Profile: Burns and Silver

15 March 2010

The Daily Telegraph

AROUND 18,000 investors, agents and bankers from the commercial property industry will flock to Cannes this week to ponder how to rebuild portfolios and businesses hammered by the financial crisis.

But two of the industry's shrewdest, wisest and most active minds will not be in the South of France. John Burns and Simon Silver have, over the past 25 years, turned Derwent London from £1.5m cash shell into one of the biggest property companies in the UK, with a market value of £1.35bn.

This week the pair, developers of some of the West End's most eye-catching buildings, will report annual results to investors with their standing as high as ever.

During the downturn, which has seen UK property values fall 44pc in two years, Derwent is the only FTSE 350 property company not to have gone cap in hand to shareholders for hundreds of millions of new equity.

The company's health means that while Mipim hosts bruised and cashstrapped investors, Burns and Silver, step-brothers as well as business partners, will report that they have around £350m to spend and are pushing ahead with plans for major new redevelopment programmes at Hampstead Road and Old Street roundabout in London.

Burns, the chief executive, and Silver, the development director, are self-confessed "property people".

While commercial mortgage-backed securities, financial engineering and chasing yields will be discussed in Cannes, the Derwent pair are avid disciples of the traditional industry values of building the right property for the right people at the right time. "Wherever you go you look at buildings, even on holiday," Silver says. "It's because we love it."

Experience, explains Burns, who will be 66 this year, has been "paramount" in negotiating the past two years.

"We've no need to take research on," he says. "We know what rents we can get and we know what buildings we can have. It's really just knowing your market."

Silver adds: "There is a joke in the architectural industry that architects mature at 70. And in property maybe people should look at the view that when you are buccaneering at 35, you haven't always seen it."

Burns and Silver have created a niche for themselves in converting tired and derelict buildings in offbeat central London locations, mainly the West End, into creative new homes for businesses such as Saatchi & Saatchi.

The Tea Building, for example, on Shoreditch High Street, is the quirky base of advertising agency Mother and trendy bar Shoreditch House. On the roof is a pool terrace that is only recognisable as being in the heart of the City because of the towering shadows of the Gherkin, Tower 42 and Broadgate alongside.

Despite the recession, Derwent did 100 lettings last year and Burns proudly states: "We are the company that takes companies to where they didn't want to go originally."

That Derwent was able to avoid a rights issue and still push ahead with developments is even more striking because in early 2007 Burns and Silver struck the biggest deal of their career and one of the British property industry's largest ever takeovers, albeit an allpaper transaction, of £900m for London Merchant Securities (LMS).

Subsequently avoiding a cash-call as values crashed in the following two years owes much to the mass sell-off of assets that followed the deal. Derwent offloaded £300m within a year of the transaction and even in 2009, £200m was disposed of.

"We didn't like it when we saw rents go from ££100 per sq ft to £130," Silver says of the 2007 pre-crash market. "There were no £110s or £120s. It was a massive leap. There is something that just rings a bell in your head."

Derwent's rivals in the West End, Great Portland Estates and Shaftesbury, both raised money for offensive purposes in 2009, but Burns says that his company avoided one because Derwent had "done our deal".

"It was a paper deal and the dilution was 3-4pc, which was nothing in comparison to all the rights issues of 40pc," he explains.

"We have been able to carry on with our capital expenditure. We haven't bought a lot - we've bought bolt-ons for development sites - not because we're not ambitious, just because we haven't seen the value that we are seeing in the portfolio."

Although their passion for property appears undiminished, there is an air of contentment between Burns and Silver about their present status. They appear to have fought off City concerns about whether they overpaid for LMS and when asked what they are most proud of, at the same time Burns and Silver reply: "Reputation."

The simultaneous response is symptomatic of the dynamics between the pair, which are more akin to brothers than business partners. On the surface, they can appear an odd couple: Burns a broad-shouldered, disheartened Tottenham fan with a focus on the corporate side, Silver, a slender, fervent Arsenal supporter with a creative love of architecture - but together they strike a powerful equilibrium.

As passionate Londoners as well as property men, they have little desire to branch out from the success enjoyed from redeveloping in the West End, hence their avoidance of Mipim.

After FTSE 100 company Liberty International unveiled demerger plans, specialisation in property is becoming more in vogue than ever, but Derwent and their West End rivals have done it for years.

"You have got to know your markets," Burns restates. "I can remember once, years ago when we started, we bought a retail warehouse in Canterbury."

"It was a mistake," Silver remarks knowingly.

"It wasn't a mistake actually it was a disaster," Burns interjects "You and I walked around the outside of it with a tape," Silver laughs.

"Talk about hands on, we measured it ourselves," Burns adds, the laughter growing.

"We didn't know how to measure probably. We got the worst decision on a rent review I've ever known in my life, and I said: 'That's the best lesson we've learnt. That's it, we know we are going to focus.'" Burns and Silver look back with fondness at their naivety then, but the passion for property that drove the start of their careers still burns strongly. " We take companies to where they didn't want to go originally "JOHN BURNS

Simon Silver, left, and John Burns have turned Derwent into one of the UK's biggest property groups.

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