July 2009 Archives

The new US embassy in Nine Elms will be over 300ft tall and has already been dubbed "The Iceberg" by the US Bureau of Overseas Building Operations, which is responsible for the £500m block due to be finished in 2016.  These fresh facts, elaborated upon in today's Standard column ,emerged from the mist at a seminar held by Cushman & Wakefield at their Portman Square offices in London this week.

What also emerged over a beer afterwards is the news that English Heritage has told the Department for Culture Media and Sport that the façade at least of the US embassy in Grosvenor Square "meets the requirements for listing".  That will cut the end value by a nine-figure sum and no doubt irritate the Americans who are hoping to cover the cost of Nine Elms with sales of up to 150 posh flats.

It will now take all the considerable ingenuity of still-not-officially-named development partners Sir Stuart Lipton and Elliott Bernerd to make anything like £500m for the Americans.

Hands up any retail agent not involved in lease restructurings? 

A BBC report this morning showing major retail chains have closed 7000 branches can only add to landlords instructions to agents to find ways of propping up capital values by offering rent holidays and the like in return for longer leases.

One leading retail agent said this week that workload at his firm had surged recently.He said  his team is now busy figuring out all sorts of ways for landlords to ensure long term rents are not jeopardised by the sort of short term deals described in an earlier posting.

These deals, he said, are cutting the effective rent paid over the next year or so by 10% -20% for mildly distressed shopkeepers nearing the end of their leases - and up to 50% or more for those being resuscitated by the administrator. 

A short explanation of how extending leases at the old headline rent may prevent billions being wiped from retail values is contained in today's Standard column.

Today's second quarter figures from CBRE are not good. Global revenues in the three months to June of $955m are 27% lower than Q2 2008, with a small profit turned into a small loss.  

The European operations fared worse. Here revenues are 42% lower, down from $300m to $176m, with profits falling from $27m to $3m. But guess what? Costs are down almost 42% as well.  

So, you can't fault European chief Mike Strong for not running a tight ship. Let's just hope that CBRE sinks no further in the water.

Jones Lang LaSalle post Q2 figures on August 4^th. It will be interesting to see how far their European revenues and profits have sunk by comparison with CBRE under new leader Christian Ulbrich.

Meanwhile much-missed old leader Alastair Hughes told Reuters today that things are looking up in his new Asian patch.Which is nice.

Sales volumes, not prices, are what matter to residential agents. Land Registry figures out yesterday show they remain awful. The numbers will inevitably be overshadowed by the good news on prices stabilising. 

That is not a lot of comfort to those who make their living on sales commission. The number of new homes sold in England and Wales in April 2009 was 36,233. This is 42% down on last year, almost matching the year on year fall for March.

Savills, Knight Frank and Strutt & Parker will no doubt welcome the news on prices. But posh house sales remain minuscule. Just 36 homes over £2m were sold in April 2009, down from 100 this time last year - and three less than in March this year.That can only mean one thing for the above; continuing pressure on sales commission - and even less income.

But look on the bright side. This morning's New York Times leads with the news that US house prices are stabilising, which is fine. But the story also contains the far better news that June sales volumes in the US jumped by the biggest percentage in eight years.

The consultation phase of an RICS inquiry into the scandalous levels of commission added by landlords and/or their managing agents to residential block insurance premiums completes this week.

In late autumn the organisation will (hopefully) call for transparency on a practice that can routinely add 40%-100% to the cost of insuring a block.

Not that guilty landlords and agents will take a blind bit of notice.

The only thing that will make a difference is the threat of excommunication by the Financial Services Authority of any regulated insurer or broker who does not insist that the basic premium and all additional commissions are shown on the service charge statements given to occupiers.

There is far too much easy money involved for all concerned for anything less than regulation to work.

It took the natty Roger Southam of managing agents Chainbow two years of pestering to get the RICS to even examine a subject that provides some of its members with very easy money: members who are already examining ways of circumventing the report before it is even published.

Cliff Hawkins of UBS is a regular winner in the awards presented by Estates Gazette and IPD to the best performing funds. 

A note today from CBRE on the financing deal for Milton Gate (pictured right) sold in June by the UBS Trident Fund to Evans Randall for £127m is a reminder of why.

