April 2010 Archives

The Irish loans scandal now threatens to draw in UK auditors. How long now before property intermediaries with English parentage are named? The question arises from an article in the Irish Sunday Tribune yesterday in which the financial regulator, Michael Moynihan, says unnamed bank auditors "have a case to answer" over more than €1b of commercial property loans, issued with what the paper entertainingly calls "dodgy documentation."

The Irish Daily Mail yesterday splashed with a real stinker of a case involving an Irish senator and the ex-head of the Irish Nationwide Building Society. Fianna Fail politician Francis 'Francie' O'Brien" was personally advanced €10m by Irish Nationwide CEO Michael Fingleton, with what would appear to be extremely dodgy documentation. The paper hints that O'Brien was not the only senator to be handed cash straight from the Fingleton's office drawer.

It is of course possible to just chortle in a vaguely patronising way at these Irish antics. But Moynihan has now called for the Chartered Accountants Regulatory Board to investigate all their member firms auditing banks in the Republic. As the spotlight now turns to "dodgy documentation," the involvement of solicitors and property agents is bound to come under closer scrutiny, especially as the Irish government is moving towards a full scale inquiry.

The global firms of agents with Dublin branches need to know the answers to one question long before the inspectors call. Did their local partners ever collude in the production of "dodgy documentation" either by providing dodgy valuations or by turning a blind eye on questions of planning and title? The RICS has plenty of members in Ireland and is continually stressing their role as guardians of the profession. Or is that a question too close to home? 

Would anyone at Jones Lang LaSalle like to know how much the bosses earn in cash, shares and what their detailed pension arrangements are? The information can be found at a US Securities and Exchange Website, called, for some strange reason, Edgar. But even when you get through Edgar's door, you enter a maze of Byzantine complexity. So, here is a little help.

It just so happens that JLL filed a document called a schedule 14A on April 15th. The 90 page document details the compensation paid to the six top guys in 2009. In rough terms, CEO Colin Dyer and LaSalle boss Jeff Jacobson got $2m. Chief operating officer Lauralee Martin and Alistair Hughes (of blessed memory) in Asia got $1.9m and Alistair's successor in Europe Christian Ulbrich took home $1.2m thanks to a not very generous bonus.

The document also contains the number and value of the shares each of the above holds and lists in excruciating detail their pension rights and just why the shareholders should continue to pay them at least this much in 2010. For those who want to take a deeper look, here is the link. The good bit is on page 68.  By the way, CBRE has just filed a similar document. On page 37 you will find boss Brett White's package was $7.2m. EMEA boss Mike Strong's total compensation in 2009 was $3,147,995 - a good deal more than Herr Ulbrich it will be noted.

No doubt spurred by the Wall Street Journal's Wednesday revelation that a Morgan Stanley property fund lost $5.5b, the Financial Times today reports that the Goldman Sachs Whitehall fund has lost 98% of its $1.8b of equity. The fund, set up in 2005, was heavily exposed to Germany - and run by the fairies apparently. For, a usual, nobody wants to name the individuals involved: bankers who are no doubt still impressing fund managers with still cleverer ways to lose their investor's shirts in return for large fees.

But there is a group of lenders seeking to pin blame for losses. Last Property Week reported that the debt servicers, Hatfield Philips, "is suing Knight Frank" for £40m over an allegedly negligent valuation of the old M&S Lifestore shed in Gateshead that was subsequently taken over by ILVA, who subsequently went bust. That is not quite the case. Hatfield Philips has written a "letter prior to action,"  asking for a response behalf of the 20 lenders who took securitised lumps of the loan. Knight Frank has no doubt responded robustly.

But Knight Frank is not the only agent to get a letter before action from Hatfield Philips. In an interview for today's Standard column, Hatfield's chief operating officer, Mark Miller, confirms that "there are now several valuation cases we are looking into and letters prior to action have been sent out. If we get a reasonable explanation, fine, if not, we will be looking to get back the money lost by our lenders." A statement to freeze the blood of valuers and PI insurers.

Miller's boss, MD, Clarence Dixon, refused to quantify what has a small chance of turning into the biggest set of valuation claims in UK history. But Hatfield Philips services about £30b of securitised loans - about 10% of them in default. So, they deal in big numbers. How big became clear when Dixon made a general point. "If a bank is told something is worth £100 million and you are told it is now worth £15 million, the first thing you think is that someone has got to have done something wrong."  And that won't be the stupid bankers, will it?

