Deal Analysis: What is Teddy Sagi Looking for in London's Camden Market?

"Come be one of 40 million people who visit Camden Market every year. Come and be inspired by the market's clothing shops, the unique design of its houses, the best restaurants in the world that can be found in it and much more! Come and see why Camden has become an attraction for both local visitors and tourists – the place where something is always happening. Camden Market is one of the world's most famous tourist attractions.So come – eat, drink, buy and entertain yourself!"

These words, taken from the website of the most popular retail market in London, second only to the British royal palace and/or Big Ben, explain why one should visit it. A different part of the website includes an online guide for first time visitors on how to tour the market, how to get there (Chalk Farm tube station is highly recommended) and why visitors should "go crazy" and enter one of the Gothic shops that will leave them with a taste for more.

This writer has yet to visit Camden Market, but her colleagues, who have dropped by there during a trip or two to London, explained to her that it is in fact a quintessential London icon that deals with a lot of money and is therefore worth a lot of money.How much is a lot? Well, last Sunday, we all saw how much. Young billionaire Teddy Sagi, the man and the Playtech, purchased the full ownership of the market from his Israeli colleague and his partners for £400 million (NIS 2.4 million –the size of this transaction is irregular in terms of both the Israeli and the British real estate markets). A transaction you cannot remain indifferent to, and not only because Camden Market is one of the most popular tourist attractions in the world.

Kobo, the partner of model Miri Bohadana and by no means a less mysterious billionaire than Sagi, started looking for a buyer about a year and a half ago. His long time partnership with British restaurant tycoon Richard Caring and real estate company Chelsfield Partners had run into difficulties. Each one of these two partners held a quarter of the market, while Kobo held half. The three partners came to the conclusion that that the best thing to do would be to dissolve the partnership and find a buyer for their holdings. They searched and they found Sagi who,in a rare statement to the press, said: "Bebo has invested many resources in developing Camden Market over the past several years, and has established it as one of the leading entertainment and tourism areas in London and in the entire world. He has spent years finding what he considered to be the best buyer and I thank him for choosing me as his successor in this important project".

Kobo, as we may remind you, bought the market 20 years ago for what, in hindsight, turned out to be a cheap price. Years later, he added the two above mentioned partners. And now, thanks to Sagi, he is expected to get a "coupon" of £200 million (NIS 1.2 billion) and position himself as one of the most liquid Israeli billionaires.

A Very Economic Transaction

Before explaining why Sagi bought Camden Market and what economic potential he sees in it, we will digress for a moment and explain what Camden Market is (at least for those of us who haven’t been there yet).

According to a "Globes" examination, Kobo and his partners owned the market through a holding company which is registered in the Virgin Islands (a popular tax haven) and which is called CamdenMarket Holdings Corporation. The company, which was created through the amalgamation of subsidiaries in England, focuses on two main activities: the Stables Market (the corporate name of Camden Market) and Camden Lock Village – the real estate project that Sagi intends to develop next to the market itself (see details below).

Camden Market started in the 19^th century, but has been operating in its currentform for "only" 40 years.It is situated, as its name implies, in the London Borough of Camden, in the northern part of central London. It borders both Westminster City (home of the Houses of Parliament) and London City to the south. This location has turned it, almost naturally, to one of the most popular tourist attractions in London in particular and in Europe in general. And this suggests a very economic business. In Camden Market there are over 1,400 shops (clothes, shoes, home accessories and what not), stalls, yoga centers, art galleries, bars, restaurants and clubs. In short, if you enter Camden Market you will most probably find what you are looking for, and, while you're at it,you will spend some money and maybe meet a celeb to take a selfie with.

And why? Well, as it turns out, one of the prestigious and popular restaurants in the market, called Gilgamesh, is frequented by movie/TV actors such as Natalie Portman and David Schwimmer (Ross from "Friends"), and Chelsea FC players. Every year, some 40 million people visit the market (100,000 a day on average, and as many as 450,000 on summer weekends).

The market is run by a managing company owned by the holding company, and every inhabitant (i.e. owner of a property such as a shop or a restaurant) pays a weekly or monthly rent. As is well known, Camden Markethasa very high collection rate when compared to the normal practice in the British commercial property market, and the managing company supplies the inhabitants with security guard servicesand cleaning services,as well as utilities such as gas, electricity, water, etc.

