23 April 2004 – Property Week

As the Reuben brothers-financed buyout of their old friend Elliott Bernerd’s Chelsfield completes, Helen Thomas investigates Simon and David Reuben’s business strategy.

They feature on every rich list with a wealth estimated at over £2bn. They own more than 100 buildings and mix with the wealthiest elite of the UK property market. And earlier this month they teamed up with their old acquaintance Elliott Bernerd to take Chelsfield private.But little is known about the activities and interests of Simon and David Reuben and their UK vehicle Motcomb Estates. Property Week has spoken to the brothers’ business associates to paint one of the most comprehensive pictures yet of their property empire and dealings.

The brothers had a key role in the success of Bernerd’s buyout, which last week went unconditional with acceptances of 90.5%. The Reubens invested £150m of equity and a further £100m in debt and mezzanine funding, which will give them 34.5% of the privatised company.

Chelsfield chairman Bernerd says: ‘Simon has been very supportive, not just financially but intellectually, throughout the whole process. It is hard to assess any one person’s contribution, but his has been very welcome and extremely helpful.’

First collaboration

For the brothers the deal is a watershed, signaling their entry into corporate property and development, notably taking on massive retail schemes at White City and Stratford City. Not only is it the Reubens’ first corporate property deal, it is also their first business collaboration with Bernerd.
‘I’ve known them bother for 39 years,’ says Bernerd. ‘Simon and I go back a long time but we’d never done any business together. When I announced the buyout we started to talk and one thing led to another.’

But Motcomb director Robin Turner, who has worked with the brothers since 1965, says retail is the rationale behind the deal.

‘One thing that the Reubens like is retail and one of the things Chelsfield has is a lot of retail schemes, especially when they join up with Stannifer,’ he says, adding that the planned sales of other investments will mean Chelsfield becoming much more of a retail company than it is at the moment. This strategy may not include internet hosting business Global Switch, 23% of which was sold to Morley Fund Management last year. ‘The only thing we’re not familiar with is Global Switch,’ concedes Turner, admitting that the future of the business will be under review. ‘But we are familiarising ourselves with it and think it will recover.’

The billionaire brothers’ involvement in property and association with many of today’s property heavyweights such as Bernerd, the Dellals (father and son) and the Tchenquiz brothers goes back decades.

Sons of Iraqi Jews who had moved to India, the brothers were born in Bombay in the 1940’d. Simon is the younger by three years and will turn 60 this May. The family moved to the UK in the 1950’s: David began working in the metals industry while Simon imported carpets, then bought and turned around J Holdsworth, England’s oldest carpet maker.

He used the profits to enter property in 1970 with the acquisition of the Pheasantry site on the King’s Road and a number of shops in Walton Street, Knightsbridge, before selling his company Devereux to Bovis in 1972. The two came together in the late 1970s to pursue Trans-World, a metals-trading business set up by David in 1977. In the 1990s they moved to seize the post-perestrolka opportunities in Russia, making their fortune funding and later investing in the country’s aluminium smelting plants before selling the company to Chelsea Football club owner Roman Abramovich in 2000.

Although Trans-World took a front seat in this period, the interest in property never wavered. Between 1972 and 1990 their investments grew with opportunistic buys, particularly in retail.

Today Simon is based in Monaco and heads the brothers’ property interests in which David takes a back seat. But then, ‘Simon was always property’ says Rotch Property Group founder Robert Tchenguiz.

New departure

Yet their involvement in the Chelsfield buyout is a new departure for the brother’s involvement in UK property. The brothers have previously eyed corporate buyouts, reportedly considering a bid for Benchmark in which they build a 9% stake, now reduced to 5%. They were also linked to bids for Canary Wharf and Derwent Valley in which they had 1%, stakes than have now been sold as a profit. And last year they joined entrepreneur Tom Hunter in the £310m acquisition of six shopping centres and the sale-and-leaseback of the Spirit pub portfolio with Hunter and Nick Leslau.

The mystery of Motcomb

‘It’s a bloody nightmare from an agent’s perspective,’ says one property adviser who has worked with Motcomb Estates. ‘What you do is entirely dependent on what Simon Reuben is doing on any given day.’

Motcomb Estates is almost as much of an enigma as the Reubens themselves. ‘No one is sure who does what at Motcomb,’ says one professional who’s had dealings with it.

Companies House only reveals a shell, which changed its name from Fastzone Properties, a management company for one building, in 1993, holding £18,784 of fixed assets in March last year. The property itself is held in numerous subsidiaries and special purpose vehicles. One, called UOB Ltd, changed from Countrydale Investments in 1995, hints at the complexity of the business’s structure: its ultimate holding company is registered in Panama.

