There's a new brand of accommodation in town
Safeland’s Larry Lipman is transforming the UK hostel market
It may seem like a precarious time to launch a new property venture, but as prominent player Larry Lipman points out, with every crisis, comes opportunity.
Mr Lipman is the managing director of publicly-quoted real-estate company, Safeland, whose principal activities include trading, development and investment.
Since its inception in 1986, the group has diversified in response to market conditions, successfully demerging several companies such as Hercules Property Services plc, Safestore, one of the UK’s leading self-storage companies, and managed workspace company, Bizspace plc (more on these later).
But Mr Lipman is particularly excited about the group’s latest spin-off: Safestay, a new brand of budget accommodation.
Safestay offers stylish accommodation from £18 a night. Launching in Elephant and Castle, London, in July last year, there are plans to open between six and eight branches in London over the next few years and then, a national and global roll-out.
Mr Lipman, 56, explains how Safestay was triggered by the financial crisis. He says: “We thought: ‘What else can we be doing?’ In the 30 years we have been active at Safeland, we have found that there are new opportunities and it’s about positioning yourself in the best place to take advantage.
“We came across the idea of a hostel – but different to hostels that have grown by default.
“This is purpose built, along the lines of a budget hotel, but very different to a budget hotel. The environment of the hostel is based around a much more social atmosphere.” Safestay is proving popular not just with the backpacker community but also school groups and families. “They can stay in a four-bed room for £86 a night in central London.”
Safestay is a joint venture between Safeland and the Moorfield Group.
Although reluctant to disclose numbers Mr Lipman says: “We are enjoying huge occupancy and are expecting 2013 to be a sell-out year.
“It’s unusual to be able to get this quality of accommodation for £23 a night in central London with breakfast.
“It’s a fantastic concept and exciting. We want to develop a strong brand and offer accommodation that is better than the hostel market. London is the most fantastic place in the world to start a business like this.”
Besides, Mr Lipman has a pretty good track record of generating additional revenue streams, through demerging several companies.
He founded Safeland in 1986, together with his father Raymond and two brothers, Errol and Steven, as an extension of the family’s north London estate agency, Executive Homes. They floated the company on the main market in 1990, and concerned about market volatility, Mr Lipman was keen to generate other income means.
In 1993, the group formed its own insurance intermediary and bought commercial property auctioneer, Harman Healy. Three years later, he created Hercules Property Services as an umbrella for the two companies. This became the first in a series of demergers for Safeland. Hercules Property initially had a market cap of £1 million, which grew over the following eight years both organically and with the aid of strategic acquisitions and had an EV of £110 million when it was sold to the Erinaceous Group in 2004. The second demerger was Safestore plc, a self-storage company. It grew from three centres to 20 in two years when Safeland exited, credited as one of the UK’s leading self-storage companies. The third demerger was Bizspace plc, a managed workspace company, which also had initially three centres, growing to 63 when it was sold to Highcross for £82 million six years later.
“One of the great advantages of the trading activities of Safeland is that we are able to respond very positively to changes in the market,” acknowledges Mr Lipman.
Safestay's accommodation aims to be both stylish and social
As for Safeland’s current property activities, Mr Lipman says: “We have responded to it (the crisis) by going back to basics. We have gone down to bread and butter residential conversions in the north London. We buy buildings, get planning permission to convert them to residential, and then build them.” Safeland tends to target first-time buyers. The recent portfolio includes eight flats in Edgware, seven in Mill Hill, three in Finchley, and eight flats in Muswell Hill. “This is the bread and butter — understanding what the market wants.” He acknowledges that trading has become very difficult due to the slow finance market. “It is not that there isn’t the appetite but the problem is that buyers can not get the money quickly enough. And if it is not going to be quick, we may as well get the consent, build it out and really maximise all the profit from it.”
He adds: “Because there is no liquidity, sales have also slowed down. So it pays us, from that point of view, to hold on to an asset and to sweat it.”
Mr Lipman says it is the “second and third-time buyers” that have been hit the hardest by the financial crisis and tough property conditions. “It’s the mid market. First time buyers are alive and well, and able to get their mortgages. The mortgages might take a touch longer but they are out there. It’s the second and third-time buyers that are most nervous. First time buyers just want to move out of home, and own their own flat. They are highly motivated and their risk profile is very different. They have the savings, they are going to do it. And we are in a low interest-rate environment, so mortgage payments are lower than rents, so it works.
“If you are a second or third-time buyer, going from a two-bed flat to a three-bed house, the jump in pure monetary terms is bigger so you might need much more in capital. They are nervous, thinking: ‘Is this the right time to do it?’ And because they are already living somewhere, they can wait.
“The top-end, over £3million, is doing very very well. People with money still have money and are doing what they want to do.”
According to a survey by Lloyds TSB, the price difference between a typical first-time buyer flat and the semi-detached home desired by many “second steppers” has risen from £14,000 ten years ago to almost £41,000. Second-time buyers in the South East face the largest premium at 52 per cent — costing them £84,407 to buy their second home.
Originally from South Africa, Mr Lipman has several years experience in property. And he has a good feeling about the recent Safestay venture. “The hostel market feels to me exactly as the self-storage market did when we started Safestore, in terms of: immaturity of market, huge potential, strong need and a good product offering and we feel confident that we will roll Safestay out and fill that gap as we did with Safestore.”
Some of the press has likened Safestay to Premier Inn or Travel Lodge but Mr Lipman says: “It’s not like them. When you go to one of those, you will get a king room and a king bed, a key at reception and that’s it. Safestay is a very social, vibey cool offering built around a very social environment.”
Features include a restaurant, computer room and public areas with a bar, pool table, plasma television and vending machines.