July 2010 Archives

Done any deals with Vodafone? Have a care. For it looks like the giant mobile operator is worried that murky goings-on have been occurring within the 60-strong property department. The details in yesterday's Sunday Times are brief: Buy Vodafone is said to be investigating allegations that a number of staff dealing with the letting of more than 3000 properties in the UK and abroad have been taking payments from landlords and/or agents.

This issue may or may not be raised at Vodafone's AGM tomorrow. Chairman Sir John Bond has trouble enough with shareholders. Many are fed up that the stock price has languished well below the value of the assets of this huge business for at least five years. But if someone does get the chance to pipe up, the question should be: "Sir John, will the company call in the police if you uncover proof that your managers took bribes in exchange for agreeing leases?" 

Vodafone half-admits the issue, saying that in a company of its size "there might be a number of investigations underway." So it looks like they have uncovered a problem in the dealings with hundreds of small agents and landlords. It would explain why the company said in November that it was to set up a panel of four obviously honest global brokers. Colliers, Cushman & Wakefield, DTZ and Jones Lang LaSalle were appointed two months ago.

 
And the answer to that question about bringing in the police? Anyone who did give a brown envelope to a Vodafone employee is unlikely face a judge.For is highly doubtful that Sir John will add to his troubles by calling the fraud squad.. A visit from Kroll or one of the big accountancy firms is far more likely. If Vodafone is presented with evidence of wrongdoing, they are much more likely to deal with it internally than by dialling 999. Relax, a bit.

Just a quick one: a short time ago Qatari Diar released a statement saying the dispute with Nick and Christian Candy is over. The settlement of the £81m claim by the brothers on Chelsea Barracks is confidential - for now. But those looking for clues should read the full agreed text of the statement of apology. It goes like this:

"CPC Group and Qatari Diar are pleased to announce that they have agreed a settlement of the dispute between them arising from the proposed development of the former Chelsea Barracks site. As a result, the litigation between them has been discontinued. CPC and Candy & Candy will no longer have any interest in, or involvement with, the former Chelsea Barracks site, which is owned entirely by Qatari Diar. The other terms of the settlement are to remain confidential between the parties.

On behalf of CPC, Christian Candy has apologised unreservedly to His Highness Sheikh Hamad bin Khalifa Al Thani, the Emir of the State of Qatar, His Excellency Sheikh Hamad bin Jassim bin Jabr Al Thani, the Prime Minister of the State of Qatar and Mr Ghanim bin Saad Al Saad, Managing Director of Qatari Diar for any offence caused by the decision to commence litigation against Qatari Diar and the allegations made by CPC during the course of the proceedings.

Mr Candy also expressed his regret at having brought the name of HRH the Prince of Wales into a contractual dispute and he apologised unreservedly to His Royal Highness for any offence this may have caused."

How much did that fulsome apology cost the Qatari's is the question. A lot - or a little?

Last week a small firm of developers from Greenwich announced it was to build 2700 homes and enough commercial space to provide 2000 jobs on 30 acres of run-down industrial estates around Millwall football ground in south London. The firm in question, Renewal, has done about 40 small developments in its 15 year history, but nothing, ever, on this scale.

The question that comes to mind is: who is paying? Renewal says it owns the freehold of 60% of the site, with Lewisham Council holding the rest. It will cost a few million to pursue the scheme through planning. There are plans to build a new £10m station on the site, on an extension to the East London Line. The government was going to chip in £7m, but not now.

Enter Jack Petchey. As today's column in the Standard discloses, the 85-year-old serial entrepreneur is one of the backers of what is called the Surrey Canal scheme. This is billed as "London's sporting village", presumably due to its juxtaposition to The Den. Here plans for an overambitious development are to be scaled back by new architects, Squire & Partners.

Renewal director Mark Taylor says Petchey is just one of two family trusts that have taken stakes in a site whose increase in value is predicated on that new station. So, someone will find the £7m. Taylor says they have been assembling their 18 acres since 2003. He didn't mention who had been providing the equity. But Jack Petchey is good at spotting bargains.