The 200 000 sq ft block in EC3 was a dog of an investment that pulled the single asset vehicle fronted by Patrick Despard's City & West End Properties into receivership in early 2005, after the building lay empty for three years. 

UBS bought Milton Gate for £50m then spent £27m sprucing the place up with JV partners Exemplar.

In April 2008 lawyers Addleshaw Goddard took a 16 year lease. Wonderful for UBS, who then put Milton Place on the market for £160m. 

OK, the Swiss Bank only got £127m. OK they took a hit buying some the lawyer's old offices. And OK, there was an ugly spat with Dan van Gelder of Exemplar over fees....

But the profit was clearly a big enough to aid the promotion of Hawkins to chairman of the UK real estate operations last month - and won't do him any harm in next year's awards.

Aviva has come out of the woodwork this morning in the Financial Times as being interested in doing a deal with the Homes and Communities Agency (HCA). The property division of the old Norwich Union run by the agreeable Ian Womack (pictured left) is planning a £1bn fund that will invest in purpose-built residential blocks.

Schroders and Legal & General were two other funds previously mentioned here as possible candidates to partner with the HCA in setting up these residential funds, which rely upon  government rental guarantees for up to five years.

Removing the initial void risk removes one of the obstacles to making money from the rented sector.  The other obstacles are of course accepting miserable income returns and managing miserable tenants. But our man at the HCA says the funds are prepared to accept a 7-8% gross yield.

This seems miserably small. But the funds (and the HCA, who will want a cut,) no doubt have their fingers crossed for decent capital appreciation and low running costs.  Aviva is counting on the latter by giving the work to a yet-to-be-announced US property manager on the advice of CBRE.  What Sir Humphrey would call a "courageous" decision. 

Apologies for the third posting in three days on the same topic: but a report in the FT this morning detailing the refusal by landlords to halve rents for the 51 surviving Allied Carpet stores reinforces the view that a primal struggle is underway between landlords and retailers.

The last published Allied accounts show the carpet seller was paying £55m in rent for 217 stores in 2007 - about £250 000 per store.  Let's assume the 51 stores "pre-packed" to the management were paying at least that much. That tots up to £13m. Add another 30 existing stores the management wants to rent and the total comes to about £20m

The phoenix company wants to pay maybe £10m. Multiply that by a minimum of ten and you have minimum loss of capital value of £100m:  this, for just 80 stores. Landlords like British Land (BL) and The Mall fund will give ground, but maybe be not as much as the chief executive in yesterday's second posting on the topic.

But the terror for landlords is that expressed in the first posting on Wednesday: that these short term concessions will lead to a long term collapse in retail rents as not-in-trouble retailers demand parity. That will wipe billions from capital values.

No wonder BL and The Mall are resisting. But best not resist by using the risible excuse that giving way to Allied will be "unfair to other retailers."

Retail landlords must be getting seriously scared. Last week the British Property Federation played the "poor pensioner" card, when commenting on the collapse of Allied Carpets, which had "non-cancellable" lease obligations of £36m in 2008.

There is of course a link between the falling value of property held by pension funds and the amount they pay senior citizens. But given that most funds hold no more than 10% in real estate, that link is not strong.

BPF members may be less worried about the elderly than they are about the level at which retail rents will settle in the longer term.

As the world knows, landlords are offering short term leases at way below market rents to distressed retailers. They comfort themselves with the expectation that when the current maelstrom blows out, rents will return to "market" levels.

But not-quite-distressed retailers are currently paying four or five times as much as their poor next door neighbours. Do landlords seriously expect the big retail chains, now gamely paying up, to ignore this evidence at lease renewal?

The previous top management, led by the now departed Mark Struckett and the still-mysteriously-in-post chairman Tim Melville Ross, made quite a hash of things.  

But what plans has the new hard-boiled chief executive Paul Idzik (pictured left) to pull this still fine firm out of the mire?

Here are Idzik's stated objectives- with translations. He wants to:

         ·         "Complete the restructuring" -  sadly, more sackings to come

·         "A united, lean global platform" - oh, dear, more money on IT

·       "Organic growth"- thank goodness, no more stupid takeovers

The former chief operating officer of Barclays does not hide his dismay at the previous lax financial controls, saying DTZ is now going for "stringent, accountable and transparent reporting".

