September 2010 Archives

The news in the FT today that Sir John Beckwith has "teamed up" with Gerald Parkes to invest in property had an oddly familiar ring. In fact that particular piece of news was first announced in the same paper on September 13th 2009. The new news is that a property fund of has finally been launched by Parkes, the former head of Lehman Brothers real estate private equity business. Last year the FT story tagged on Knight Frank's results. This year they did not.

Last year the Sunday Times got to carry Knight Frank's figures, this year, the same. Last year turnover in the 12 months to April 2009 fell from £334m to £256m and profits from £59m to £21m: this year turnover partially recovered to £288m - but profits almost wholly recovered to £58m. To squeeze an additional £37m of profit out of a business where turnover increased by just £32m is a formidable management achievement and a tribute to the strength of the brand.

The full Limited Liability Partnership accounts have yet to be lodged at Companies House. So, it is not currently possible to display the detail on how KF managed the bounce back. But it is not hard to guess from the mood music that residential has been the star performer, and London the stellar spot. But you don't get to increase profits more than turnover without either cutting costs or increasing market share - or by doing both at the same time.

This will be a hard trick to follow in the current year, which is already half over. London residential is probably still doing fine: but the mood music on future trading from senior partner, Nick Thomlinson, sounds a bit sombre. UK commercial "more difficult"; Asia Pacific "more modest"; Europe "a stuttering pattern" even residential "appears to be slowing." The news in September 2011 might not be so good. Maybe Gerald Parkes will cheer.

The return to the CBRE fold today of Simon Blake as head of UK capital markets after a year-long break will feel like a bit of a come down for the man who left last September amid much hoopla to set up a £1b fund with his long-time partner, Simon Holley. Remember last autumn? That was when one vulture fund after another flapped into the sky and began to circle the carcasses of over-leveraged property deals killed in the recession. 

Most have crashed to earth, starved of promised capital as the strong autumn-to-spring sentiment wave began to subside. So, Simon Blake is just one of very many casualties. He at least has been welcomed back by his old firm. There are plenty of others out there still scratching around pretending their plans to raise X and add Y of debt will add up to X + Y +20% profits from what is coyly called "restructuring opportunities". 

Holley and Blake were industrial specialists, a market that is particularly suffering. Nick Leslau, to take just one instance, is probably sitting on plenty of vacant sheds in the Max Property portfolio. He must be: Segro is suffering from a 14% vacancy rate - and their sheds are better located. The £30.5m sale by Max this week of part of the old Industrious portfolio in High Wycombe at feels a touch forced at an 8.85% yield.

So, this is hardly the time for anyone else considering flying the nest. A man who has done so successfully gave a few observations today. While still in the nest and testing your wings potential backers will be extremely encouraging. After your leave some fly away and the others scale down their promises - especially if the market is going south. Then the lenders slowly close the door and you're left out in the cold: by then its time to go home to daddy.

Speculation here in a July 19th posting on the possibility of JP Morgan moving into the old Lehman Bros offices at 25 Bank Street at Canary Wharf instead of building their own HQ next door has hardened into a printed story in the Independent today. The tale adds no new hard facts and is rebuffed by both Canary Wharf and the US investment bank. But that does not mean it is wrong. A decision is looming and agents, as they do, are speculating.

On the one hand, JP Morgan is doing well and might now have the confidence to build a 1.5m sq ft superstructure on the almost complete foundations. But boss Jamie Dimon seems less than confident of the future. Never mind the threat of banking regulation. The CEO has just lopped $1.9m dollars off a house he owns in Chicago in a third and final desperate attempt to sell the property for $6.9m that was once on the market for almost double that price

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Confidence among City developers may also be hit by comparing how much office development the Corporation thinks it needs and how much is already in the pipeline. A story that will appear in my Evening Standard column this afternoon compares both sets of numbers. Between 2011 and 2026 the City says estimated demand is 750 00 sq metres. The current pipeline of unbuilt schemes with planning is just over 900 000 sq metres.

Some of these will of course fall by the wayside. Others will be redesigned and eventually built. But the fact that planning permissions exist to fulfil demand to about 2029 does beg a few questions. One, there seems little for the City planners to do for two decades but chew old fat: ditto for planning advisors; ditto for architects; and ditto for City agents, whose speculation   tends to avoid mention the official City view of long term demand.

The desire to scrunch up the FT and hurl the paper to the floor on Saturday was almost overwhelming, after reading the Pink 'Un's announcement that the Candy Brothers have sold their Monaco flat for £199m, without an answer to the obvious question: why? To be fair to the reporter, if you are handed a story like this, asking the awkward question can be awkward: But no excuses for the Sunday Times, which ran a puerile follow-up, worthy of OK magazine.

The Sunday Times further raised the blood pressure with a cobwebby feature on how communities secretary, Eric Pickles, is to offer a "£1b incentive to councils for homes boom:" An unlikely conclusion that will have also quietly irked housing minister Grant Shapps. For the core of an otherwise fluffy puff for the rotund cabinet minister was Shapps's three year old plan to let councils hang on to the council tax on new build homes for six years.

