Foxtons said to be teetering at the abyss


impressive that the founder of Foxtons sold out last year for a rather
large sum.

woe to those who buy at the top of the market.




http://www.guardian.co.uk/business/2008/oct/05/housing.market.foxtons


A house of cards starts to fall

The property collapse could drag down banks, builders - and even the
country's hippest estate agent, writes Nick Mathiason

* Nick Mathiason
* The Observer,
* Sunday October 5 2008

It is the ultimate entrepreneurs' face-off: The Apprentice versus
Dragons' Den. At Cavendish Square in the heart of London's West End, the
sale of a £5.5m building owned by the hard-pressed Royal Bank of Scotland
attracted 100 viewings, including James Caan and two other Dragons, and
Sir Alan Sugar.

How come? Well, West End real estate has not been far behind gold as a
safe haven for those with cash. But the other reason is perhaps more
pertinent and gives a clue to the way savvy business types operate: the
Cavendish Square asking price was significantly reduced to encourage
interest.

Slapping a discounted asking price on a property is just about the only
tactic that generates a viewing in the bombed-out property and house-
building sector. With mortgage approvals down 95 per cent according to
the latest Council of Mortgage Lenders figures, it emerged last week that
Barratt, the beleaguered volume house-builder, is offering discounts of
up to 43 per cent in group purchases of properties.

Once a pillar of the unprecedented 15-year UK boom, property's calamitous
fall threatens to bring the whole economic house down. Estate agents,
property companies and house-builders are all in the firing line.

Estate agent Hamptons International says house prices have fallen 20 per
cent from their peak last year. Vacancy rates for City offices increased
46 per cent in the past year according to property consultant NB Real
Estate, as tenants went out of business and new developments failed to
fill up. City office rents have fallen 17 per cent from their peak and
tens of thousands of jobs across the property and building sectors have
been axed, with thousands more to come.

Last Wednesday, Oakdene Homes lost 37 per cent of its value after the
firm became the first quoted house-builder to breach its debt covenants.
The builder, which focuses on the south east, is using a temporary bank
lifeline.

Many private developers have already breached bank terms and gone under
and Crest Nicholson, the house-builder jointly owned by HBOS and Scottish
tycoon Sir Tom Hunter, could be about to have covenant problems. Many of
HBOS's property and house-building investments have fallen in value and
are trading badly. Taylor Wimpey, the UK's biggest builder, is also at
serious risk of breaching. Agreement on refinancing the firm hasn't been
reached but banks are being 'supportive' and 'constructive', say those
close to the situation.

Of course, banks are reluctant to call in their money now because non-
performing loans will make their disastrous balance sheets look even
worse. Many suspect that vital decisions will be postponed until the next
financial year.

In the UK alone, banks have lent £232bn for commercial property purchase
- an increase of more than 300 per cent in seven years. In many
instances, the loans are now worth more than the properties.

So long as landlords receive rents, banks will be happy. The problems
will come if, as expected, there are a large number of tenant defaults in
the next six months.

The Irish banking system is particularly exposed to this scenario. One
property tycoon active across the UK and Ireland says: 'Employees shelled
out [the banks'] money because they were incentivised to do so. When I
talked about how I was going to pay the bank back, they didn't give a
monkey's. They didn't care. That was a breach of bank licence.'

Some observers suggest Anglo Irish - a bank that lent vast sums on
property deals in the UK and Ireland - has been trading close to
insolvency. There are suggestions that Anglo Irish will be merged with
another Irish institution and recapitalised by the government.

Amid the carnage, there are plenty of cash-rich investors waiting for the
crisis to worsen before Hoovering up strategic assets. Among them are
Tony Pidgley, the self-made boss of quoted housebuilder Berkeley Group,
who sold large land holdings in the north two years ago and is sitting on
a cash pile. Gerald Ronson, the veteran property tycoon, and Jamie
Ritblat, the son of British Land's Sir John Ritblat, are also cash-rich.
Sovereign wealth funds, too, will buy bricks, mortar and land in the next
few months.

The trigger could be a sustained lowering of interest rates by central
bankers, which would make property yields look relatively attractive. But
that could be a way off. In the meantime, all the talk is about which
tycoon or company is going 'pop'.

Among the most high-profile companies facing severe difficulties is
Foxtons, the estate agent based in the south east of England. With
employees zipping through London's streets in racing-green Minis and
working out of modern offices with giant plasma television screens, no
other company epitomises the frenetic property bull market better.

Founded in 1981 by Jon Hunt, the firm expanded rapidly, building a
business by taking an aggressive stance on house price valuations and
commissions. It was a formula that worked well. Profits poured in and
growth seemed inexorable. For Hunt, a clipped 55-year-old, payday arrived
in May 2007 when BC Partners, one of the country's most respected private
equity firms, paid £360m for the 23-branch business. A large share of
that went to Hunt, who, not surprisingly, then walked away.

Even then, at the height of the boom, eyebrows were raised at the price
BC had paid. Today, the deal looks like an albatross and may come to be
regarded be regarded as the beginning of the end of private equity's
debt-fuelled boom.

Foxtons has to repay £23m per month to meet its obligations. The business
was stress-tested by BC prior to its acquisition but the scenario
involved a fall in transactions of 30 per cent. Now that transactions
have all but dried up, the business is in trouble, shedding staff and
cutting advertising.

Today, BC Partners is locked in talks with the bankers who funded the
deal by putting up more than £250m.

Whether Foxtons will survive the coming year is very much open to debate.
The scant comfort for its backers is that they are far from being alone.
.