Billionaire American families seek profit from Brexit chaos

New York

QUAY House in London's Canary Wharf is a two-storey glass box nestled among some of the tallest buildings in Europe. Its latest owners have grand plans, potentially transforming it into a hotel closer in height to its 180-metre neighbours.

The property is the first acquisition from FirethornTrust, a firm backed by two billionaire American families: the Van Tuyls, who made their fortune in car dealerships, and the Stephens clan behind the eponymous investment bank. They are defying predictions that Britain's 2016 decision to exit the European Union (EU) will gut the country's finance industry and cripple the economy.

While the pound has slumped 11 per cent since the eve of the referendum, the slowdown hasn't been as dramatic as the initial tumult that followed the vote.

Yet ominous signs abound. Investors in a Schroders fund that owns some of London's priciest offices are seeking to withdraw almost one-fifth of the US$1.09 billion pool, according to people familiar with the matter.

Standard & Poor's (S&P) warned last month that the chances of a no-deal Brexit have increased, risking recession.

FirethornTrust welcomes such skittishness. "Brexit in its current status causes uncertainty," said Peter Mather, one of the firm's founding partners. "The uncertainty causes volatility and the volatility causes opportunity."

The Stephenses and Van Tuyls invested £200 million (S$359.8 million) to start the London-based trust in September.

Americans are not the only ones planning to take advantage of Brexit-induced real estate opportunities. Earlier this year, Israel's Alony Hetz Properties & Investments agreed to invest as much as £340 million to start Brockton Everlast, which will acquire and develop offices in the UK.

Brexit can give us a window of opportunity to step in "where other people are totally afraid and want to abandon", said Moti Barzilay, executive vice-president at Alony Hetz, which is controlled by CEO Nathan Hetz and David Wertheim, who also owns the Israeli Coca-Cola franchise along with his sister, Drorit.

Foreign investors are scooping up more London office real estate, comprising 74 per cent of the market as at Aug 28, from 67 per cent at the end of 2016, according to Green Street Advisors.

North American investors have accounted for 15 per cent of total transactions so far this year, compared with 10 per cent in 2017 and 25 per cent in 2016.

Half of all investments have come from Asia in 2018, following a 2017 spree that saw some of London's most iconic buildings change hands. In March 2017, Cheung Chung-kiu's C C Land Holdings paid £1.15 billion for one of London's tallest towers, the Leadenhall Building, commonly known as the Cheesegrater.

Four months later, the property arm of oyster-sauce maker Lee Kum Kee bought the Walkie Talkie building for £1.3 billion.

While Brockton Everlast and FirethornTrust are looking for bargains in a messy market, chaos isn't what's driving most foreign investment in London real estate, said Rasheed Hassan, director of cross-border investment at Savills. "The currency is cheap and there's always a big pull to London," he said.

The pound's weakness may not last long if there's a deal for a smooth exit from the EU. Aberdeen Standard Investments is betting sterling could climb to US$1.50, a 15 per cent gain from its current level, within three months of a deal.

Mr Hassan though acknowledged S&P's warning of a recession if the UK fails to reach a Brexit deal with the EU, in which case there may be chaos across all markets, real estate included.

Such a prospect excites FirethornTrust's Mr Mather. "A very smooth exit from Europe and all returns to normal and prices hold up. That's not good for us," he said. "If I could manufacture another - this is going to sound bad - another property downturn, the catalyst being Brexit, I would want that." BLOOMBERG