, a yield that turns company cash into extra runway. All super important in the early days of launching. But the thing founders really love about Row is their team. They're obsessed with helping founders disrupt the status quo and will go to the end of the earth's health and the do so. And exclusively for generating alpha podcast listeners and viewers, you'll get a $1,500 statement credit plus a ton of exclusive perks when you manage your company cash with Row. Terms and conditions apply. To learn more, visit rho.co/generatingalpha. Row is a fintech, not a bank. Checking and card services provided by Webster Bank, member of FDIC. See your reward terms for details. Thank you and back to the episode. And over time, you've kept the firm, if I'm correct entirely within family control, no outside capital nearly four decades. Was that delivered from the start or did it just happen that way? No, it happened that way. I think there were many times when we wanted to get external capital because we saw deals that were really, really interesting. And every time we tried, because we were a bit controversial or a bit ahead of the curve, people looked at those deals and said, no, no, no, those are the wrong things. We could never raise third-party capital in those days. So we had to do it ourselves. So we pushed it and we reinvested a lot. We saved up. You know, we were very careful with what we did. And we did deals ourselves and we made decent money out of doing it. But in many cases, we would have taken third-party investors in had they believed in it, but they didn't believe in it. And then they would come back six months after we'd done the deal and say, oh, can we look at that now and we'd say, no, we don't. That was a story of what happened. It wasn't that we didn't want to, we couldn't. We were two entrepreneurial, I think. It's a weird thing to say, but it's very much was the case. I mean, now we can, but we've got our own capital. It's not to say that we won't partner up with institutional capital on some deals. And I think that's the next phase for us. We've built this amazing platform or Cody that works for us. It runs our hotel businesses, built a sensational hotel management platform, which is probably best in class. And we now will partner perhaps with more institutional capital on some of the very big deals. And we'll be the operating partner, but uniquely for an operating partner, we're prepared to put serious equity into a deal. And that could be 20, 30, 50%, whereas most equity, most operating partners want fees, fees, fees, and don't put any equity in. I was saying you just mentioned operating properties. And you guys operate, if I'm correct, most of your property is directly, I mean, just just just what that, what is owning and operating, give you rather than just owning passively? It gives us a much, much better control over the PNL. It gives us control of the staff, the quality of the asset. It means that we haven't got an operating company whose aims may diverge from that of the owner. In other words, you know, what a big hotel management company, no names, is to maximize the value for its shareholders to maximize its fees, not necessarily to maximize the bottom line for the hotel owner. So I felt that in many cases, the hotel owner was coming second, or even third after the guest services. And we've had instances of that where it's not, the whole hotel management contract model is not really aligned with ownership very well. And therefore, if you can own it, keep flexibility, then you can decide much more quickly how you want to operate it, how you want to change things, you can be more nimble, you can be more flexible on bringing in food and beverage brands, for example, or changing the staff or managing it differently, whereas if you're part of a big, big, you know, 1000 hotel plus chain, it's very hard to be nimble and change things. And let's say you buy a franchise hotel and they hand you a cap excellence that's inconsistent with what you guys want. How do you navigate that tension? You don't buy it. Yeah. And so what happens is the seller is getting screwed because it's going to come pound for pound off his pricing. Yeah. And your ability to manage that pip depends on your relationship with the brand. So if I own 50 Marriots, I've got a better chance of negotiating something sensible, then if I've got two Marriots or Hilton's or whatever. And so that capex is it's a big issue that pip because, you know, I understand from the brand's perspective, there's their checklist, but it's not always consistent with the business model of that individual hotel. And, you know, it needs to be proportional and isn't always. It can be. And in some cases, it's not. And that's it can be a big detractor of value. And you mentioned that that was part of the kind of diligence process. What is the entire diligence process for you guys for a high level? What are some key things you evaluate? And we evaluate the strength of the market. You know, what are the drivers? How much is business? How much is leisure? How much is seasonal? We evaluate what's the pipeline of new product coming into the market? What's the five year look forward and look back on occupancy? Can we operate it? We look at what's the. How's the ability to hire and fire staff? The flexibility of labor? Can we get labor? If we got labor that's wrong, can we move people out? Can we swap people get read? How strong are the unions? How. Helpful of the unions. In some cases, they're very helpful. In other cases, they're very unhelpful. We look at what the economic forecast is like for that country or city. We look at key drivers like conference centers, airports, arenas, all those sort of things. We've seen many things that you've got to take into account. You know, we've seen lots of things. We saw one the other day where it was an airport at a capital city hotel in Europe, but not a major cap, not a major city. It was a sort of a B location for the airport, but it was fairly solid and it was great until we found out there was a 500 room terminal linked hotel opening within three years in a small market. And which was the end of that deal. And you've done deals across different kind of sectors in real estate, so retail hospitality, but you've also done some tech deals and things kind of across the place. Is there a unifying lens in which you see