Bless the Wall Street Journal. For today the paper has done what somebody should have done a long time ago: dig deep to discover the size of the losses incurred by Morgan Stanley's real estate misadventures. The European edition of the paper leads with the news that the US investment bank is sitting on a $5.5b deficit on an $8.8b real estate fund - the biggest loss in the history of real estate private equity funds.

A post on February 15 suggested that the scale of the disaster within the Morgan Stanley Real Estate Fund number six, or MSREF VI as they prefer to call it, "was hard to figure out." It was. But deep within the Morgan Stanley accounts were property write-downs of $1.9b - and that was just the final quarter of 2009. WSJ reporters have dug deeper by looking at the "fund documents" for MSREF VI and confirming market chatter that it is looking at a near $6b loss.

Don't feel sorry for Morgan Stanley. Feel sorry for the investors. Those fund documents show the bank took just under $200m in fees from MSREF VI in 2007 alone. So imagine the fees on the $174b worth or real estate bought on behalf of pension funds and the like since 1991. This is quite possibly why the bank says it is now "forging ahead" with a new fund called MSREF VII.

Has any of this affected the reputations of those in charge at the time? Not really. It is the ability to do deals that really matters in banking. The former co-heads of global investment, John Carrafiell and Sonny Kalsi announced the setting up of a new fund empire of their own just this month. Morgan Stanley has reinstated a chap called Owen Thomas, who helped create the MSREF empire says the WSJ. In Europe MSREF has just re-hired old Morgan Stanley hand Olivier de Poulpiquet to lead the European real estate business.

What is Tower 42 worth? Well, it looks like that question will be answered in the next few months following the decision of the joint owners, Hermes and Blackrock to sell, announced in the FT this morning. The pension fund manager and the US real estate giant own half each of what is still called the Natwest Tower by black cab drivers. Both seemed keen to sell in the late summer of 2007 for about £400m. But the downturn quashed that decision.

Now the 600 ft multi-let tower they have owned since 1998 is up for sale - and "is expected to fetch more than £300m." There is an art to selling iconic buildings via press announcements. The prime rule is to make sure that the price achieved is more than the price revealed. If the quoted rental income figure of £20m a year is accurate, £300m seems a modest price to pay, given that it is a yield of 6.66%. 

 
The 1960's tower may be in need of repair. The leases of many of the tenants are coming to an end. The rent they are paying may be more than the current market rent new tenants will be prepared to pay. If so, a 6.6% yield feels fair and reasonable. But, if not, somewhere closer to 5% seems eminently reasonable today. If so, the tower is worth closer to the £400m price punted in 2007. Therefore a sale well above the punted £300m will be seen as a success. 

The second rule is to make sure you have a good excuse for the sale. Hermes and Blackrock talk about the need to "rebalance their portfolios." That is not the best of excuses for selling what is a piece of super-prime real estate, but it will probably hold up. These are two of the canniest holders of real estate in the world today. They tend to be on the better end of most deals they do. There can only be one reason for selling, there are trophy hunters in the market willing to pay trophy prices. Let's bag one.

The only really interesting property tales in the Saturday, Sunday and Monday papers are those related to the collapse of the Icelandic and Irish Banks.As Iceland is about one year ahead of Ireland in the fall-out, let's start here with a report in the Guardian today that discloses that a 2000 page report on the collapse of the three Icelandic banks is due to be published tomorrow: A report that will focus on the top 100 individuals who were advanced loans - and even more closely on those who owned stakes in the banks. 

The UK Serious Fraud Office is already conducting its own investigation into some of those relationships. That slowly gathering dark cloud mentioned here on December 17 grew a little bigger today with news in the Daily Telegraph that former Baugur boss Jon Asgeir is being sued for £30m for using his influence as a shareholder to obtain a loan. It will no doubt grow even larger tomorrow when Iceland publishes a report which promises to point to "significant but isolated instances of suspect criminality." 

Meanwhile the ball can be passed neatly from Iceland to Ireland with the news in the Irish Daily Mail that Irish International and Aston Villa footballer Richard Dunne is suing his own management group, Formation, which unwisely borrowed money from an Icelandic bank to build a £28m block of flats over Aldgate East station in London. Work on the half-build block of 200 flats has been a standstill for more than a year and Dunne wants his money back.

