Flurry of activity among the minnows

THE lower end of the quoted UK property sector is murky at the best of times. Dozens of small companies compete over assets which have usually been discarded or ignored by investors at the top of the property food chain.

Fund managers, who help sustain this investment eco-system, have long warned that there are too many minnows with no real chance of evolving into anything bigger.

But until recently there was little sign of consolidation or any real hope that the management teams who had failed to make an impact over the last few years would make way for new blood.

However, a recent string of takeovers and management changes among smaller property companies suggests that investors may, finally, see their wish come true.

Last week, Southend Properties was the centre of attention. Its seemingly routine £10.5 sterling acquisition of Old Hall Estates was, in fact, a reverse takeover. Malcolm Dagul, who has run Southend since its days as a greybound stadium operator, is bowing out and selling his family's 20 per cent stake. The new management team headed by Graeme Jackson, a well-known figure in the sector since the 1960s, promises an energetic approach to managing Southend's mixed portfolio of commercial property.

Southend is the fourth company to change direction in recent weeks. In another reverse takeover, Edge Properties, a specialist developer of retail warehousing, backed into BDA, one of the smallest companies in the sector.

Last month, Molyneux Estates agreed to a £43 million bid from TBI, the highly-regarded property company which boasts Cardiff International Airport among its assets.

Moorfield Estates has also come under new management in the form of Marc Gilbard and Graham Stanley, former analysts at Goldman Sachs, the US investment bank.

The market is also alive with rumours of negotiations between small companies and discreet stake-building. However, corporate financiers are sceptical on whether the flurry of activity will continue.

The biggest barrier to further deals is the prevalence ot owner-managers with substantial stakes in many smaller property companies. Dislodging these managerial dynasties is no easy matter.

Molyneux, Moorfield and Southend were unusual. Each had a management team which had decided voluntarily to step aside. In the cases of Southend and Moorfield, the poor performance of the shares over a number of years was the catalyst for change. In the case of Molyneux, which had handsomely outperformed the property sector, a deal was possible because David Lewis, the chairman, had decided to take a back seat after many years running public property companies.

Over time, more established property company managers could come to the same view. Dull property market conditions could accelerate this process of generational change. Many smaller companies are in a financial straitjacket, with insufficient resources to do big deals and a portfolio of assets which are unlikely to perform well.

On this view, there could be a gradual generational change as owner-managers retire and their families decide to cash in their shares and invest elsewhere.