The LCN Property Interview: Ben Aspell

Ben Aspell talks to LCN Property about Custodian Capital's business model, how it has evolved over the last twenty years, and his view of the future.

Ben Aspell is Business Development Manager at Custodian Capital. The role currently focuses on sourcing, establishing, managing and winding up unregulated collective investment schemes.

How did you get into property investment?

I studied urban property surveying at Northumbria University. Then I had various sales roles in the property sector, most notably at Knight Frank, where I worked on their purpose-built private sector student accommodation team. I joined Mattioli Woods in 2011. (Custodian Capital is a wholly owned subsidiary of Mattioli Woods.)

 

What exactly does Custodian Capital do?

It was born from an initiative in 2002 for Mattioli Wood’s pension scheme clients, who were very keen to access commercial property, but didn’t have the three or four million pounds required to buy a property with a good tenant on a long lease in a good location.

So Mattioli Woods came up with a syndicated scheme: they found properties that had all the right qualities and then went to investors, who initially put in £100,000 each. Investors got a direct proportion of the rent, and a direct proportion of any capital appreciation (or indeed any depreciation).

That initiative was then pushed out across the wider group but for more like £10,000 – £15,000 per investment. At the time the only other way to invest in property, really, was through open-ended funds. And those funds tend not to give you the kind of returns you might hope for from a property investment.

And then in late 2009,  Richard Shepherd Cross joined the Mattioli Woods Group, with a brief to grow and externalise that proposition. Shortly after joining, Richard established Custodian Capital Limited, a wholly owned subsidiary of Mattioli Woods, to not only service their clients but also engage with the wider wealth management sector. I joined shortly afterwards to help with business development. The role, in the main, was to sell that proposition to external wealth managers.

Then the Financial Conduct Authority (FCA’s) regulations changed so you could only promote to high-net-worth and sophisticated investors, whereas beforehand it was OK if the investor was advised and if it was appropriate for them. So that limited the amount of people that were able to invest in the syndicate form.

At this point we had £100 million of gross assets and 76 syndicates – around 1,500 clients. The best option was to transfer our funds into a Real Estate Investment Trust (REIT), which we did in 2014. (It’s effectively a closed-ended property fund in the REIT tax wrapper.) At the same time we went to the public market and raised another £55 million and paid down all the debt.

So we effectively had no debt across the business, we had £100 million worth of assets, and we had £35 million to then go and deploy on new opportunities. My role then changed: spending a lot of time talking to fund managers, raising funds for what was now called Custodian REIT.

 

Has the business changed since then?

Well, there were 50 properties when we made the transfer. There are now 160 properties and the market cap is somewhere between £450 million and £500 million, depending on the share price. Gross assets of about £670 million. So it’s moved on substantially since 2014.

We still had that same structure though. And we felt that, given that we’ve got permissions to establish, operate and wind up these schemes, it’d be a real shame to not use them. So we put together what we call the Private Investors Club, which is made up of around 1,000 to 1,500 high-net-worth and sophisticated investors of Mattioli Woods.

The Private Investors Club focuses on higher risk but potentially higher yielding investments, generally between one and five years in duration. Quite often it’s property development, rather than buying existing assets with a tenant. About 80% of it is loans and about 20% is equity.

We have about £120 million of those deals across 35 separate investments, with yields ranging from about 8% to over 20%, depending on the level of security. If it’s first charge lending with low loan-to-value, it’ll be nearer to 8%. If it’s a speculative equity investment, you’re looking for 15%+.

 

What is Custodian Capital’s core pitch to potential investors?

Well, unless someone is a high-net-worth or sophisticated investor, you can’t talk to them about it at all. Most of my current role is business development internally: liaison with over 100 internal consultants at Mattioli Woods.

We do a bit of external business development, to family offices and the like, but due to the restrictions it’s difficult. With the size of the team and the demand in-house, it’s very difficult to have enough product to service external investors. It’s something we’re very much gearing up to, but at the moment our focus is on satisfying that demand in house.

But it’s well received. When you talk to people externally about what we do, they’re usually very interested. There are not so many investment opportunities with a relatively low threshold of £25,000. But we can offer that because we have a broad client base.

And a lot of people like the shorter time horizon too, generally two to five years. With longer than five years, people tend to get a little bit more worried about liquidity.

 

So you’ve got plenty of people wanting to be involved, and the limiting factor is finding good opportunities?

There are good opportunities out there. In the area that we’re dealing with it is very difficult to know at an early stage what’s going to work and what’s not going to work. I’m not going to lie: we’ve had some that haven’t gone to plan and one in particular that’s gone horrifically wrong, but we’ve had quite a few that have gone very well.

You can do as much due diligence as you want, but you can’t account for a pandemic or Brexit, for example. No-one has a crystal ball, so filtering out all of those good deals is not easy.

The better deals have probably been in the industrial development sector. Everything has moved forward though, and the profit margins are being squeezed by rising land values. And, of course, the cost of materials is also going up. Investing in this sector two years ago or so could prove very lucrative, and we’ve got a couple of schemes that are going extremely well. But trying to do a new scheme now would be very difficult, simply because landowners have pushed up the value of their land and costs and inflation seem to be at an all-time high.

 

How bullish are you about the next few years?