Motcomb was set up in 1991 to serve the Reubens’ property interests. The company farms out day-to-day management of the portfolio, concentrating on financial control and asset improvement. Its properties under management have increased from £100m to £1bn, excluding the Chelsfield investment and properties owned overseas.

In 2002, the company bought the former Labour party headquarters, Millbank Tower in Westminster, SW1, in a £120m transaction. Other buys include 25 Sackville Street W1, 19 Berkeley Street, W1, and the John Lewis headquarters at 171 Victoria Street, SW1.

Motcomb’s core team is headed by Robin Turner and David Baker, who joined from Colliers CRE in 2003. Turner has known the brothers since 1965 and is said to be Simon’s primary confidante at Motcomb. Baker is charged with making avenues into the agency world in search of investment opportunities for the company. Marie-Claire Rajwan and Michael Gubbay complete the investment and agency team. Turner, Gubbay and company secretary Anne Benjamin have been with Motcomb since the beginning.
Negotiations on deals take place with Simon directly or, says one property chief executive, with one of his advisers who site between him and Montcomb’. Simon’s daughter, Lisa, is based at Motcomb and is known to work closely with her father. David Reuben’s son, David, also works in property as a surveyor at Colliers CRE. There are a trio of financial and banking advisers to the firm based in London, France and Switzerland. Another external adviser is Charles Filmer, a lawyer and former personal assistant to Sir James Goldsmith.

Motcomb works exclusively for the Reubens but the relationship with their principals is surprisingly formal. In Motcomb vernacular, the Reubens are our clients’. The company acts as an intermediary, professional advisory service. ‘There’s only one decision-maker at Motcomb and that’s Simon Reuben,’ says a property adviser.

Simon may be based in Monaco, says another, but he’s on the phone all the time’. Others complain that this is not always the case. ‘You can’t get a decision out of anyone except Simon,’ says one. And if something’s within his focus, you’ll get hold of him. If not, you don’t have a cat in hell’s chance.’

But the Chelsfield transaction inaugurates the Reubens into Britain’s corporate framework.
The Chelsfield buyout also marks the brothers’ first significant foray into development. The Reubens’ portfolio includes only three development opportunities: a 1 acre (0.4 ha) site on City Road; a 0.5 acre (0.7 ha) car park site at Old Street; and a 150,000 sq ft (13,935 sq m) building on Minories. They have generally concentrated on investment transactions, or on asset-led acquisitions.

Turner says: ‘They are more interested in the bricks and mortar, the long-term view and alternative uses, and not initial yield, ‘adding that the brothers have avoided the fluctuations of the City by focusing on the West End, Victoria and Kensington.

Equity purchasers

Agents report that the Reubens are driven by benchmarks for capital value per square foot and have tended to prefer freeholds but as equity purchasers can take risk where others would struggle with debt financing. Short leases at 19 Berkeley Street or some vacancy at Millbank (see the Reubens’ investments, p36) were no deterrents.

Now there are signs of a move to ‘tidy up’ the Reubens’ portfolio as part of the focus on corporate transactions, disposing of a number of smaller £1m-£5m buildings in areas including South Kensington and north of Oxford Street.

The perception of the brothers’ swing away from their traditional buys raises questions about their global strategy. But, points out one property chief executive, ‘it’s a private company. Why do they have to have a raison d’etre for anything? If they like the colour of the front door they can buy it. I’d be very surprised if they have an overall gameplan.’

Some reckon the Reubens will pay 5%-10% over the odds to secure assets in the relative stability of the UK property market. So does having £2bn to play with and limited opportunities suggest a real danger of overpaying to secure a deal?

No way, is the overwhelming response from those who know them. To characterise the Reubens as a private investor meal ticket, ready to jump in with a high bid, would be to underestimate the brothers’ experience. ‘They’re totally disciplined,’ says one financial heavyweight. ‘They decide to pay a certain amount and no more. If it goes above that, then it’s “Good luck to them. Next.”’

As Mark Gilbard, Moorfield chief executive, who has bid with Simon Reuben on several deals, says: ‘There’s another deal tomorrow if they don’t like what’s in front of them today.’

Decisive and straightforward

While the brothers have a reputation as tough businessmen, those who have worked closely with them on large transactions are complimentary. Tchenguiz says: I’ve done business with them and they’ve always been great at what they do. They’re very professional, hardworking people.’
I am always cautious with any new investment partner,’ says Gilbard. ‘But I found [Simon] very decisive and straightforward to deal with and as far as I can tell he’s good for his word.’
Turner says: ‘Our great advantage when representing the Reuben brothers is that they make their minds up quickly, stick to their decisions and are prepared to move rapidly. To secure a property they have often been prepared to exchange contracts in five working days, frequently faster than the vendors can act.’

