December 2009 Archives

The post below was supposed to be the last post till February - saving the emergence information published in the Christmas period. Today a couple of bits of news come via Companies House which has published the financial results for both Allsop and Lambert Smith Hampton; the former look fine, the latter, less so.

In the 12 months to March 2009 Lambert Smith Hampton Holdings made a loss of £20.75m on turnover up £5m at £69m. A great chunk of that loss is a £14m goodwill write-down. Another great chunk is just over £8m of interest charges on loans totalling £41m. At the operating level the 970-strong firm made a£4m profit.

The Allsop accounts are for 10 months to 31st March 2009 and so more difficult to compare to the year before. But the profit before member's remuneration was £7m on a turnover of £25.6m. The average profit paid to the 21 equity members at the auctioneering and residential  business was £209 000 - way down on the £435 000 in the 12 months before. So are staff numbers - down from 331 to 268.

This is the last post until the first week in February, save in the unlikely event of anything of interest happing in New Zealand - or if anyone sneaks out bad news between now and the morning of December 28th. So, let's end on a festive note, with a mention of last night's 32nd Story of Christmas carol service for the property industry, which took place at St George's Church, just down from Hanover Square, the spiritual home of property.

The first person to mention in dispatches is Robert Spooner, the indefatigable organiser of the event that has raised more than £4m for homeless charities since he started the event in 1978. As the small piece in today's Standard suggests, it's the posh actors and actresses that Spooner has always manage to attract to the black-tie event that opens wallets.

 
Last night was no exception. Normally national treasure Dame Judi Dench officiates. But this year it was the turn of Joanna Lumley (surely soon to be a Dame?) to read one of the lessons and then entrance men of a certain age at the post-service party held at Christie's. The velvet-voiced star offered to kiss anyone who bid for a celebrity-signed bottle of bubbly in an auction conducted by Allsop's star of the residential auction room, Gary Murphy.

This seemed to have the desired effect and over £1000 was raised on this one lot as Lumley bounced around the room kissing all and sundry, says Murphy, who raised a total of £11 000 for homeless charities Crash and Centrepoint. How much the clearly besotted auctioneer paid for his kiss is not known.

Stop talking LTV,start speaking of LTC. That is the main conclusion of a survey conducted by EC Harris, who have discovered that bankers are abandoning loan-to-value calculations in favour of loan-to-cost. The survey of 79 individuals in 13 major lending organisations mentioned in today's Standard found that that the majority are imposing 50% LTC ratios.

Those that remember 80% LTV ratios will readily work out that a 50% LTC will halve the amount of debt available just two years ago. So who is going to provide the huge amounts of mezzanine equity now needed? There was no space for the answer to that question in the Standard story. But EC Harris says that a large number of rich folk from India and the Middle East are looking to help out mid-sized developers.

"Help out?" This means taking a sizeable stake in the business - and then providing equity for individual developments. Given that smaller developers are not going to get the cash from banks now, this seems like a good idea. Except that the clients of EC Harris will no doubt be driving very hard bargains.

And why is EC Harris so interested in all this? Well, the 3400-strong firm long ago moved away from its QS roots base and now calls itself a "built asset consultant." They have just poached three directors from Asset Factor, the property maintenance business that was, until recently, half-owned by Helical Bar. But of more interest perhaps is the news is that the firm is now advising the State of Qatar on both the Shard and Chelsea Barracks.

The owners of the O2 Arena in Greenwich are to build a huge convention centre capable of holding more than 3000 delegates right next door to the entertainment complex. This is the main item of news in today's Standard column. It has been known for some time that a hotel and conference centre is to be built on the bank of the Thames to the east of the Arena by the Anschutz Entertainment Group (AEG). But the sheer scale of the development which is to be submitted for planning in February has never been revealed.

The 300 000 sq ft convention centre is being designed by architects Lifschutz Davidson. The hall will be one of the largest clear-span rooms in Britain. It will sit alongside an 18-storey hotel containing 450 rooms. AEG are about the largest entertainment and convention centre group in the world. So the news of their plans will not please the owners of the Excel centre in the Royal Docks who announced in October that they are to build a convention centre. It may give Liberty pause to think about the idea of doing something similar at either Earls Court or Olympia after the 2012 Games.