On May 4th a difficult phone conversation took place with Targetfollow boss Ardeshir Naghshineh. It followed a posting here on May 3rd suggesting that it was Lloyds Bank, not Naghshineh, which was driving the sale of his London properties, in order to raise £500 million to salvage something fom £700m of HBOS loans, one of which expires this week.

The Iranian-born developer, who operates from Norwich, contended that Targetfollow was best placed to manage out the assets, which include Centrepoint. And all that was needed was a joint venture partner to pay off the loans and refinance the portfolio. That may well be the case, but the ssets have not been sold. Nor, does it seem, anyone wants to buy on these terms.

Today there is a report in the FT that Naghshineh has elicited the support of four Norfolk MP's in his battle to save Targetfollow. The quartet has apparently held meetings with Lloyds in order to stave off administration. Well, good luck to Naghshineh, who is both powerful in his own advocacy, as well as being a charming and imaginative character.

But the odds do not look good. Naghshineh still wants to save his workforce by retaining a role in managing and developing the London portfolio, which makes up two-thirds of the assets of Targetfollow. Potential buyers such as Morgan Stanley and JP Morgan really don't want this. It is possible that some form of compromise might yet be reached. But don't bank on it.

The odds of JP Morgan moving to Canary Wharf lengthened still further at the weekend. On Saturday the Telegraph said the US bank is "on the verge" of quitting a £1.5b deal to build a new European HQ on the Wharf. Three days earlier chief executive Jamie Dimon complained to the New York Times of tougher US banking regulations - and how governments around the world "are devising new ways to clean our clocks." 

Time runs out in December on Dimon's decision to either pay Canary Wharf £74m for building the almost finished foundations; or signing a contract drafted in late 2008 to go ahead with a 1.9m sq ft HQ for 20 000 staff. As I suggested in the Evening Standard on May 7th, JP Morgan will wait to see what a British government will do before committing to a new HQ. Well, good old Vince Cable is on Panorama tonight complaining of banks "ripping off" customers.

A well-informed source says the new business secretary is struggling to earn the respect of his civil servants. Cable's remarks are mainly aimed at retail bankers. But they will further spook the big investment banks. Their respect for the coalition government's ability to provide what they see as a "free enterprise zone" in Britain is being eroded. Dimon is of course using the threat of not investing in Canary Wharf as a big stick to beat off tighter regulation.

So, what now? Well, Dimon could secure some quiet assurances from George Osborne and announce the move to the Wharf before Christmas. Maybe. JP Morgan could scale back the plans and build one tower instead of two.Possibly. They could simply take the nearby 1m sq ft Lehman Bros HQ. Perhaps. Or they can stay on London Wall and, one day, do a deal with Hammerson to expand into 600 000 sq ft that the developer is keen to build next door. Likely.

If The Times took news decisions in the same way parent company News International takes property decisions, today's "Mad, Bad and Dangerous" on Gordon Brown would be qualified with "or possibly Sane, Good and Safe." For it emerges in today's FT that Rupert Murdoch has paid £57m for the 13-acre Harrods depository site next door to BSkyB's HQ in far West London with a view to shifting its newsprint operations from East London.

This will come as a bit of a surprise to those working on the current modest redevelopment of the 20-acre Wapping site, which only two years ago was going to be sold.  Expressions of interest from developers to buy were elicited by Jones Lang LaSalle in early 2008 after nearly a decade of dithering. It's yours for about £190m; we're off to Minerva's St Botolph's development, possibly. Or the Royal Mint site, possibly.

Come September 2008: Actually, no, we're not. We are going back to that 2003 idea of a comprehensive redevelopment. Come November 2008; actually, no, we have now decided to scale back and refurbish. Lots of decant space has now been taken next door at Thomas More Square from Land Securities. Presumably the Wapping work is underway: but now the possibility of a mass migration to the West looms.

This raises the possibility that News International will never return to Wapping from the Land Secs space in Thomas More Square, where leases of up to 10 years in length have been signed.  Good news for LandSecs. That gives plenty of time to develop the depository site. It also gives Rupert's son James the chance to make a whopping profit on Wapping which was bought for under £10m in the early 1980's. Possibly.