David Marks, vice-president at Blackstone who bid for Selfridges with Simon Reuben, has seen the decision-making first hand. ‘He makes up his own mind,’ says Marks. ‘Once he’s got enough information, he’ll have a cup of coffee and say yes or no. If it’s yes, he’ll tell you the price. It’s unique.’
Marks’ theory on Simon’s quick-moving business approach stems from the Reubens’ business background. ‘There’s more due diligence in a badly put together investment agent’s brochure than Simon’s used to seeing. How many data rooms do you think he saw in Russia? It was pure ballsy risk-taking. I think he secretly chuckles at the US private equity types agonising if something produces a 23% or 24% IRR. He’s more, “it’s mid-20s IRR, guys. It’s done. It’s profitable. Let’s go.”
Gilbard agrees: He’s a very shrewd investor and a very bright man. It would be wrong to say that he didn’t grasp the details but he doesn’t need to immerse himself in them.’

The Reubens may be worth billions and they are certainly keen to spend it in UK property but they will do so on their own terms, as one property veteran discovered when he took Simon a deal to buy an £80m office and asked him to contribute £2m-£3m of equity. Simon was aghast. ‘What do you think I am,’ he demanded, ‘made of money?’

Charming, Middle Eastern, secretive….you must mean the Reubens

The billionaire brother’ business activities attract the relentless interest of the property industry. Even when they’re relaxing at their villa in the south of France, ‘everyone is chasing them’, says one associate. ‘They’re in a line, wanting to sit down for a coffee with Simon or David.’

The capital the brothers have at their disposal is worth hunting down, but contacting the reluctant Reubens is not easy. They are notorious for keeping a low profile even though sources say that they dislike the ‘secretive’ description and want to be accepted as members of the business establishment. But the brothers guard their privacy intently and those who work with them, who are often reluctant to speak out, respect this.

It seems that even those who mix in the boat and villa social circles of St. Tropez and Cannes have little real insight into their personal psyche. They are described as ‘charming’, as ‘family people’ and as ‘great fun and very, very generous’. ‘They are very Middle Eastern,’ says a source who has met them socially, ‘its all, “Come, come. Eat – lunch, dinner.”’

Yet the more they shy away from the attention they generate, the more interest is piqued. Simon last month gave a rare interview to The Times, a decision rumoured to have sparked furious rows between the pair. Previous efforts to open up have gone awry. An interview, with Fortune magazine in 2000 dredged up allegations of corruption and links with the Russian mob. An investigation by accountant Kroll has exonerated the Reubens of any wrongdoing and the brothers’ libel action against Fortune will be heard in the British courts this October.

Last year the Reubens went publis, this time on their own terms, revealing the extent of their wealth, sailing up the rich lists and unveiling their own website. While this attempted transparency drew much attention, it ultimately created another layer to stand between them and the outside world. The result is that the brothers and their UK vehicle, Motcomb estates (see box on p 36), remain a mystery.
‘In a funny way, other than Chelsfield it’s hard to know what they’ve done,’ muses one property dignitary.

At home with the Reubens on the Riviera

The Reuben brothers keep themselves to themselves, but when they do open up it is with inimitable style: whether entertaining on the 180ft yacht True Blue, valued at $22m, that they owned until last year and kept moored in St. Tropez, or at MIPIM in 2003 when they threw one of the swankiest parties in Cannes at their villa in the hills.

There was an air of anticipation and intrigue among the privileged invitees. Taxis dropped guests at the gates where a group of intimidating security guards checked passes and Ids. Dozens of candles lit the way up a gently sloping path that led to the vast white villa at the top.

The villa itself was all white, clean, crisp and minimalist. The champagne was vintage and the canapes outdid even those served up at the annual Montagu Evans event. As with the other villa parties there were amazing views across the harbour from the terrace, the difference here was that the Reubens own their villa rather than renting if for a week of showboating.

With no sign of the Reubens the evening began to feel like a scene from the Great Gatsby at a party with no hosts. Then Charles Filmer, a lawyer and PR for wealthy people who dislike the limelight, materialised with Simon Reuben at his arm. Reuben appeared gently and courteous, and spoke quietly to his guests. David had decided not to attend.

This year there were no invites for mere hacks, but the journalist fraternity need not feel too bad: even Motcomb director and MIPIM stalwart David Baker was left at home. Apparently, Simon Reuben, like many other MIPIM visitors, questioned whether the whole event was really value for money.
Even with more than £2bn in the bank it pays to count the pennies.