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Property's kings Of Timing - Times

Patrick Vaughan bowled into a meeting room at his oak-panelled office in St James’s Square in the heart of London’s clubland.

“You’re supposed to tell me how well I’m looking,” he beamed, immaculate in a navy pinstripe suit, red and gold tie, and white shirt with monogrammed cufflinks.

Vaughan, 62, has every reason to feel chipper. Together with Raymond Mould, his business partner of more than 40 years, Vaughan is on the way to making a third fortune from commercial property with their latest venture, London & Stamford, a company that is quoted on the Alternative Investment Market (AIM).

Their earlier fortunes were made with Arlington Securities in the 1980s and Pillar Property, which they set up in 1994 and sold in 2005.

Mould, 69, a racehorse owner whose Bindaree won the Grand National in 2002, features in The Sunday Times Rich List with a net worth of £60m. Vaughan’s wealth is thought to be about £30m.

“I have thought of retiring twice before, but it never gets past the first lunch at home,” said Vaughan. “It’s not what I want. I love working.

“What motivates me? Money,” he said, breaking into peals of laughter. “No, I like the people. I like the challenge. In this industry, I don’t have to clock on and off. I can still play golf — after all, everyone in the industry plays golf.

“I can still get my e-mails to and from the office and I am on the phone to them constantly giving them a hard time. Property is not a business where you need to spend your life watching to check there are no scratches on the saucepans coming off the line.”

It is almost two years since Mould and Vaughan floated London & Stamford, raising £247.5m from investors, just before commercial property values collapsed.

Wisely, the pair hung on to the money they had raised and only made their debut investment at the turn of this year.

That deal — the purchase for £74m of an office block, One Fleet Place in the City — is now regarded as a marker for the low point of the property cycle. Arguably, it was a steal from Legal & General.

Over the past few months London & Stamford has been on a roll, buying a string of assets, including a 50% stake in the Meadowhall shopping centre in Sheffield for £587.7m and 150 luxury apartments at Highbury, the former home of Arsenal Football Club for £41.4m.

Vaughan and Mould became friends in the 1960s after they went on holiday together. Rita, Vaughan’s then girlfriend, suggested it as a test of whether they should marry and brought along Mould and his first wife, Jenny. Vaughan describes Mould, who adopts a lower profile than his business partner, as his wife’s dowry.

The pair have an exemplary track record. In the 1970s crash they had cash rather than debts.

In 1976 they used their money to set up Arlington Securities, a business park developer that grew to become the largest property company in Europe.

They sold Arlington to British Aerospace for £278m in 1989 just before the 1990s crash. With backing from General Electric and an investment trust, they then set up Pillar Property, which cashed in on the boom in out-of-town retail parks.

Pillar went public in 1994 with a value of £170m, returned £438m to investors over the next 11 years and was eventually sold to Sir John Ritblat at British Land for £811m in 2005 — two years ahead of the market crash.

“It was no fluke,” Vaughan said. “We got the second-last train out of Dodge in 1989. This time round was the least jammy escape. We sold far too early, but what was really clever was raising money to get back in the market in 2007 and warning people of what was coming.”

After its recent buying spree, London & Stamford is the fourth-biggest company on the junior AIM market and with a value of £660m, it could scrape into the FTSE 250.

By next spring, the company hopes to be listed on the main market and convert itself into a tax-efficient real estate investment trust. With £1 billion still to spend, the business could eventually squeeze into the FTSE 100.

“Why not?” said Vaughan with a grin. He believes the biggest opportunities in the commercial property market could still be ahead.

“Commercial mortgage-backed securities and bad assets from the banks have yet to be unwound and that will require a gigantic pool of capital — there is still a lot to be done.

“We are in a hiatus because the banks have been forestalling on foreclosures, so everyone thinks everything is right in the garden.

“Well, all I can say is that everyone has forgotten we are living in one of the worst property leasing markets we have ever lived through.”

Since the start of the year, property share prices have bounced back sharply and property values are beginning to soar once more, but Vaughan believes the recent rally has come too early.

“There was little or no justification for the sharp decline in values we saw and now there is little or no justification for the sharp bounce back we have had. The truth lies somewhere in between.”

He illustrated his point with a recent deal. “We bought the Racecourse Retail Park in Aintree from Land Securities in June and we have made 13% on our money already.

“We bought it at a price that generated an 8.5% rental return — some lunatic is rumoured to be about to buy another retail park for a price that has a return of just under 6%.”

Vaughan reckons it is not just small-time players that have been made to look foolish in this crash — the big property companies have also played the cycle badly, he said.

“The big beasts are laughable. They are now forced buyers. Having sold at 50 they are now buying at 60, 70.”

“The market will settle at some point, but it may take two years for it to come back to a sensible level and normal conditions.”

It is likely that one day in the next few years there will be a return to the days of crazy prices, said Vaughan.

“We always have had excess. After the 1970s everyone got badly burnt and everyone said this will never happen again, but 10 years later it was happening again humungously.”

“And,” he said mischievously, “I wouldn’t like to dissuade people from getting carried away — that’s how we get our money out, after all.”