But Idzik rightly praised the relatively solid performance of the consultancy side of the business and the performance in the Far East - a place where the new man seems inclined to expand, organically.

The most amusing story of the day has to be the news in the normally more serious Times that PR Maestro Max Clifford has taken on a property client.

No it's not Land Securities; it's a breezy looking 36 year-old with the odd name of Brett Alegre-Wood (picture left).

Young Brett runs Your Property Club Group out of Islington, for the benefit of forgetful individuals who don't remember he told them to invest in buy-to-let in April 2008.

So, expect a trickle of stories over the next year on the broadsheet property pages about C-list celebs who have discovered the joys of property investment.

For Brett says, "the market is coming back around. I don't think this is total recovery, but we are heading back in -- and I am also releasing a book in September."

A firm of London house builders founded in 2005 seems to have come up with the rather good idea of trying to persuade the London College of Fashion to take 250,000 sq ft of space at NOHO.

Hadley Homes is a surprise contender to buy the old Middlesex Hospital site (pictured left) just north of Oxford Street, according to a report in today's Building magazine.

All will remember the luckless Icelandic bank Kaupthing paying £175m for the now empty three acres at the urging of the Candy Brothers who dreamed of super-luxury flats on the site. That has of course turned into a nightmare for Kaupthing whose liabilities now stand at over £220m.

Hadley wants to use the college as the anchor tenant on a mixed use scheme. But they are up against Stanhope, possibly Helical Bar and even possibly Parkview, the Hong-Kong based business who spent years not developing Battersea. Kaupthing are due to make a final decision shortly. Whoever wins might want to have a chat with the fashonista's.

Yesterday the Olympic Delivery Authority delivered its annual progress report. There is a lot of huffing in the papers today about the £150m cost of consultants. This line simply covers disappointment that the really interesting story (it's all going to be late and over budget) has, of course, evaporated.

But one story has yet to be played out: the Olympic Village deal. If you ask Lend Lease they will say their offer to take an equity stake in the village is still on the table despite negotiations breaking down at the start of the year. The government wanted the Australians to inject £350m into the scheme they are now simply building. Sydney said no.

It is understood Lend Lease also said no at the time to the idea of bringing in other equity partners to make up the difference.  But life now feels a little brighter than it did nine months ago. A consortium of housing associations is taking half the 2,800 units.  It will be interesting to see if Lend Lease will now accept equity partners for the other half.

Gerald Ronson was in a cheerful mood yesterday at the ceremony to lower a time capsule into the foundations of the 46-storey Heron tower.

(There is a short account of the event in today's Standard column.) 

But Ronson's cheer may have something to do with the success of his book "Leading from the Front", which has a couple of almost-libellous chapters about the Guinness affair.

The book has sold over 6,500 copies, says Ronson and has actually made money for his charitable foundation.

But the real reason for satisfaction is perhaps because Ronson's book, he says, is "higher up the business best seller list than Alan Sugar's."

PS: anyone looking for another good read should try Le Deal This is a wonderfully written tale by former BAA McArthur Glenn director Byrne Murphy about the troubles they faced getting permission for a retail outlet in Northern France. You will laugh, you will cry - and you will never, ever, develop in France.

Today's good news is that Francis Salway will keep his job as chief executive of Land Securities. There are glowing stories in the Times Financial Times and Daily Telegraph, all approving of Salway's decision to start buying (and presumably stop selling) property.  

His decision is seen as an important endorsement that the market is turning. The appointment of the eminently sensible Chris Bartram as a director is also seen as a good thing. 

The sense that the saintly Salway was under threat  a month ago from his scary chairman Alison Carnwath for not coming up with a clear strategy feels like it has evaporated. 

With his very ambitious rival Mike Hussey gone and a plan to begin to build up the ravaged portfolio again, it looks like the 51-year old could be running LandSecs for a few more years yet.

To property fund managers the private rented sector (PRS) has long been the runt in the litter: small and slightly pathetic - with no prospect of ever growing strong and sturdy like the office,retail and industrial sectors.

