What's in a name? Property business Modus is an enigmatic company with an enigmatic name. David Thame talks to Brendan Flood
Brendan Flood picked a neatly ambiguous name for Modus Properties, his flourishing Manchester-based real estate empire. Modus could refer to modus vivendi - a way of living. Or it could refer to modus operandi - a characteristic method of operation, a phrase most often heard in TV detective dramas. More obscurely, modus ponens is a way of adding and modus tollens a way of subtracting. Or it could refer to them all, because Modus has found a very neat way of making the money grow and go around.But what most people don't realise is that Modus, acknowledged as one of the UK's busiest retail developers, is really several operations. And most of the important parts are private. You'll search in vain through the published accounts of Modus Properties, Modus Ventures and subsidiaries for the names of the most significant names in the business.
That's because Martin Abrams of Didsbury-based stock clearance group Brennan Atkinson, Bolton-based former Buckingham Bingo boss Panico Panayi and solicitor Aaron Wacks (the Wacks in Manchester law firm Wacks Caller) aren't involved in the front-of-house operations at Modus. But they are central to an intricate series of backstage partnerships that underpin the visible trading activity.
The evolving relationship between the Modus founder and his team of off-stage investors goes back to 1991 when a 30-year-old Brendan Flood first launched himself in the property world.
He went into property after a period in banking with Barclays - and his attention to banking basics has been evident in the Modus modus operandi. He needed money up front and turned to some of his old contacts for support. Among them was Abrams. Armed with cash, Flood began to trade.
"I got an office in Manchester and started to look around for development opportunities and thought I was clever. But the middle of a recession wasn't a good time to start your own business and I found it difficult to find opportunities," says Flood.
It took 15 months before Modus made money and longer still before Flood began to establish a reputation. A still-growing Matalan needed a store in Bolton and Flood stepped in, eventually selling the property for around £32m.
"That's when people started to notice who I was," says Flood. "After that I started to focus more on retailing; it was obviously very rewarding if you got it right - and very bankable. Once you've got it right, the banks will happily lend you the money."
Flood started to focus on out-of-town retailing, completing two more stores for Matalan and a retail park at Pontypridd in South Wales. He also dabbled in industrial property. "Working on industrial property was a useful exercise," he says, "proving that wasn't my preferred market. You had to invest a lot more time to get the same money."
By 1995 the business was changing: Abrams had faded out of the trading business and was investing in behind- the-scene client funds along with lawyer Wacks. Meanwhile, up on stage, retail agent Mike Riddell joined the business from Liverpool surveyor Mason Owen. The move confirmed Flood's decision to concentrate on retail property.
Abrams remains central. Flood explains: "He's still involved in some of the investment transactions we undertake and is a good partner. He's not a principal shareholder, but he's a great friend."
Today Modus is booming. But that's not something you'd easily discover from the paperwork at Companies House.
The ultimate parent company is Modus Ventures, two-thirds of which is owned by Flood and one-third by Riddell. Profits and performance have been modest. In 2004 it made £3589,000 on turnover of £34.3m, and the 2005 figures, filed in January 2006, revealed profits of £31.8m on £327m turnover.
But the published figures reveal fixed assets of little more than £3750,000, hardly enough for a property company with a North West pipeline worth at least £3500m, with more in other regions.
That's because the assets most observers would associate with Modus are salted away off-balance sheet in a series of private partnerships.
There are three - soon to be four - major client partnership funds. Abrams owns a large tranche, varying from 15 per cent to 25 per cent, depending on the fund. Panayi, Flood, Riddell and Wacks are also major investors. Wacks was one of the early investors and is now one of the largest, accounting for about one-third of the larger funds.
Each fund is based on a series of partnerships, tax-efficient vehicle for both investment and, when the time comes, disinvestments. Most of the aggressive and successful buying and selling done in the Modus name is done for, and on behalf of, the funds.
"We have the trading business that undertakes the development, but we sell them into the client funds, each branded for different sectors," says Flood.
The Modus Top Shops Partnerships is the largest, today valued at around £3500m but with an end value of around £3800m. The big shopping centres are sold into this fund.
The next in line is the Accessible Retail Partnerships, worth around £3150m and rising in the next 12 months to £3250m. A selection of Asda food stores around the Midlands and North East and a series of retail parks have been sold into this fund.
The third, and newest, is the Nova Modus Partnerships. This will be the ultimate destination for the new Modus development in Bucharest and perhaps other European developments. The value will be upwards of £3400m.
A fourth fund is also in operation, but it doesn't buy Modus developments. The Alpha Fund buys and sells property from other developers and landlords and is a joint venture with the Royal Bank of Scotland. It will eventually total £3300m.
"Although we've only been operating these funds in a branded sense for the last few years, they've been going in one form or another since 1995," says Flood. "They're tax-efficient structures which enable us to dissolve the partnership when we sell the assets in the most tax-efficient way."
Flood says the partnerships are integral to his business model. They are sometimes the buyer of the investment, sometimes using their income to fund new schemes in which the partnership is the real developer and Modus their development manager.
"In the last three years we've focused on creating an earnings-based business with the property trading operations, such as Modus Ventures, developing or selling into the funds, or developing for the partnerships and getting management fees. My ambition is to have trading profits of £320m a year, running parallel to the capital growth of branded funds," says Flood.
As Gordon Brown flirts with the idea of introducing American-style real estate investment trusts (REITs), Flood's funds funds could be floated. "We could float a package of properties into the market as REITs, without floating the whole business," Flood speculates. "I wouldn't want to float the whole business."
He's investing in the world of retailing and is said to be planning to become a variety of venture capitalist, buying companies rather than properties with the help of Mike Rogan, formerly of Aberdeen Asset Management.
And with the arrival in the business of nephew Damian, development director, Flood could be preparing for a dynastic handover. Damian is already on the board of Modus Ventures and, together with fellow director Richard McGawley, has a stake in Modus Properties. This is a distinction denied to other senior figures, including investment directors David Lockhart and Peter Macfarlane, or finance director John Davis.
Meanwhile Flood continues to diversify, pushing the existing property business south into the Midlands and London and east into Europe. Flood has clearly found an ideal modus - vivendi or operandi - and it's paying off handsomely for his investors
Also in: April 2006
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