opportunity or do you kind of look at each opportunity in and of itself? We've always been opportunistic. People bring things to us and we've got a gut. My brother, I usually has a gut feeling whether it's something that you want to invest. And of course, what you're looking at in these investments is, you know, risk return. So, you know, if you can find something that's limited risk with a decent return, you're going to do it. But if the risk returns scenario is wrong, and that's what happens in real estate in some markets. You find out there's huge competition. There's very little margin and there's downside. And so you have to learn to sit on your hands in those points and say, this market is not for me. I'll either find another market or I'll just stay out completely. If you're not seeing pricing where you can make money, because there's always risk. And on the topic of risk, how is your relationship with risk evolved from 87 until now? Have you become more comfortable taking risks because it stayed the same where you always is comfortable? No, I think where we've got really good properties, be they hotel or commercial. If they are not least long term or they've not got long term income, we're much more capable now or more sophisticated at taking a view about either relenting or performance going forward. Whereas when we first started with hotels, we started out with leases because we couldn't really understand the operational risk. Now we understand the operational risk. We're happy to buy something that's unbranded or untried. We're happy to buy an office building if it's got different lease lengths because if we think that it's fundamentally a great play, we'll buy it. So we've got more sophisticated underwriting things. When we started, it was all about getting long leases. And one of your more unique projects right now is Panama Pacifico. How does a firm like you guys end up developing $700 million worth of real estate in Central America? It's probably about $2 billion or $3 billion by the time it's finished, but there's a couple of things. But when I have a great partner who's been my partner in it for getting on for 15 years, who's been incredibly supportive and has great contacts locally. So that's a big plus having a good partner. And we've built a proper management team there. We don't try and manage it remotely from London or from any or New York. We believe in Panama as a destination. We believe in it as a good place to business, transparent, decent rule of law, US dollar, and a beneficiary for from what I would call unstable countries in the neighborhood. So long term, we think everything aligns for Panama. We've had our challenges there with infrastructure being delivered late and things, but that's normal for that part of the world. But it's a sensational project, an amazing land bank. And it will do very well for the foreseeable future. So very happy with that. But it's not something that everybody would have done. For sure. And to that point, you've mentioned the idea of being opportunistic many times. How do you make sure this firm stays opportunistic is willing to adapt and is willing to take risk rather than stay complacent with the foundation you guys have built up now. That's a very good question. I think we have to employ people that are curious, that are motivated to do interesting things. I think a part, you know, it's picking your right management team. And then I think being directly involved every day in the business, which I am, and my brother is, we speak to our senior management every day. We send ideas. We bombard them with clips from newspapers or things that we've heard about or chatting to people. So it's staying, how do you stay relevant? You read, you meet people, you think about stuff. And having a great management team is probably enable us to look around a little bit more for ideas. And are you currently sitting on your hands and property? Are you currently going out and buying what's your view on the market and right now? Neutral to slightly negative in general. You guys to keep buying? I think that if we want to buy, I think that if I have, I have one or two convictions that I'm looking at at the moment, which I would want to do in a fairly big way. I haven't pulled the trigger on anything right now. We're buying individual assets here and there, but not enough to really move the needle. So we're buying ones and twos, be it commercial real estate, be it hotels, opportunistically, we're buying one here, one there, one here, one there. In order to do something significant, we'd have to find something of scale that we could roll out. Let's say we decided that we wanted to buy for arguments, say warehousing in Eastern Europe. We would build a team and try and do it in a very big way very quickly. But today, do I have conviction of any specific asset type or market, not really? There are headwinds everywhere right now and so it's time to be a bit cautious. I have one final question for you because we're approaching any of our time that I ask every single one of my guests. I'm 16 today. If you had to give one piece of advice to a 16 year old, whether that be career advice, life advice, someone even gave me romantic advice, what would it be? Let's stick to the business side. We'll be here a long time if I want to give you personal relationship advice, and I'm not sure I'm the best person to do that. I think someone told me a while ago which is really interesting, luck is when you see an opportunity and grab it. So find things that you like doing that you enjoy doing. Don't do things for money, do things which are exciting where you're very happy to spend 20 hours a day working on something because it's really great and exciting. Don't worry about the return short term. Do what is your passion because you will end up being good at something which is your passion. If it's not your passion you're doing it for money. It's very unlikely you'll be successful or you'll get burnt out very quickly. Do it, go down the route and then be open to opportunities and when you see an opportunity again risk return is it a high return and a lowest risk jump on it. Do it, go for it. Well it's been a pleasure having you on some great advice and thanks for taking the time. I hope late but good to see you and good luck with everything. Of course really appreciate it and have a nice day. Bye.