News that Sir Robert Finch will succeed Sir David Clementi as chairman of The Property Industry Alliance (PIA) is welcome for several reasons. Finch is better known in the industry and knows the industry well. His arrival is also an opportunity to review the PIA’s future role and practices with a measure of detachment.
With 30 years as a property partner and latterly department head at City firm Linklaters, Finch’s skills – not least his part in Linklaters’ adroitness as a tenant – are well known. As Lord Mayor, he walked the wider stage and on leaving Linklaters became a non-executive director, then chairman of Liberty International, in succession to Donald Gordon.
The PIA started life when the RICS, BPF and IPF joined forces to present their case for REIT legislation to the Treasury. Later, joined by the BCO, their cooperation was formalised in the PIA. But its functions are opaque and its composition shadowy: it has no website of its own, just a few pages on the IPF’s. It does not publicise a constitution and its terms of reference refer to “encouraging best practice” and other motherhood and apple pie sentiments.
Some PIA board places go to chairmen of sponsor organisations; major roles are taken by the institutions’ staff; others are there on an ‘old boys’ basis. The idea that our industry is more effective when it speaks with one voice is unexceptional. But there are dangers in creating a single voice while stifling doubters’ opinions. Unfortunately, the demerits of the PIA are currently more evident than its virtues.
Its strengths and weaknesses are well illustrated by the REITs debate. The PIA’s precursor prepared the REIT case, fought for it through a long process of consultation, referral and response, and succeeded in getting REIT legislation enacted.
But it was not an unqualified success. UK property investment companies adopted REIT status because it shifted the future tax burden off their balance sheets. But it does not materially reduce the future tax burden to investors. The Treasury took a big tax payment on contingent liabilities of companies converting to REITs, at an all-time high in the market. Clever them. The contingent liability on those assets today would be very small.
Knocking our credibility
Our industry’s credibility suffered in two intangible ways. First, the promoters asserted that listed property company shares would be permanently re-rated – a view supported by analysts’ ‘research’ notes. Shares were bought and prices rose. A bubble was promoted. Second, the promoters’ arguments were flimsy and
speculative. For example, it was argued that by adopting REIT legislation, UK markets would conform to an international norm, as measured by US and Australian markets; this is self-evidently specious today.
Credibility matters a lot. Sadly, the PIA’s recent history has not improved. It recently submitted a paper on CMBS to the Bank of England that was prepared without substantial input from those involved in investing in, or issuing, CMBS.
The bank effectively rejected the paper out of hand, which was utterly predictable. It is not clear why the PIA started on this path. Its debt committee seems to consist of those who did not understand the market and the few who understood that it was a pointless exercise, but were unable or unwilling to halt it.
It is more sobering to consider what would have happened if the Bank had taken the paper seriously. CMBS are publicly quoted, traded bonds. Would the PIA have published its paper and the minutes of its meeting with the Bank? Or would it have argued that while progress on its paper would undoubtedly be price sensitive, the debt committee could form a special group that would not influence the market? Had the PIA even considered this important point? It is time for change. Away with the private empires, cliques and secret consultations.
Away with the patrimony that treats access as a tradeable commodity, valuable to its holders to enhance their marketing efforts. Let industry issues be aired widely and let us know what representations are made to government or public authorities. Secrecy favours a few but does not speak well for an industry that rightly regards transparency as a major plank in its efforts to be recognised as a significant asset class.
Time for openness
Finch has the skills to change the PIA. He should forswear secrecy and establish openness. He should be careful about accepting the agendas of others and make sure that issues are developed properly. He should work not only with British institutions, but with bodies such as EPRA and INREV.
Equally, he should beware of organisations with the ‘squirrel club’ mentality – ULI stands out for admitting to being selective about who it invites into its inner sanctums. An immediate task for Finch is to start coordinating property industry figures’ regular meetings with the Bank of England. This is currently organised by Ian Marcus of Credit Suisse; supporters say he has improved the industry’s input to the Bank, but it is still not a satisfactory situation.
If Finch sees the PIA’s development as adding value, his status in the industry will ensure that his ideas are taken seriously, and his integrity will ensure that it conducts its business properly. He will not be afraid to limit its activities or indeed close it down if it merely duplicates what others do.