The rest of the story is about how life is going for Quintain and Lend Lease on their plans to build 10 000 new homes and 3.4m sq ft of commercial space around the Dome. What will interest EG readers is the numbers. When the deal was signed to buy the 190 acres of government land in 2002 there were plans to build about 7000 units at about £350 sq ft. Nick Shattock of Quintain is now talking of 10 000 units at prices of between £450sq ft and £650. On the commercial side, he says a 190 000 rental deal with Transport for London done at £29.50 sq ft has been exceeded by one "a bit higher" with Greenwich council.

Three interesting tales today: first there is news in the Guardian that the Serious Fraud Office is taking an official interest in Kaupthing, the bust Icelandic bank with a fair number of prominent property clients. Second, there is news from Bloomberg that Morgan Stanley is to hand the keys back to the bank from five office towers it bought in San Francisco in 2006. Third, last week's front page story in EG on Asda threatening to drop Savills over a difference of opinion on planning policy has reached the rheumy eyes of Telegraph readers.

Let's take them in reverse order. Asda has behaved loutishly by threatening to drop Savills from a contract it only won in August to manage the US-controlled chain's 8m sq ft logistics network. Just because the Wal-Mart subsidiary does not agree with Savills director of retail planning Jeremy Hinds on how the competition test should be applied is no reason to drop the agent. Any other agent taking the work should be ashamed. Asda: wriggle out of this please.

The second story brings a pleasing feeling of schadenfreude at the fate of the former masters of the real estate universe, Morgan Stanley. Remember how the US bank was going to rule the global funds world through the Morgan Stanley Real Estate Fund operations? MSREF spend over $8bn in 2007 alone. The losses are kept fairly well hidden - will somebody unearth them please? But they must now run into billions.

Comment on the third story must be necessarily short for fear of a letter from Sue, Grabbit and Run. But anyone who attended the cocktail parties in Kaupthing's spanking new HQ just off Regent Street a couple of years ago will feel this story is like a slowly gathering dark cloud. One that won't drop rain for a year or so - but when it does a few property folk will get wet.

The least surprising (but most gratifying) story of the day comes from the Olympic Delivery Authority, which tells the FT today that the cost of building the London Olympics will be £7.2b and not the previous estimate of £8.2b. This £900m reduction confirms the posting here and the Standard column of 27th November. Then, after a wander round the site with ODA chief David Higgins, and a look at the numbers, it became blindingly obvious that the budget was stuffed to the gills with contingency sums that would now never be needed.

Those wondering where that £9.3b figure went should know that on top of the original £8.1b building budget was £838m for security and £300m to help train athletes. But even that £1.2b contains £238m of contingencies. So there is a possibility of further reductions from this pot. But, for now, the headline figure is down from £9.3b to £8.2. But you can rest assured that there is still some money tucked away in the building pot.

As the Standard article suggested, even the £7.2b "build budget" contained contingencies of £685m. On the assumption that most of that remains, you can add this to the £238m security contingency and adduce there is still almost £1b tucked away. If this does not get used, the headline budget could shrink from £9.3b, not to £8.2b but to £7.3b. In other words, the whole £2b contingency added in by Gordon Brown when he was Chancellor could remain unspent. 

 
With a cash-strapped government already eyeing that £900m saving already admitted it is understandable that the ODA today are stressing the risks ahead. "Though current forecasts predict us coming in under budget for the construction programme, it is too early to be banking savings," they say. "Next year will be the toughest yet and on a project of this size and scale there is always the potential for more risks materialising between now and 2012." Fair enough. But whoever is in power next December may well find another £900m in the Olympic Christmas box.

One of those semi-spurious house price surveys appears in the FT this morning. It comes from a Web site called Zoopla, which maintains that the total value of UK housing stock has risen by £39.1b over the past year, compared to an £811b fall in 2008. This interesting but essentially useless information will no doubt have a publicity conscious commercial agent thinking about carrying out the same exercise on commercial property prices.