But watch out for news from the Homes and Communities Agency (HCA) in the next few weeks. The government's housing quango has winnowed down 64 expressions of interest to three or four from funds keen to invest in a scheme that will see the HCA provide rental guarantees to kick start the building of new homes.

It is not going to change the world, but those working on the idea think it entirely possible that within 12 months or so around 5,000 PRS homes per year could be under construction worth about £1bn.  

Legal & General has of course already expressed open interest. Schroders have long been keen. But expect some surprise names from America. Firms like Le Frak for instance have been nosing round the UK market for some time now. 

This morning comes news of British Land appointing a new head of strategy.This is of course normally the job of the chief executive.

But BL's newish CEO Chris Grigg is an ex-banker. He presumably feels the need for a second opinion. So Jean-Marc Vandevivere is joining BL from Horsley Bridge Partners, a low profile US venture capital business.

Jean-Marc, who used to work for Boston Consulting, might want to have an early chat with BL director Paul Burgess, who seems to have come up with the bones of a new London development strategy all by himself.

Take a look at a speech made by Burgess to a group of architects at Claridges on July 9th. BL's head of London leasing paints three scenarios.

One, the future of the City of London will be the same as the past. Two, that future will be a pared-down version of the past. Three, forget the past. The future will be a whole lot different: no more just sticking up office blocks for financial institutions and lawyers.

The speech is both thoughtful and thought-provoking. The immediate thought Burgess provokes is this: does the City Corporation also need to rethink its own planning strategy which takes for granted the future will look just like the past.

The British Property Federation has staved-off legislation on upward-only rent reviews for nearly 20 years with a series of three voluntary codes, the latest of which has just been exposed as (surprise surprise) largely a waste of time and trees in a government survey.

These codes came about after tenants caught in the early nineties downturn howled with rage to their MP's after discovering their rent could only go up and never down.

"Over renting has not yet become a major issue" say the new survey's authors. Not quite true, especially with retailers. But the IPD/Strutt & Parker lease review published this week shows that 30% of property was over-rented at the end of 2008.

How many smaller badly advised tenants are still locked into upward-only rent reviews? Who knows? When will they start complaining to their elected representatives? Who cares: certainly not the institutions or the major landlords, who have successfully fobbed off successive governments. Labour are hardly likely to bother to legislate now. And the BPF will almost certainly convince the Conservatives not to trouble themselves if they win the next election.

Poor Prince Andrew: Britain's roving trade ambassador gets it in the neck from the now terribly excitable Daily Telegraph for a 50% rise in the cost of his trips to £207 000 last year. But the paper fails to credit "Air Miles Andy," as it calls him, with helping seal the deal that will transform London's skyline.  It is not generally known, but the Prince played a small part in persuading the Qatari's to back the Shard.  HRH's intervention apparently helped add vital credibility when it came to turning Irvine Sellar's nine year dream into reality. Not surprising really. The Qatari's are always susceptible to royal intervention. Ask Andy's brother. Charles got them to abandon Chelsea Barracks. 

How much will the government get back from the £1b being spent building the 2800-unit Olympic Village? Well, about £750m according to David Salvi of Clerkenwell-based residential agents, Hurford Salvi Carr, who kindly calculated the numbers for today's Evening Standard column.

This isn't as bad as it sounds. For that £1b includes at least £200m of costs not normally associated with building new homes. First, the finance costs of spending £600 million building the units before getting a penny back: second retro-fitting 2800 kitchens and building a school; third rental guarantees to the housing association taking the risk of letting and part-selling 1000 of the units.

And the price of the open plan flats in 2012? That's in the Standard story. But there was no space to include the technical detail. At today's price Salvi reckons the 1-bed and two bed flats should fetch £365 sq ft. Add a 10% uplift to take you to 2012 - and then add a further 5% premium for Olympic Park status to take the prices to £420 sq ft.

There was also no space to put in the sizes. But bearing in mind that Boris Johnson has just issued guidance on minimum space standards its worth adding that the one-bed flats will average 51m2; the 2-beds, 70m2.  This is pretty much the same size as the 1000 "social units" - and compliant with Boris's kick-ass view in another story in the Standard column that the human backside is the arbiter of minimum space standards.

