Friday, December 30, 2011

McCarthy & Stone: Bad timing in property deals

McCarthy & Stone is a privately owned company which builds retirement homes. A news item in the FT today McCarthy back to profit after housing crash   tells another interesting story of mis-timing in the property market (see this blog for April 5th, 2011 about Taylor Wimpey). 

Dorset Business (March 2009) reported that in 2005, the business traded at a value of under £600m on the stock market when during that “boom time” it was selling 2,000 units a year. It was taken into private ownership for £1.1bn in 2006 by a consortium led by HBOS which included property investors Simon and David Reuben and Sir Tom Hunter (Josephine Moulds, Daily Telegraph  29 Jan 2007).

In 2007 reported that HBOS was looking to sell most of its stake in McCarthy & Stone just five months after the above £1.1bn deal. HBOS needed the cash to buy housebuilder Crest Nicholson in early 2007. This was at about the peak of the property boom and whilst good timing for the sellers of McC & S and CN shows that some of the big shots on the buying side had not read or heeded what Fred Harrison with his analysis of the 18-year property cycle had written: such as The Power in the Land 1983; Boom & Bust 2005; Ricardo's Law 2006. 

McC & S was lumbered with massive debt taken on at the time of the 2006 deal.  They had to stop construction for a year from mid-2008. Michael Ball who in 2009 was McC&S's Chief Financial Officer is reported in the FT as saying at the time: 'in 2006 the group had not expected such a severe housing crisis' . Click on the link for a review on Fred Harrison's later book 2010 The Inquest . Essential reading for politicians and property people. 
posted by Charles Bazlinton. The Free Lunch - Fairness with Freedom which deals with land and property issues 

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