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07 August 2004
The Herald
One-man property hot-spot

' PARTIES are very important,' said

Scotland's most successful property entrepreneur John Kennedy, after entertaining 230 guests at his farm near Penicuik last weekend. 'They went through and out of the garden into the field next door and found a funfair in full swing.'

The property business has been a similar adventure for Kennedy, since he staked everything he had 18 years ago on the first deal for Kenmore, which now with its joint venture partners holds property across the UK and Continental Europe worth 620m - double its value a year ago.

Back in 1986 Kennedy bought up an old church on the edge of Edinburgh's New Town, demolished it, built a modern office with Georgian facade and underground car parking, and sold the investment to an institution after successfully letting it to a fledgling company called Cairn Energy. He had suddenly made his first million.

'I mortgaged everything I could think of, because it was a very big project for me, and at one stage the whole deck of cards looked like it was going to collapse. We had a tenant lined up who pulled out, and interest rates went up on the same day. We had a few sleepless nights but we stuck it out I thought we were going to make 200,000, in my wildest dreams, but rents went up and yields came in and we made 2m.'

Kennedy developed Glasgow's standard-setting Octagon offices 15 years ago and his stamp will soon be on the city's newest office tower the 26m Sentinel (the former MoD eyesore at Waterloo Street) in the new financial district, where its external lighting will be programmed to change its colour constantly. 'It really will be a landmark building,' Kennedy says.

He has just opened an office in Paris to add to Birmingham, Manchester and London, and is ahead of the UK property pack in exploiting the 'arbitrage yield' between low borrowing rates and higher yields in Scandinavia.

The 52-year-old, whose colourful exploits belie a steely, studious approach to building an empire, has no pretensions except the 1000 ewes he keeps at Carlops, admitting: 'I can't seriously call myself a farmer but I enjoy the pretence.'

A different animal symbolises Kenmore's smart new offices close to Princes Street, which are equipped with a flying pig, suspended above the boardroom table. 'Within the company we have a great can-do spirit,' says Kennedy, who reveals that he recently came close to buying a listed property company - not for its listing, but its portfolio.

The son of an Ayrshire farmer who wanted to join the Navy, Kennedy's adventuring began when at 23, after qualifying as a chartered surveyor, he decided to travel the world and was shipwrecked while working his passage from Singapore to Australia. He survived to find a job in a bar, which burned down. After setting up in business in his own name converting houses into flats, Kennedy again felt the lure of the sea, sailed his own yacht across the Atlantic, and spent five years building a marina and leisure business in the Virgin Islands and St Kitts.

Tired of the Caribbean, he came home to set up Kenmore, but has continued to indulge his passion not only for yachting but for other exotic forms of transport, including a taxi which he drove to a Cannes property fair, a London bus, and nowadays a shared private jet in which he pops over to Oslo or Stockholm.

Kennedy's 'boast list' of deals is headed by the one which made his name in 1999, when he bought an off-centre, old-fashioned office block in Edinburgh for (pounds) 2m, turned it into Caledonian Exchange with an 8m makeover, and sold it after less than three years for (pounds) 20m to Standard Life, netting a profit of 9m.

He says: 'In the past five years we have created more than 60m of profits - sadly they were not all for us but also for our joint venture partners - and 60% of realised transactions have produced annual returns on equity in excess of 50%, with 30% of them in excess of 100%.' In other words, Kennedy has at least doubled his and his co-venturers' money on one deal in three.

He says: 'In four years we have gone from doing 90% on our own to 90% in partnership, working our equity as hard as we can, as joint ventures are unquestionably the way to move a lot faster.

'The most important thing is to have a track record. In the early days when I would go and speak to a bank I would hammer on the door and they still wouldn't open. Now when I walk up to the door, it opens of its own accord.'

Kenmore's biggest joint venture

is with Bank of Scotland ('a great partner') with a typical deal containing 80% of debt and up to 20% of equity, of which Kenmore might take as little as 3%. From having (pounds) 50m tied up in core holdings five years ago, the group now has half that, yet the total

value of the portfolio has been rocketing, with the 500m quoted by Kennedy in his notes for this year's Businessman of the Year awards, for which he is shortlisted, having already risen by 25%.

Kennedy went back into his original residential business three years ago when he set up Kenmore Homes in partnership with his former accountant Bill Thomson. The group already has 1000 units in planning or under construction.

It was only at the start of 2002 that Kenmore turned its attention overseas. It now has 80m of holdings in France, in the shape of 31 offices and industrial buildings around the Paris orbital motorways, and is poised to open an office in Norway.

One of his favourite recent deals is the (pounds) 95m portfolio of buildings sold for leaseback by the Hays' distribution group, which Kenmore grabbed in the face of competition from some of the top investment houses, partly thanks to its European experience. 'It is a huge comfort for us to be regarded in the same light as Standard Life or Aberdeen,' says Kennedy.

The group recently launched its second fund with Adam Bank for private investors, which unusually offers a spread of investments across the retail, office and industrial sectors rather than a single co-investment project.

Kennedy observes: 'Property is a very important part of the economy, and the man in the street is taking much more interest in it than he used to. Even 10 or 15 years ago fund managers thought it was a very risky thing to have property in your portfolio, now they are saying it is a critical part.'

And the secret of making money? 'You don't buy a building, wait 10 years then sell it again, you watch to see at what point it is going to yield the best income return, it might be six months or six years.'

It comes as no surprise that when Kennedy was approached by a yachtsman desperate for sponsorship for his home-built craft in a mini-transatlantic race, he said yes. 'It was the first race he had taken part in, there were 80 competitors, and he won it,' says Kennedy. Somehow that is no surprise either.

Kenmore about John

What was your best moment: Getting the 20m cheque for Caledonian Exchange.

Worst moment: Losing the original tenant for Cairn Energy's first offices.

Childhood ambition: To join the

Navy.

Current ambition: To keep going, but a little bit faster.

What drives you: Enjoying what I do. I like seeing the people around me enjoying what they do.

What do you drive: A Lexus with more than 100,000 on the clock.

SIMON BAIN



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