The housing market is constantly in the press spotlight, with people asking whether it’s about to go pop. That’s been the case for years. At the end of the day, there is a dramatic shortage of housing in this country. And if sales aren’t happening, then there’s always letting. So, it’s all about being fleet of foot.

We’re looking at a couple of schemes at the moment which are more on the letting side. Developing out PRS [Private Rented Sector] schemes.

We’re looking at some new build schemes too: lending from a first charge position. with low loan-to-values of about 65%, which I think is pretty safe. The typical loan period from start to finish is 15 months, so the residential market would have to drop 35% in that time, which is pretty unusual. It certainly hasn’t happened in my lifetime. And even in that scenario, you could potentially build the assets out and then let them, so you’re not crystallising that loss.

I think there is still plenty of opportunity.

 

So, for Custodian Capital to be successful, you’ve got to be adaptable?

Yes. There is definitely not a template. Everything is very diverse, and we’re trying to give our investors club diverse opportunities. If one deal is the residential sector, we wouldn’t want to do another residential one straight after. We want to do student accommodation, or industrial, or self-storage… something a bit different. So, we’re giving investors a really diverse platform of investments. And some are loans, some are equity. There’s a broad mix.

And bear in mind that in a typical pension scheme, 85% of it is probably in fully regulated products, giving an income of about 4% or 5%. It’s tucked away nicely in a fairly low-risk environment. The investors club sits within the other 15%. A bit more risk for potentially a higher return. And the strategy would probably be something like £25k into six investments. So, they’ve got a nice basket of deals and if, for example, the residential market isn’t working particularly well, their investment returns might be picked up by the success of the industrial market, or self-storage, or lending into the agricultural sector. You would hope that some of the other sectors pick up that deficit.

Low correlation is the other thing. It’s not correlated to main markets. The stock market can go all over the shop, and has done since the pandemic kicked in. And then prior to that, it was Brexit… there can be real shocks across the market, whereas these investments have very little correlation to any of those. So, you don’t have that volatility that you would expect in the equity market.

 

What career achievement are you most proud of?

I think setting up the Private Investors Club, and having it become a core strategy for the advisers within Mattioli Woods. That is certainly something that I’m very proud of. And here we are, seven or eight years later and still going well.

There are certain highlights within the portfolio too, particularly deals that have gone very well that we work very hard on and have a great result. Some that haven’t: it takes a great deal of time and work on those too. Undoubtedly more, in fact! I don’t think people quite understand how much effort goes in.

 

What would be your ideal job if you didn’t work in property?

I’ve always been quite an outdoor person. I don’t know exactly what job I would do to be outdoors.

On the other hand, I certainly enjoy financial services. I don’t know whether I’d be a wealth manager in another life, or a discretionary fund manager, something along those lines. I quite enjoy that side of the business.

I suppose it depends on how much it’s about having a comfortable lifestyle. A difficult balance.

 

What is your biggest extravagance?

I’m not a particularly extravagant person. We’ve got two small children now, so we’re fairly low key. We like to go to Portugal most years. I like skiing. My in-laws like cruises, so I get taken on a few cruises, some more extravagant than others.

 

What are your hobbies?

I play a lot of sports. I’m still playing rugby, at full back. Golf. I stopped playing cricket a couple of years ago, because with two small children it’s a little unfair, for now, to finish work on a Friday and disappear all day Saturday to play cricket.

 

What is the full back’s role in the team?

You’re doing a lot of covering at the back, so when people chip over or the kicks come over, you have to field the kicks and decide whether to run back or kick back for territory. What I like about it is that my two strengths are running and kicking, and at full back you have space and time. Whereas when you’re playing at centre, for example, it’s very close contact. Before you know it, the opposition is on you. At full back you can see the pitch in front of you, you can work out your angles to kick, how to connect up with someone else, decide whether to run back towards the pack… all of that sort of stuff. So I suppose it’s last line of defence, but potentially first line of attack.

 

How would you describe yourself in three words?

Sociable, energetic, honest.

 

What actor should play in the movie of your life story?

Bradley Cooper.

 

Is he an actor that you particularly like?

My wife does!

 

Who would be your guests at your dream dinner party?

Johnny Wilkinson. I knew him vaguely when I was at university, and that was around the time that he came into the limelight. Since then, he’s obviously had a huge career in rugby, and a very professional career. Actually, to complement that, let’s invite someone from the pre-professional era as well. Will Carling, maybe, Jerry Guscott… Martin Bayfield was very good as well. He’s not quite as prolific as those two, but he’s a very good speaker so he’d keep the dinner party alive. I think he’d have some great stories.

Winston Churchill. I think he would be a good person to meet. Julius Caesar. A very different part of history. You can never really know exactly what happened in the past, can you? It’s difficult to imagine how times were.

And maybe Michael McIntyre. He’d liven it up a bit.

 

What advice would you give your younger self?

Take every opportunity that comes. Don’t wait: just grab every opportunity at the time when it’s presented to you. Quite often you sit back and think that another opportunity like that will come along, and you miss something. Whether it’s applying for a job or it’s playing for a sports team or whatever it may be. You never know what might have happened, that you’ve missed out on. So just: “Grasp every opportunity when you can, and live life to the full.”

 


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