Thanks to the work of the Investment Property Databank, the commercial world knows in fairly fine detail what is happening to the prices of offices, shops and sheds. For the few that don't, prices fell 44% between the summers of 2007 and 2009. Since then there has been a 5.4% increase, 2.4% of which came in the month of November alone. In the event of capital values continuing to rise at the November rate, nine-tenths of that 44% drop would be recovered by the end of 2010.

Well, perhaps not. But for those looking into the future, guidance can be sought in the finer detail of the IPD index, not normally given much of an airing. This index has tracked property prices since December 1986, when the number 100 was assigned to the then capital values of a large portfolio of offices, shops and sheds. At the turn of the millennium office values had gone up just 24%, retail 54% and sheds 68%.

At the peak of the boom in August 2007, retail and industrial properties were worth 2.5 times the 1986 figure - and offices 1.8 times. Today, retail capital values stand 44% up on the 1986 figure, industrial stock 54%. Offices are worth just 1% more than they were 23 years ago. So, if a survey is published suggesting billions will be added to property values in the coming years, remember the billions that get wiped off- and that property is essentially a cyclical and rental income play - and never a long term investment.

"Hold your friends close - and your enemies closer." This phrase springs immediately to mind when reading today's Telegraph tale of how Minerva chief executive Salmaan Hasan now wants to be friends with Nathan Kirsch, the 78-year old South African who has made a bid to buy the company.

"I think there is a great opportunity for him to be part of our growth," Hasan tells the paper, before going on to accidently reveal why. "If he fails, then I hope he would be sufficiently chastened by that. But we are not enemies. He is investing in a great business which has fantastic prospects and we would like him to be part of that."

To translate: "We still think you are going to lose the takeover bid. But please, pretty please, don't sell your shares." As Hasan knows perfectly well, a greater danger than a Kirsch takeover is the South African selling his 29.9% stake to an investor far more able and inclined to break up the group than a septuagenarian living 6000 miles away.

Hasan was unable to reveal the names of new tenants for the 1m sq ft of space it has nearly finished building in the City of London at St Botolph's and The Walbrook, when he presented the company's defence against the £84.5m bid last week. But letting the half million sq ft of space that each building contains is now, as suggested here, essential to survival.

Potential tenants are aware of this and are no doubt squeezing the terms to within an inch of refusal. Minerva has agreed terms today with US lawyers Clyde & Co to take 150 000 sq ft at St Botolph's. Hasan says there are "earnest" discussions underway with four tenants at The Wallbrook. To translate: "earnest" means "ever-so-slightly desperate". The agents for the potential tenants must be enjoying the sparring a lot more than CBRE who ousted a well-miffed C&W as Minerva's letting agents last month.

Barratt is clearly suffering from schizophrenia, brought on by pressure from Prince Charles. The house builder is to submit not one but two designs to Westminster City Council for a block of 144 flats they want to build next door to the Home Office on Horseferry Road. You can see representations of both designs in Building Design this week.

Essex architects Stanford Eatwell & Associates have done their client's bidding and drawn up plans that match the modern Home Office building on one side; and another set that matches the Victorian blocks on the other. This now puts Westminster Council planning committee into the position of being arbiters of design taste. That will please many councillors. But it will also annoy many developers.

"How do now tell what Westminster will pass? No idea. Let's just draw up one set of plans in glass and steel and another in brick and stone and submit both. It is going to cost us twice as much. But we don't want to be caught out like the Qatari's at Chelsea Barracks who have got into a hell of a mess after Prince Charles objected to 638 flats built of steel and glass."

This may over-egg the worries. The Barratt scheme is small enough to pass under the Royal radar. But it is clear from the dithering house builder that developers are starting to wonder what exactly Westminster wants. As Knight Frank planning partner Jonathan Drew tells BD: This is an interesting strategy for dealing with architecture in these times. It is saying to the council: 'We will do anything you want us to' - and gives the council a feeling of control."