Ian Coull of Segro will be pleased to have (almost) gathered in Brixton today with a £110m all-share offer for a business whose sheds were worth £1.8bn last Christmas. This bargain package does of course contain about £1bn of debt and other financial liabilities. The value of the 18m sq ft of industrial units in the South East must now lie far south of £1.5bn - and there is that scary 23% vacancy rate. But the deal feels like a good one - except if you work for Brixton. No doubt the brand will go. How many of the managers will be following ex-chief executive Tim Wheeler out the door is the next question.

On September 4th RICS chief executive Louis Armstrong will celebrate his 63rd birthday. The former Navy lawyer has been running the place for more than ten years now.

Last week the annual report showed his total remuneration last year was £406 000. So, there is, quite naturally, some talk of when the expensive ex-Rear Admiral will leave the ship.

But unless the still highly-energetic Armstrong decides to go on his own account it is likely he will reach official pensionable age before retiring.

Yesterday Max Croft of King Sturge was made president. The last thing he wants is for Armstrong to go on his watch. Next July it should be the turn of Robert Peto of DTZ.

Then there is a 50% chance it will be Alan Collet of Allsop, who was yesterday consecrated as vice-president. He does not want to face a new chief executive in 2011 either.

But there is growing pressure on Armstrong. Not to go - but to reduce the subscriptions. They were put up by a whopping 42% in 2004. The RICS now has a £30m rainy-day reserve in the bank.

It is now pouring hard on the big agents who pay the subs on behalf of their employees. Why not do what the architect's professional body has done and cut subs for a year, they are beginning to ask?  

A look round the Olympic Village yesterday brings some news for residential agents prepared to be patient.

Olympic Delivery Authority chief executive David Higgins said he thought that the government will begin to market the 1,800 private flats just before the Olympics start in July 2012.

For those who wish to start thinking about making a pitch, here, revealed for the first time, are the detailed particulars:

The flats are in eight storey blocks, most with double aspect vision, many with balconies. There is underground parking.

The average size of the 109 four-bed flats is 119 sq m. The 543 three-bed flats average 90 sq m. The 959 two-bed flats are 70 sq m and the 203 one-bed flats are a generous 51 sq m.

One interesting innovation is that sprinkler systems are being installed. That will negate the need for lobbies and fire doors to every room and so give more living space.

Don't get over-excited. Four-hundred of the private flats are being sold though a housing association.

Many of the others will be in blocks currently being tendered for by the likes of Barratt and Taylor Wimpey. And those that buy will have to wait at least a year while the units are made habitable again after the athletes have gone.

What will Nomura do now with its 275,000 sq ft European HQ in St Martin's le Grand, now they have signed up to go Watermark Place (below), a deeply undistinguished glass box of some 525,000 sq ft nearing completion on Upper Thames Street?

The building designed by Fletcher Priest - if design is the right word - has the capacity to hold not just the staff from the elegant stone-fronted St Martin's Le Grand building, but also 2,500 lost souls from Lehman Brothers in Canary Wharf who were rescued from banking perdition by Nomura. 

The decision to take Watermark Place was both technical (two sources of power supply thanks to the legacy of the even uglier BT building, Mondial House, that used to sit on the site) and political: OK, let's all get everyone together in the one spot, even though it is not such a nice spot.

There is of course a second question surrounding the letting. How many years rent free did Drivers Jonas negotiate for Nomura from UBS and the Canadian public service pension fund that paid the US$500m (£308m) construction cost. Guesses over three years welcome.

There must be some mistake? British Land can't seriously be contemplating selling half the equity in Broadgate for £145m as reported in Property Week?

OK, the numbers don't look good. The value of the estate has crashed from £3.6bn in April 2007 to £2.3bn today - despite the addition of the rather splendid 201 Bishopsgate and Broadgate tower complex.

New chief executive Chris Grigg is obviously concerned at the shrinking gap between the value of the 4.3m sq ft of space next to Liverpool Street station and the £2bn mortgage taken out in March 2005.