No doubt Dunne's lawyers have already charged him for that advice. Which leads us to the final story of the day, which comes from a meeting of Irish lawyers at the weekend: "We're in the money!" was the basic message in the Irish Times for all those involved in clearing up mess left by the real estate meltdown., "This will be an enormous logistical and operational exercise," said Peter Murray, a specialist in banking with lawyers A&L Goodbody. Indeed. And in 12 months time enormous sums of money for specialist criminal lawyers as well.

Segro boss Ian Coull is presumably bracing himself for a High Court spat with Tim Wheeler, after the former chief executive of Brixton effectively lost his fight for unfair dismissal from Brixton yesterday. Coull picked up the business for a £107m last August, five months after Wheeler left. During the hearing the former CEO of Brixton said Segro had "failed to honour" parts of his contract and these issues "would need to be addressed in the High Court."

One of those issues is Wheeler's legal costs - which must be considerable. A second is holiday pay - a bit rich for a man who went skiing in Japan during the time Brixton was heading for the precipice. ("An error of judgment" said Wheeler.) But the main issue appears to be the same one he fell out with Brixton over - topping up the pension of a 51 year old, to get the same as a man retiring at 60, a sum of at least £500 000 in Wheeler's case.

Will Wheeler have a go at Slough? He is clearly very fed up with the way he has been treated. And he tends not to be a man who lets things lie. The truth is, only he knows if he will pursue the case. But what nobody outside the Brixton boardroom knows is whether Wheeler decided to jump and was then pushed; or was first pushed and then decided to jump. And the three-day tribunal didn't make the facts that much clearer.

When Wheeler left in March 2009, it was assumed he had been fired for dithering over a decision to raise extra capital by means of a rights issue. But this week Wheeler said he told Brixton chairman Louise Patten in late 2008 that he always wanted to retire early. Fair enough. But if someone takes a decision to go at 51, that decision surely weakens the case for having your pension topped up?  No doubt Wheelers lawyers will argue it is all horribly more complicated than that -  if the case against Segro is pursued.

Shares in Minerva rose 9p yesterday to 119p. This was on takeover rumours says the Times today. That may, or may not, be true. It was made plain in early March that the developer's biggest shareholder, Nathan Kirsh, did not want to sell. That sentiment is reflected in the lead item in the Standard column of March 12th. What might have sparked the rumour is that the 78-year old South African, who owns 29.9% of Minerva, is due in London this week.

Kirsh may want to sell after failing in a 50p per share bid, made late last year. But that could be done with one phone call from Johannesburg - and a profit north of £70m banked. Kirsh is unlikely to have flown in for the shopping. He has been pressing for "board representation." The obvious representative is Philip Lewis, deputy chairman of Lambert Smith Hampton, the man who tipped Kirsh to Minerva's potential. The man who represents Kirsh in London.

Can the Minerva board now see it this way? They must be feeling deeply ambivalent. During the bidding war last December chief executive Salmaan Hasan felt "there is a great opportunity for (Kirsh) to be part of our growth."If (the bid) 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."

After the bid failed Kirsh made an enemy of Chairman Oliver Whitehead by attempting to block his re-appointment. But has Kirsh come to London holding an olive branch? And will Hasan now "like him to be part" of Minerva and give Lewis a seat on the board?" No idea. But he can always hold a gun to their head and say "let me in, or I will sell to some takeover and breakup merchant." One thing that can't go on is this stand-off: hence the rumour.

Today's Telegraph contains the mud slung by all parties in the unfair dismissal claim being made by Tim Wheeler, the former chief executive of Brixton, who was abruptly defenestrated in March 2009 from his office at the industrial property company by chairwoman, Lady Louise Patten. At the industrial tribunal, which finishes today, Wheeler slung mud at her. He had mud slung at him by Peter Dawson, who  took his job before the business was taken over in August by Segro - which is keeping the length of a bargepole from this dispute.

Pretty much all that was said has been covered on EGi. That said, the Telegraph reveals that Wheeler threatened to emasculate Dawson. So, you can see that nobody is going to kiss and make up here. More mud will be slung today. Then perhaps there will be a period of edifying silence before someone is granted what will almost certainly be a pyrrhic victory. If it it's the old board at Brixton, well, who cares beyond Dawson and Patten? If it is Wheeler, few will want this over-combative 51-year old running their business.

