Finito World meets Georgina Badine and Robert Stokely, two of the founding directors of the boutique firm with expertise in an overlooked asset class
For a good while now, it’s become a normalised aspect of high-net-worth portfolios to have an allocation for real estate – but until recently, this has tended to be synonymous with the residential side, especially superprime properties in central London.
But you don’t hear so much about commercial property. That’s partly because of the prevalence of broker fees and real estate funds which can sometimes be difficult to understand and poorly run. But it’s also because not enough people know that this asset class also has many legitimate attractions.
The Real Estate Investment Office (TREIO) was set up in 2020 at the outset of the pandemic to give a select group of high-net-worths access to this intriguing – and all-too-often overlooked – opportunity.
The firm was founded by three directors, Robert Stokely, Chris Horler and Georgina Badine with collective experience designed to gel perfectly for the task at hand.
Stokely explains his own background: “I’ve been in the property business for 25 years, in investment and acquisition, and in asset management. I also had a spell as a Law of Property Act Receiver following the 2008 crash, where I was working with Nationwide Building Society and others on their non-performing loan books.”
Badine, meanwhile, started as a corporate banker at Barclays. “My Relationship Director in my first post got me involved in the credit side, and I found I had a real interest in it. I love getting under the skin of businesses,” she explains.
Badine’s expertise is especially helpful when it comes to commercial property, where the financial strength of the tenants will underpin the attractiveness of the overall investment, in a way which isn’t the case on the residential side.
When I meet with the two of them, Horler is in Switzerland due to Omicron restrictions, but I speak to him later by telephone. “I make sure the assets are held in the right structures,” Horler explains. So it’s a compelling mix: there are the property skills of Stokely in investment and asset management; the credit skills of Badine; and then Horler’s structuring and finance skills. Badine adds: “We all bring different strengths to the business.”
These different kinds of experience give shape to the advice which TREIO gives clients. “We’re not risk-averse, but we are risk-aware,” as Stokely puts it, noting both his own time as a receiver, and Badine’s expertise on the credit side. What comes across is the firm’s passion for the asset class, and its commitment to thoroughness and a holistic service.
So how did they meet? The three of them came together at the multi-family office Sandaire (now part of Schroders) where they provided a unique property offering to that firm’s dozen or so ultra-high-net-worth families: “Traditionally, families have invested in residential property, often in central London and in real estate funds,” Stokely explains. “But it’s quite difficult to align those investments to your investment criteria and it’s hard to discern between the good funds and the poorer ones. And once you put your money into those funds, it can be hard to get your money out, especially if they gate.”
After the sale of Sandaire, the three of them decided not to move to Schroders, though TREIO retains good referral relationships with that organisation. During the Sandaire days, in spring 2019 – before anyone knew about spike proteins, or supply issues arising from the pandemic – clients were worried about the inflationary outlook. “Inflation has always been at the forefront of families’ minds,” Stokely recalls. “Inflation is the big ever-present danger which erodes their wealth.”
Happily, commercial property as an asset class is able to navigate that problem: “The advantage of commercial property is that it’s linked to the real economy,” Stokely continues. “In an inflationary environment, when prices go up, rents follow suit. If you’ve constructed your portfolio in an appropriate manner, you can catch those inflationary rental increases year by year.”
There’s clear sense to this – and it will not be lost on clients who have bumped up against the difficulties of accessing the sector. “At Sandaire, we found clients found it hard to access appropriate investment opportunities,” Stokely explains. “The property business is based on transactional fees, and brokers have an incentive to do deals particularly as they approach their financial year end. That creates a misalignment between the interests of the investor and the interests of the broker.” Badine says: “What we’ve done is to invert that business model. We charge our clients a fee for managing their real estate allocation.”
This might not sound radical – but in its quiet way it is. It essentially aligns TREIO with the broader private client world, but in relation to an asset class numerous wealthy individuals understand all too little. “It’s the difference between the professional, and the trusted advisor who is looking out for their clients,” Badine explains. Stokely adds: “Someone said to me the other day that I’m an analogue adviser in a digital world – and I’m happy with that!”
My guess is that clients will be too. People do not want robots; they want relationships. Badine explains the distinction: “Brokers do deals and we do long-term relationships. For us, the relationship doesn’t end with the transaction.”
At the outset, TREIO works closely with each client. Stokely says: “The start of the process is establishing what kind of investments are appropriate for the client in terms of risk profile, holding period, sector and geographical location.” It doesn’t stop there; Stokely lists other considerations. “Does the client want a trophy asset in central London? Do they have a preference as to sector? Are they trying to achieve something in terms of ESG and sustainability? Do they want one tenant or multiple tenants.”
It’s a rigorous process in other words – and again, one that a broker, worried about their transaction fees, won’t enter into. TREIO therefore offers unique access to an unusually promising asset class. The firm also works in concert with chief investment advisors and wealth managers to make sure that the right asset is acquired – and once acquired, that it’s properly looked after. “Once we acquire a property, we oversee the management, including rent collection, rent reviews, reviewing leases, and capital improvements to the buildings,” Stokely says. “We then continue to report to the client or their financial advisors so long as that asset remains in their ownership.” So what are the firm’s fee structures? “They’re structured in such a way that we’re paid for the management of that allocation – sometimes with an additional performance-related fee.”
The beauty of the model is that the firm is also able to work with existing wealth managers.
“We’re not in competition with Schroders – they’re happy to make introductions to us,” Badine explains. “I’ve also met a number of wealth managers who value what we do, as it reinforces their offering. What they can say to their clients is: ‘Why not allocate 20 per cent of your wealth to commercial property? We know the right people.’ It makes their offer more complete as it’s something they don’t do in-house.”
The firm already has strong links with some private banks, and is seeking to grow those in 2022 – but always with a view to establishing the right kind of relationships. “We want to be trusted advisors for the long term, as we were at Sandaire,” explains Badine.
The entrenched nature of the firm’s client relationships means that the firm is also able to offer an audit service. “We can do forensic analysis of whether a fund is performing as it should be, whether the managers are managing the fund well, or taking excessive fees,” Stokely says.
Badine adds: “We also provide audits on existing commercial property holdings, often in relation to ESG.” Stokely also points to a problem Finito World readers might need to be aware of: “With the direction and pace of travel on sustainability, some investors will be left with unlettable or unsaleable assets as they’re non-compliant. Amazingly, a lot of investors are seemingly oblivious to this.”
That opens up onto an interesting generational aspect about this particular asset class. “Property is an asset which is naturally understandable across generations,” Stokely explains. “At Sandaire, we found that where we had a private equity offering, the younger generations were enthusiastic about the tech element, for example, whereas the patriarch or matriarch might be doubtful about it. Property is of enduring appeal across generations. It’s something which brings generations together, and you sometimes see families unite behind this asset class. Both generations can bring something to the table, whether it be sustainability, or architectural appearance.”
There is real passion here. As we keep talking, I am also impressed that there’s such a strong sense of identity about the business, even at this early stage. Stokely says: “Because we’re a small business, and want to remain like that, we can invest time in building those in-depth relationships with our clients. We don’t want to grow to a size where we lose that.”
And listening to them, you certainly wouldn’t bet against them. This is a firm with a rare ethos and expertise, which presents a real opportunity for high net worth individuals.
Christopher Jackson is News Director at Finito World