According to information given to "Globes" by theproject managers, Camden Market's annual revenue is of around £20 million, mostly from rent. In the coming year, a yearly sum of £10 million will be added through the population of free commercial areas; Sagiis also planning to realize the annual revenue potential of £3.5 million from selling artistic advertisement surfaces, unique to Camden Market. The waiting list for a trading spot (i.e. for a food stall or a clothes shop), at least according to the market's website, is long; very long.

By the way, a few of the market inhabitantsare giant companies that have already understood the market's potential, and subsequently located their head offices in it (e.g. MTV Europe TV channel and Getty Images photo agency). Even Google has built a 100,000 sqm complex in the complex.

The Property Will Be Worth Twice the Investment

Sagi, and this is no secret, does not usually buy a property without high growth potential or one that is sold for a deep discount. Camden Market is indeed a lucrative and growing business, but Sagimainly bought it because of his plans for its future development, which are the second part of the holding company's activities – Camden Lock Village.

This complex, as its name implies, is intended to turn Camden Market from a retail market area into some sort of a city within a city, according to its managers. Sagi, as mentioned in his statement, is planning to invest £200 million in developing the complex, which is expected to be ready in early 2018. Camden Lock Village will sprawl over an area of 55,000 sqm, including a 15,000 sqmdesignated for commercial use (2,000 businesses; there are already 5,000 on the waiting list), 170 housing units, 3 large commercial areas and complexes for art, food, cafés, restaurants and even a school, that will be built by September 2016. According to a publicity video, additional revenue from rent from this complex may reach £100 million a year.

As for the existing complex, Camden Market:Sagi is going to make a capital expenditure (capex) in order to increase revenues. These investments will be made possible, among other things, by extending opening times.The businesses in the complex are currently open for eight hours a day on average (from 10am to 6pm) and the goal is to change thisto a 12 hour workday or more, so that the complex becomes an attraction for local visitors and tourists for most hours of the day and for all days of the year. Lengthening the workday will increase the managing company's revenue from rent, since the businesses' turnover will be bigger.

But Sagi does not plan to settle only for lengthening the workday. As an almost serial internet entrepreneur, he plans, as mentioned in his statements, to "realizeCamden Market's potential by using innovative technologies that will create an advanced experience for residents, shop owners and visitors".

What does this mean in practical terms? Well, most of the payments at Camden Market are done in cash,and not necessarily with credit cards. One of Sagi's first goals is to allow businesses (especially shops) to accept credit cards, thereby increasing revenue and improving customer experience. Moreover, the managers of the complex are planning to install identification systems to help visitors navigate between the many different places of business in the market. At the same time, this will allow businesses to position themselves in the right place within the complex in order to increase their turnover. In fact, Sagi wants to makeCamden Market much more digital, including by establishing an e commerce network, which will allow businesses to market their products online and create a continuing shopping experience for the visitors, even after their actual, physical visit at the complex is over.

It is worth mentioning that Sagi owns private e commerce companies and even a payment company which is about to be floated on AIM (London Stock Exchange). It is therefore possible that he will use these companies' technologies in Camden Market. He may also start something new and/or buy other technologies for the purpose of developing the market.

These investments obviously require a lot of cash, and according to the project managers,Sagi intends to realize the development plans while using his own capital,without increasing the debt. According to a news item published last July in British real estate magazine Property Week, the entire project (including the existing, active market) was given a bank loan of £225 millionfrom the Irish Bank Resolution Corporation, which was supposed to have been paid off this June. In January, the loan was converted, through refinancing, to an identical loan – from the Japanese bank Nomura. According to the project managers, it is financed at a relatively low LTV ratio (loan to value: the ratio of the debt to the value of the asset for which the loan was taken), because the value of the finished project in its entirety is estimated at £1.5 billion, including the existing Camden Market and Camden Lock Village – once building is completed. What does this mean? It means that Sagi estimates that the property he has acquired will be worth at least two times the value of his full investment in it.

Until this happens, Sagi, at least according to his statement, plans to "find similar locations around the world and take part in their development as well", or as Leonard Cohen put it (with the required changes): First we take London, then we take (fill in the blank).