Talking of combative men, City agent Tony Gibbon re-appeared yesterday. The former partner in agents BH2 has gone client side and set up and investment and development company along with ex-CBRE London MD, Tony McCurley and three others, Neil Scambler from BH2, plus Rupert Williams and Thurstan Guthrie-Brown from CBRE. That is not news. What's new is that yesterday the quintet launched the new business as GM REAL ESTATE (capital letters, please) from an address in the Victorian home of property auctions, Tokenhouse Yard.

Lift-off was for what already sounds like the solid subsidiary of a motor manufacturer was accomplished by sending out electronic contact cards for all five members of the team. They will now receive an electronic ribbing for becoming genetically modified agents. Tony Gibbon is of course famous for responding with brief, fiery and opaque e-mails. The next 24 hours should confirm whether this remains the case. Either way, it is highly unlikely anyone will ever take him to an industrial tribunal for the practice. Who would ever dare?

Three controversial figures feature today. The first is former Brixton chief executive Tim Wheeler, who has returned from the Alps, where he has been training for a 3600km cycle race in June called the Tour de Force. He will be hoping to give a forceful performance in front of an industrial tribunal which resumes hearing his case for unfair dismissal today, says the Times. An interesting few days ahead, as Wheeler tells his tale. But this is a race with no winners.

But Sonny Kalsi of Morgan Stanley is preparing to win back his unfairly dented reputation. The former global co-head of real estate at the US investment bank is to link up again with John Carrafiell who held the same position as Kalsi, but tended to deal within Europe, leaving Kalsi to cover Asia. In February 2009 Kalsi was suspended, after it emerged that a Morgan Stanley employee in China had been naughty.In October Kalsi was cleared,but left anyway

He and his old colleague Carrafiell are setting up in business together, according to Bloomberg and have hired Morgan Stanley's man in Tokyo, Fred Schmidt. This follows news that Tishman Speyer's UK MD, Toby Phelps, was joining the business to be known as Alpha Real Estate Advisors. The quartet will no doubt be looking to do a bit better than the beta-performance of the global real estate funds set up by Morgan Stanley at the time of the boom.

The final unfamiliar name is that of Pierre Rolin, the former head of property at Credit Suisse whose company StratReal was put into administration last November after losing its middle east backer. Today the Telegraph has picked up on an EG story from mid-March which revealed that the administrators, Shipley's, were looking into directors loans of some £430 000. Today the Telegraph says art worth £850 000 has been seized from Mr Rolin's home.

Run a mile from Anglo Irish Bank, which is clearly becoming the fall guy for the whole Irish Banking system. The post on April 1st  suggesting Anglo was less a less-than-diligent lender was no joke. The same day the governor of the central bank of Ireland fingered the specialist real estate lender as the main culprit in the lending scandal. No wonder. Anglo accounts for 36b Euros of the 81b Euros of loans transferring into NAMA. 

Pressure is now growing to wind up the bank, nationalised in January 2009 to prevent it going bust. On Saturday Anglo was dubbed "a piggy bank for property speculators" by opposition leader, Eamon Gilmore in the FT. He accused Irish Prime Minister Brian Cowen of "economic treason" for rescuing Anglo, suggesting it was done to protect the PM's now-departed supporters at the bank. Try this article on a Hungarian golf course deal from the Irish Daily Mail in late January to get a taste of the toxic brew. 

This is all adding to political pressure on Anglo to publish board papers from the period before it was nationalised. A banking inquiry is promised. A criminal investigation is already underway. Last month the police questioned former chairman, Sean FitzPatrick, and William McAteer, former finance director. The European Commission has also launched an inquiry into the billions in aid being provided to Anglo by the Irish government.

Last week the new board revealed losses of 12.7b Euros for the 15 months to December 2009 and the government admitted it needed to pump in a further 8.3b Euros of state aid. The transfer a first tranche of 600 loans into NAMA, once worth 10b, now provisionally worth 5b, has been delayed until this week by due diligence and valuation issues. What will NAMA find when it smashes open the Anglo Irish piggy bank? As suggested on April 1st, if you have had any dealings, consult m'learned friends. This is also not a joke.

Only one good story for Good Friday: the bankruptcy of Simon Halabi, which will appear in the Estates Gazette tomorrow, but which is acknowledged in today's Telegraph. It appears to be a personal guarantee against a £56.3m loan to buy the Esporta health club chain in 2007 that got the Syrian-born investor in the end. How may guesses do you need to name the lender? Got it in one - Kaupthing.