DTZ chief executive Paul Idzik is still wearing the hair shirt. Coverage of yesterday's results for the six months to October showing a £20.6m loss resonate with "delighted" declarations of how deep and how fast the cuts that have so far saved £55m have been. Another £15m will be removed over the next six months says he former banker who took over 12 months ago from Mark Struckett. Right, OK. That storyline is coming to an end. What now for DTZ?

Well, Idzik is starting to think about it. He says the areas of focus are Asia, professional services and investment management. This sounds reasonable. CY Leung runs a good business in the Far East. DTZ are still a blue chip professional services business. Investment management? Well, OK, perhaps - and the margins are good.

But the move to what Idzik calls "phase two" does not sound good news for the occupier and development side of the business in the UK and Ireland: unless you happen to work for JLL, Savills, Knight Frank or CBRE. Overall revenues on the home patch have fallen from £84m in the six months to October 2008 to £69m in the six months to October 2009: an operating profit of £9m has vanished and become a small operating loss of £392 000.

The big fall in revenues was, unsurprisingly, in the occupier side with revenues down £7m to £18m. Surprisingly, the next biggest fall was in valuation revenues, down almost a third, from £14.9m to £10.6m. Something to do with squeezed margins perhaps? Or is there a loss of market share? Who knows? The only question the long-suffering DTZ employees want an answer to now - is when will Idzik stop squeezing and start encouraging. At the year end results perhaps?

Strutt & Parker has now filed Limited Liability Partnership accounts for the year to 30th April 2009. The 27-page document confirms the news released last week by the LLP that revenues fell 25% to £65m and profits for distribution to partners dropped 79% to £3.3m.

What may now interest rivals is the fine detail shown for the first time in these maiden accounts. The 47 equity partners did indeed earn £3.3m, (about £70k each) but they took out £6.2m (an average of £133k each) from the LLP. But this was before £5m of fresh capital (£106k each) was returned to boost a balance sheet hit by the purchase of Lane Fox.

How much Strutt's paid for the residential agent in August 2007 is not known, as the deal is accounted for in final private partnership accounts. But a note suggesting "the unlikelihood" of a £4.5m earn-out for the directors reveals Lane Fox made £865k on a turnover of £13.86m in the year to April 2008.

Strutt's £65m turnover (2008: £86m) is made up of £20m commercial property (£32m) and £45m rural and residential (£54m). The highest earning partner was paid £173k against £1.03m last year. Staff numbers are down from 882 to 742. But average earnings were almost the same at £47k.

Net assets stood at £11m (£19M) in April. Total borrowings were £18.8m (£21.6m). The equity partners have personally guaranteed £10.7m of this figure. In September 2008 Strutt's bankers agreed to waive loan covenants until July 2009. In July revised bank facilities were agreed. But, to repeat one other point made in last week's EG column, Strutt's has made a £5m profit in the six months since April. Next year's accounts will look a lot better.

The appearance of the governor of the central bank of Qatar at The Shard last week was clearly designed to shore up confidence in the oil-rich state's commitment to investing in UK property, following the rumpus over Chelsea Barracks. Both events are covered in Friday's Standard column. But EGi spotted the interesting news - a baby is to be born.

Some baby. The 17-storey "baby shard" will sit at the foot of the 1000-ft tower adjacent London Bridge station. It will contain 419 000 sq ft of office space that will surely cost a lot less per square foot to build than the 586 000 sq ft of office space that sits under the hotel and apartment floors in The Shard itself.

An interesting exercise for students would be to work out the relative costs of both buildings and demonstrate where the real profits lie. It looks like the Qatari's have already worked that out. If you build The Shard, you have to have bring along baby as well. Baby will begin to grow from September next year.

The three Qatari banks and the state investment company that took an 80% stake last December have now passed that equity directly to the state (no Dubai-style reneging on guarantees here). The new JV, in which the original developer Irvine Sellar holds the remaining  20%, includes Qatari Diar acting as managers. That will presumably include new UK head Stephen Barter, the man drafted in to sort out the mess on Chelsea Barracks. He was in attendance at The Shard last week.

