Business interview - Tony Pidgley: developer and entrepreneur

Q: Tell us about the history of the Berkeley Group?

A: Originally I worked for Crest Homes, which is now called Crest Nicholson. I left them in 1976 when I was 27 years old and founded Berkeley. The purpose of Berkeley was to build a small number of large detached houses in the leafy lanes of Surrey. Our logic was simple: we provided a bespoke service (very unusual in those days), for example letting people choose their own kitchens and bathrooms. Berkeley stayed with that business model for a number of years, but when property development boomed because of lower interest rates we moved into more urban areas and became a regenerator. We focused on developing derelict brownfield sites – this was a natural transition for us because we had been actively developing smaller versions of these sites in Surrey for many years.

Q: How has property development changed in your time?

A: In 1976 there were a lot of volume house builders who built standard products in order to control costs. Today the market is more sophisticated and people are much more demanding about how they live. Also the government is showing more interest and climate change is having an impact on housing – so it is much more complex than it used to be. Planning too is much more complex and there are many more hurdles that developers must negotiate. When I began, Section 106 Agreements (where builders must make a contribution to the local community) didn’t exist, although Section 52 Agreements were in existence, but were rarely used. We had no affordable housing 20 years ago, now developments need 40 to 50 per cent of affordable housing. So yes, I would say the industry has changed dramatically and in many different ways.


Q: What do you think are Berkeley’s greatest challenges in the future?

A: There are a number of challenges. I think planning will be tested as schemes get more complicated and land becomes scarce. The skill shortages certainly will make it tough for us in the future, but I think sustainability will be the greatest challenge. We were the first house builder to adopt Code Level 3 of The Code for Sustainable Homes (a government environmental standard that becomes law in two years time). Then we will need to reach Code Level 4, 5 and eventually 6. However there are real challenges at the higher levels of the code, for us and our customers. Now it’s all about whether or not a house is sustainable. Code Level 3, for instance, makes electric heating in buildings practically impossible, two years ago most flats we built had electric heating. We can no longer use these systems. Now we must design sustainable heating solutions and generate energy using low carbon technologies such as a combined heat-and-power system. All these factors will affect planning and give developers greater challenges in the future.

Q: The government has stated that 200,000 homes should be built each year. Should this figure be higher?

A: During the past 10 years house prices have gone up and that’s because of supply and demand. I think it is important that the government takes up the challenge to ensure the land supply is there for the industry to meet its targets and produce more homes.

Q: How do you view the role of managing agents to your business?

A: For 20 years we have used managing agents. Big blocks of flats have always had managing agents, so that’s been fairly standard in the housing market. Recently the market has become more sophisticated, people want better services and I suspect the house building industry must understand how it can improve in this area. We’ve recently been through a period where many managing agents have been bought up and now there are two or three large machines. And like anything that grows too quickly, it can become too big to control. Historically, if a house builder built two blocks of flats with 75-100 units that was a big site. Nowadays, with huge regeneration programmes underway, Berkeley alone has three sites with more than 4,000 units and that’s a huge management headache. Also how should we deal with these big derelict estates? If they are not managed properly, we will have problems. I suspect management is an area that will go under the spotlight and as a business we are looking at it in great detail. Whilst a developer is on site they keep it well maintained, but as soon as we leave we hand it over to a managing agent who may not provide the level of service we know our customers expect. As a business we intend to address this situation. We probably need to increase service charges a little so that managing agents can afford to give a proper service. But I also think that managing agents must define what it is they do and clearly set out their responsibilities. Consensus Business Group, owned by Vincent Tchenguiz, manages many thousands of properties and I think he is passionate about doing a good job. But there are others who are not supplying a good enough service and that is a concern for me. It used to be the case that smaller agents ran a few blocks and knew the residents by their first names, but that’s all changing. I ask the question, “can you properly manage 1,000s and 1,000s of units?” I think managing agents have to lift their game and house builders have to help them along. Otherwise home owners will naturally blame house builders for the poor management service, which ultimately is bad for our business.

Q: Do you think the sub-prime crises in the US will affect the UK market? Is a recession on its way, if so how is Berkeley going to respond?

A: We are a niche, product-driven business with a southeast bias and we’ve not noticed a crisis in our housing market. Have we noticed a general slowing down? Yes. We’ve just come out of an extraordinary boom and all of us understand that houses have been in demand and there has been inflation – so are we in for a soft landing? Maybe. The sub prime market is complicated and in essence there is no actual cash loss, there’s just a write down of value. This is more about trading between the big financial institutions who are writing money off but not actually losing anything. And contrary to what the press say, I do not know of a lender who is ruthless. They give borrowers every opportunity to get your debt in line. Of course, if a borrower fails to work with the lender to solve the problem they will repossess you, but this really is a last resort. I can’t speak for the sub prime market in the US, but if you break the figures down, there is not that much of a crisis here in the UK. I suspect there will be a natural slowing, but Berkeley has not experienced it yet. Is it going to be deep? It doesn’t appear to be.

Q: How has Berkeley bucked the recent slowing down in the market?

A: Because I’m old fashioned and apply a lot of common sense! Over the years Berkeley has been very controlled in size. I don’t believe this industry is scalable and that scale for scale’s sake is the right answer. We know what our customers’ think about us and we react to their comments. I personally keep an eye on my customers’ comments and review them every six weeks. I believe in running a customer-driven business – and this is why good management is so important to us.

Q: Why are developers not building more commonhold schemes?

A: I am not sure that the public would like it. The public are used to the freehold and leasehold system. If you have a 999-year lease, don’t you have a virtual freehold anyway? I don’t have any particular objection, but it’s an area that we are looking into at the moment. The one thing that may suffer is the upkeep of the building. Without a freeholder maintaining the building you would need to rely on the residents to work together and possibly suing each other if some do not contribute financially – so this is not going to be an easy situation. Also with a freeholder in place residents will be able to point the accusing finger at one person when things go wrong. Commonhold doesn’t seem to have any disadvantages other than expecting flat owners to look after their own maintenance, whereas with a freeholder in place (s)he will have a vested interest in collecting service charges and maintaining the building properly. I worry that a commonhold building will fall into disrepair. I assume the legislation deals with these matters, but I am not sure it’s workable. Also, from a business perspective, developers would lose some of the reversionary interests. Maybe commonhold, however, will solve some of the management problems we discussed earlier. I think we must look into this topic in more detail.

Q: Will you be at MIPIM later this year?

A: We were there last year to take a specific project with Croydon Council. We were building an iconic tower. It’s a pretty hectic social event! ®Å½

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