That feels better. To more serious matters: this morning it was announced that new Quintain chairman, William Rucker, bought 100 000 shares in the company on Friday, taking his stake of to 348, 254. Well, why not? The Lazards banking chief was elected chairman two days before. It is only good manners to show additional faith in the company you now get to steer. But why is it that a significant minority of shareholders are unhappy with Quintain?

At last Wednesday's AGM 14% of the shareholders voted against Rucker's appointment, 27% voted against the re-appointment of long time director Martin Leech and 10% voted against giving a seat to the Cayzer family, who own a stake in the developer run by Adrian Wyatt. There were even grumbles about a £75 000 bonus for the "exceptional performance" of finance director Rebecca Worthington. What is going on, is the question Wyatt needs to answer.

Schroders is in talks to lease up to 250 000 sq ft in the 64-storey Pinnacle Tower in the City of London, according to Bloomberg this morning. If the UK investment bank does sign a lease for a quarter of the 1m sq ft tower, then construction of the super-structure will go ahead and the 945 ft tower will become the tallest in the City.

Developer, Arab Investments, has been saying for months now that if it can get one occupier to take more than 200 000 sq ft, then the banks will lend then the £600m necessary to build the superstructure. On Sunday there were reports that HSBC was willing to lend to the group of Middle East investors behind the project.

Schroders is one of five financial occupiers looking for more than a quarter of a million feet in the City today. "We're going out there saying we will be aggressive because we need the development finance," said Khalid Affara MD of Arab Investments, tells Bloomberg. "I'm confident I will sign a tenant to enable this project to continue."

Schroders are going to drive a very hard bargain and get a nice long rent free period and a deal at no more than £60 ft. There are currently about five occupiers 200 000 sq ft. If the Pinnacle goes ahead it will create 750 000 sq ft of spec space on top the 420 000 left in the Heron tower, let alone the 700 000 empty in Minerva's Walbrook and St Botolph's

Hines will finish 400 000 sq ft in Cannon Street next year. Land Securities seem committed to building their 700 000 sq ft "Walkie Talkie." That lot adds up to nearly 3 million sq ft. Add another 1m at Walbrook, where L&G will almost certainly be hosting the originators of this story, and maybe that's enough for now, despite the hype of City agents who say not.

Will Land Securities further de-risk their exposure to the 525 ft Walkie Talkie tower in the City of London by selling 25% of the equity to the Chinese State, as well as passing some of the risk and profit to Canary Wharf? This question arises from a rather speculative article in the Independent yesterday suggesting that the $200bn China Investment Corporation (CIC) has approached Land Securities about taking a stake. Only LandSec knows the answer.

Chief executive Francis Salway might well like CIC's help in renting the 36-storey tower by, let's say, "persuading" Chinese firms scattered around the City to rent space in the Walkie Talkie. So, some sort of deal might be possible. But LandSec's have owned this site forever and have permission to multiply the number of square feet from the 200 000 contained in the old offices to nearly 700 000. So, why should the REIT give away 25% of hefty CGT-free profit?

The Canary Wharf tie-up is due to be announced later this month. That and a go/no go decision by British Land, sometime, on building their City "cheese-grater" tower will provide two litmus tests of confidence in the City development market. Fear of commitment means most towers are begun near the top of the cycle, with predictable results. Today the needle on the confidence barometer is hovering slightly closer to fear than greed. So,time to start?

Or not. An article in today's Lex column in the FT  asks why investors are not piling into property yielding 7% rather than 3% bonds. "A yield comprises a numerator and a denominator" argues the numerate writer, who goes on to explain about the denominator being the capital value and the numerator being the rent. After that its' pretty much the old arguments about the future of values and rents. "Be careful" cautions the FT. So,yes, maybe time to be bold? 

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A three-page article I've written for Estates Gazette this coming Saturday on the battle for control of Minerva concludes, with some hesitation, that the existing management will win the vote at next Wednesday's EGM, and therefore 29% shareholder, Nathan Kirsh, will be thwarted in his attempt to install LSH deputy chairman, Philip Lewis, and one other, to the board. 

The article mentions a report by shareholder advisory group, Risk Metrics, which backs the motion that just Lewis should be hired by Minerva; but that chairman Oliver Whitehead and chief executive Salmaan Hasan should not be fired. There was no space in the EG article to go into the reasons for the Risk Metrics compromise idea. But a look their analysis is instructive.

The 20-page report shows shareholder returns at Minerva are minus 66% during Hasan's five year tenure, opposed to -26% for the company's 11-strong peer group. But here is the more telling human calculation. "New blood can help ensure all options are considered: without new blood sometimes incumbents become psychologically wedded to past strategy." A fair point.

But a point not currently psychologically acceptable to Minerva. The odds are that they will still win the vote next Wednesday. So the Risk Metrics proposal may not matter: But they do lay out grounds for compromise by urging shareholders to vote for the inclusion of Lewis and against the exclusion of Whitehead and Hasan. Maybe this would be a fair conclusion.