Yet more on Dubai's property woes in this morning's FT, specifically Nakheel, which has debts of $8b. This time last year the Palm developer had assets valued at $42b and liabilities of $18b. But who valued the assets - and what are they worth now? Who knows? A good example of opacity is the experience of one disgruntled businessman says he was told sign a non-disclosure form and take far less than he was owed - or "go to the back of the queue"

Those who fawn on the rich invariably credit them with wisdom. When the wealth begins to wither, sycophancy turns to scorn. So it is in Dubai, where ire at the State's financial problems is slowly turning on the horse-racing ruler himself, Sheikh Mohammed bin Rashid al-Maktoum. "The government" is going to "screw private investors" says an unnamed businessman in the Sunday Times yesterday.

By "government" he of course means Sheik Mohammed. By "screw" he means renege on implicit state guarantees to prop up Dubai Properties and Nakheel, the developers worst affected by the collapse of the easiest-to-predict property bubble on planet earth. The paper concludes: "Sheikh Mohammed can probably ride out the desert storm for now but the longer he refuses to heed calls for full financial disclosure, the angrier investors will become."

Note the words "probably," and "for now". For what the paper is clearly picking up on are the views of expat business leaders, who are now beginning to blame the man whose wisdom they once held high. The Ruler of Dubai should of course have reigned back spending in 2006/7. But Sheik Mohammed is a mere mortal - and no cleverer than those who rushed into Dubai to invest in the City Empire he was trying to create.

"Lord" Edward Davenport spent last night in the cells after being charged with property fraud, says today's Telegraph. This is not the first time 43-year old "fast Eddie" has been in custody. In 1990 it was tax evasion. This time it is for taking advance fees for arranging multi-million loans to buy into commercial property projects on the continent.

Davenport is of course the man behind the Southern Cross serviced office operation in London, which went bust in 2005 owing landlords £6m in unpaid rent and service charges. He is also the man who managed, somehow, to buy the Sierra Leone embassy at 33 Portland Place for £50 000 in 1999 - and then used it as a base for many a celebrity party.

A look at Davenport's web site is fun. There are pictures of Mick Jagger with Eddie, Ronnie Woods with Eddie and Victoria Beckham with Eddie. "Edward Davenport is one of Britain's most flamboyant entrepreneurs" it says."A businessman renown for taking chances."

Is Davenport someone you would want to take a chance with your money and invest it in resorts and hotels in places like Austria and Turkey? Certainly not now. But despite his spotty record he is clearly a charmer. The Serious Fraud Office has indicated that at least £12 million was charmed out of investors - many of whom were no doubt invited to those parties at 33 Portland Place.

The Candy court saga may take an unexpected turn. On Monday Mr Justice Warren is due to rule on whether the dispute over Chelsea Barracks between Nick and Christian Candy and Qatari Diar can be tried quickly - or must it wait for the wheels of the law to turn at their usual stately pace?

As most of the world now knows the case revolves around the decision by Qatari Diar not to submit plans for 638 Richard Rogers-designed flats on the 12.8 acre site because Prince Charles did not like them. If Westminster Council passed the plans, Nick and Christian Candy would have got up to £81m in success fees. If the plans were turned down, they would get nothing.

But the plans were never submitted; hence the £81m claim. Well, there is a well-founded rumour circulating this afternoon that the Qataris are now going to submit the Rogers plans - in the full expectation they will be turned down, leaving Nick and Christian with no grounds for their already submitted claim. Unless of course they demand the application goes to appeal, which they apparently can.

A neat and table-turning trick? Well, yes; except that whatever scheme is eventually given permission the Candy's get their money, one day. But why on earth did Qatari Diar not think of this before. Or is this the new hand of Stephen Barter who has lately joined and was seen taking an interest in proceedings at the Shard this morning where the governor of the central bank of Qatar came along to reinforce the message that this is one job that is going ahead.