Will the administrators of the reckless Icelandic bank get much of their money back? Frankly it serves them right if they get zero pence in the pound. Halabi was not even present at the court hearing on Tuesday. The barrister acting for Ernst & Young said Halabi had not responded to the bankruptcy petition served on his solicitors, Ashurst, and that they were "not entirely sure" where he was.

Many of the bankers, advisors and agents who took fees from Simon Halabi when he was building up a £3b property empire are the same ones helping dismantle the empire today. Then Halabi was regarded as a difficult character. But one with deep, if hidden, pockets and a tiger-ish appetite for the deal. Today he is seen in the mirror of hindsight as a character always heading for a fall.

It does not need hindsight to spot these characters. They flower in every cycle. The only difference today is that, thanks to globalisation, they can come from anywhere. They share semi-mysterious backgrounds. The fountain-head source of the funds tends to be hidden.They surround themselves with a spiky thicket of well-paid advisors and never expose themselves directly to the sunlight of publicity. 

A new bunch is doubtless germinating; being watered gently in the shade by the same irrigation system that helped Halabi flower. It's good business for heaven's sake.

The second coming of James Tuckey and the next coming of the London development cycle is evidenced by the joint venture between Brookfield and Great Portland Estates announced yesterday on EGi - as well as an article in yesterday's Evening Standard, in which British Land chief executive Chris Grigg said he was "thinking pretty seriously" about building the 47-storey "cheese grater" in the City. 

Tuckey is, of course, the former chief executive of MEPC. He is now chairman of the European end of the giant Canadian fund manager-cum-developer Brookfield, which bought Aussie builder Multiplex in 2007. A posting on March 9 made the tentative suggestion that a fresh crop of office developments may begin in London after GPE chief executive Toby Courtauld told Bloomberg he fancied starting a 810 000 sq ft development in Bishopsgate.

Clearly he had been talking to Tuckey. Brookfield is already building the footings for the Pinnacle Tower. They are just finishing the Strata residential tower at the Elephant & Castle - but are having some trouble to get the buyers to complete. That is a story for another day. Right now Brookfield has a huge real estate fund to fill up and a building subsidiary hungry for work. They may not have to wait long.

For the question mark can now be taken off that March 9 suggestion that a fresh crop of developments may be planned. Rental expectations are rising to the level where one year's rent will cover one-year's loan interest - the point at which lenders becoming interested again. That's why LandSec's are looking again at building the Walkie Talkie- and why British Land cancelled an architectural completion for the Cheese grater site  - and why others like GPE, and presumably Hammerson, are unfurling plans pigeon-holed in 2007.

"We used to provide Irish developers with loan terms, but insist of due diligence. They would then go off to Anglo Irish and be given the cash with no need for any paperwork:" so said a leading European real estate lender at lunch this week. Today the FT carries a number of articles covering the Irish banking scandal, one containing a quote from Patrick Honohan, governor of the Central Bank, saying "as the dust settles it is clear that most of the damage in this crisis - reputational and financial - has been done by just one firm, Anglo Irish Bank."

The specialist property lender was nationalised in January 2009 at the behest of Honahan's predecessor, John Hurley, who seemed to be mostly asleep on the job before he was replaced last September by Professor Honohan. The chairman of Anglo Irish, Sean Fitzpatrick was arrested and questioned last month over allegations of financial impropriety. However, as the FT says today "Anglo has become the nation's whipping boy, but all of Ireland's banks played their part in the crisis."

What might all this mean for those on this side of the water for those property companies who supped a little too closely with Anglo Irish - or even some other Irish bank for that matter? Fine, if the loans were blindly granted without due diligence.Stupid bank. Not fine, if hidden commissions were paid to any of the parties or advisors involved in the loan. 

Those with a guilty conscience may have an anxious wait for a call from the Guarda: but given the sheer scale of the scandal that call is unlikely to be made for a long while, if ever. But any property company who borrowed from any Irish Bank between 2000 and 2008 might just have their lawyers take a good look at the paperwork. Just in case, you understand. Just to be sure. Better to be ready in case there is a knock on the door. This may all feel like the comedy described yesterday. But, for some, it could, one far off day, turn to reputational tragedy.