Even so, the passing rent on the 16 buildings is £160m and the average date to lease expiry is nine years. Is it really that hard to imagine the yield coming in to 5% in, say, three years, and the value of these prime properties rising once again to more than £3bn?

Grigg will of course gain greatly by a reduction on BL's debt - and he may have little choice, who knows? But giving away £80m a year in rents and 50% of a £1bn gain to someone who has paid just £145m seems a heavy price to pay.

It would be interesting to know how his two predecessors would tackle the problem: Sir John Ritblat, who built up the Broadgate Estate to be the jewel in BL's crown; and Stephen Hester, who in 2006 unveiled plans to add 1.2m sq ft - and make the place worth no less than £4bn by 2020.

The rush of vulture funds trying to strip the bones from the turkey's who stuffed themselves on real estate in the Great Feeding Frenzy (2004-2007) has become almost unedifying.

But will that stop the rush? Of course not: not a day passes without another "opportunity" fund being launched; many by the same merchant banks, fund managers and promoters who lost clients zillions last time around.

"They all want the same thing" complains our man on the front line. "Prime investment grade property in central London with at least eight years on the lease. Dear God, have they any idea how little of this stuff there is around!"

Can it be long before the virtues of secondary property will become apparent to others besides Nick Leslau, who seems keen to buy the bust Industrious portfolio? Indeed not. This very morning Morgan Jones of Hansteen tells the Daily Telegraph that he has a file "four inches thick" full of sheds to "snap up" with the £194m raised on Aim last month.

The fact that Mark Morris and Maurice Golker have assembled a 2.8 acre island site in EC3 to build a 1.3m sq ft development has been pretty much known about since the ex-JLL guys paid Land Securities £115m for the final pieces in the jigsaw in 2006.

But what is not generally known is that architects KPF drew up a bespoke scheme for Deutsche Bank, who took a serious (and secret) interest in the site in 2007.

You can read the full story in the Standard. You can also discover that Morris and Golker are on the verge of applying for permission for a scaled-back development. Or, are they...

There is much glee among the established auction houses that American newcomers, Real Estate Disposition Corporation, seem to be doing badly.

The business that claims to have sold more than US$3.8bn (£2.34bn) worth of repossessed homes in the States arrived in the UK in April to much hoopla, including relentless advertising on Sky.

Has the wheeze of offering owners a free service (the buyers pay a 10% premium) worked? Well, Allsop and Savills are currently selling about 75% all lots at auction. Establishment spies swear the American's success rate has been much lower.

The Americans are not saying. But they must be finding it little tough. Their latest auction is an entirely online affair with 109 lots.

Bidding opened, appropriately, on July 4th and closes in the 9th. Go see for yourself how it's going.

Does the replacement of Cushman & Wakefield by the green and mean CBRE machine as joint letting agent with CWM on Covent Garden presage some action at last ? 

It is now three years since Liberty International paid £421m for the place and promised to transform the market from dreary tourist trap into a buzzing hive for Londoners. A walk round last week saw few signs of change.

Apple is of course coming - and Liberty promise visible change by this time next year.

What Liberty subsidiary CapCo yearns for, is for Covent Garden to become a fashionable place to eat, drink and shop.

It will be interesting to see if Malcolm Dalgleish's team at CBRE can come up with any better ideas than C&W to "refresh and move ahead" with the plans, as CapCo puts it with some delicacy.

The normally good natured bitching between agents is descending into bitterness in some cases; specifically when it comes to slashing the prices of providing valuations to clients.

The accusation is that cash-strapped firms are literally buying the work at prices far below the cost just to satisfy the bank manager.

"We simply can't compete," says our fed-up informant. "X will buy work for £10,000 that should be priced at £100,000." Surely not? Any examples gratefully received.

Knight Frank get great mileage by producing reports on how the prices of very posh houses are moving.

This week out came another one suggesting that prices are on the up again, especially in the £10m plus market.

Guess how many £1m plus homes are sold each month? To find out go to the Land Registry site.

This week they produced a report of their own which shows that just 106 homes were sold for more than £1m in March 2009 - and only 37 of them were over £2m.

How many £10m homes were sold? Who knows; but it can't be more than the number of fingers on one hand. Is that really enough on which to base the results of a survey?