Two tales this morning: the Invista Foundation Property Trust has declared a good set of results which contain bad news for the manager of this general property fund. Second, the FT sees good news in a city rental report. "Demand drives up office rents in City of London" is the headline in The Pink 'Un. The Guardian sees bad news in the same survey from NB Real Estate. "Upturn in commercial property may have run its course." 

But first, Invista, or, to be more accurate, a fund run by Duncan Owen's fund management business, called Invista. In the year to 31 March 2009 the fund, now worth £300m, made a truly appalling total loss of £207m. Losses of nearly £160m were made on property, £23m on currency swaps, the rest on JV contracts. But well done in 2010. In the year to March, Owen's team has turned a very creditable profit of £39m, including a swaps gain of £4.5m.

The main credit being that the net asset per share has risen by nearly 20%. But the main debit is the change in the way Invista's management team is remunerated. The change is from an undisclosed percentage of the gross assets to 2% of net asset value for the first £150m, then 1.75% up to £200m. This produced a fee of £3m last year - down from £4.6m in 2009. Now, if gross asset values rise, Invista only get a fee on the post-borrowing increase.

Will they rise? Who knows? The current mood, as experienced on Mike Slade's boat last week, is paraphrased in Friday's Standard column: outside London, awful. London: not good for now, but hopefully better come the autumn. NB Real Estate say London rents are up 25% since January. In February NB's better connected rivals, Knight Frank, estimated rises of up to 40% by December. It will be interesting to hear if they are still holding that line with clients.

It looks like a company in the construction sector called Interserve is working up the courage to sue the government for money lost on scrapped school building projects, according to the FT this morning. Will those in the commercial property sector, currently having their contracts frozen and none-too-subtle pressure to cut rates, have the guts to do the same? This issue is discussed in my Estates Gazette column tomorrow. The conclusion is, probably not.

But resolve may be stiffened by yesterday's news that government service providers, like Serco and Capita, have been asked to reduce the charges in what's called their framework agreements. These provide for everything from collecting the congestion charge to emptying waste paper bins in Jobcentres. These agreements allow the government flexibility on how much work is handed out; but they do not provide for post tender arm-twisting to cut rates.

The legal advice is that if the likes of, say, GVA Grimley and Drivers Jonas Deloitte, who both provide extensive advice to government, say no to rate cuts, then ministers will be forced to re-tender under the European Official Journal rules. This is not a theoretical discussion. One big firm of agents has already had a letter telling them that no more work will be awarded under the framework agreement - and, er, can they consider cutting their rates.

In that case M'learned friends are being consulted. But will the government be told to get stuffed? It feels about as likely as Knight Frank telling Land Securities to get stuffed if they were told to cut their valuation fee. What will be interesting to see is how hard the various trade and professional bodies in building and property will fight on behalf of their members. But don't hold your breath here. After all, they have their relationships with government to maintain.

St Modwen chief executive Bill Oliver makes cheerful noises today about the 167 schemes fed into the company "hopper" of 5600 acres and how the "marshalling" and "delivery" of those plots already purchased have helped turn a £98.3m loss last year into £26.7m profit in the six months to May. Well done St Modwen, a company named after the female Saint Modwenna, who used to perform miracles from drawn well-water. 

 
Oliver and his team have not quite performed miracles. But it is testament to his astute management that a business which earns its corn buying sub-prime sites in sub-prime spots did not fall prey to the sub-prime crisis. The relative caution exercised by St Modwen during 2005-2007 ensured their losses were not fatal, and has left them standing as one of the few large regeneration specialists in the country today.

The "hopper" is being filled. Non-current gross assets have risen gently by £22m to £839m. Nett assets have risen gently by 6.8% to £428m. The "marshalling" has resulted in planning being granted on a fair number of sites. But the "delivery" - cashing in - is mostly absent for obvious reasons. As is any mention of St Modwen's biggest opportunity to cash in: the sale of their shopping centre at Elephant and Castle.

The famous pink mall stands at the centre of a multi-billion regeneration project, won by Aussie developer Lend Lease - and lost by St Modwen. A long running and occasionally bitter row about the value of the centre has soured relations. A change from Liberal to Labour control of the council has complicated matters. A deal that was supposed to be signed last month has been postponed yet again. It will be interesting to see if Bill Oliver has some good - or bad- news on this in the coming weeks.