May 2011 Archives

Tomorrow is the deadline for Southern Cross landlords to acquiesce to rent reductions on 750 homes leased by the near-bankrupt care home operator. Today the story was finally shoved under the noses of the City, with a front page article in the FT on this tale of greed and obduracy. Will the unknown recipients of £250 million a year in rents agree to cuts of 20-30%? You would think so. But negations have been going on for many months. Clearly some landlords holding upward only 30-year leases would rather Southern Cross went bust. After all, somebody is bound to look after the 30 000 elderly occupants, aren't they? So, what does it matter?

The management of Southern Cross has played a poor hand badly. They have failed to put forward their side of a strong PR case. Why not let the world know the gory details of the millions made by West LB who helped assemble the collection of care homes. How about Blackstone? The US equity house put together a flotation of business at 300p a share in March 2007, a price based on new leases guaranteeing upward only rents, lumbering Southern Cross with lease liabilities of £4.9 billion. Why not let the world know who these landlords are? After all, they will appear in the list of creditors if the company goes bust tomorrow. 

 
On a calmer note, the Daily Telegraph today rather buries the fact that British Land and London & Stamford are having a row about over the valuation of 74 acres of land at Meadowhall, the giant northern shopping centre they co-own. It has been known for a while that a 700 000 sq ft extension to the 1.4m sq ft centre on the M1 near Sheffield was planned. Patrick Vaughan and Raymond Mould of L&S want to exercise their option to buy the land at "market value." BL think the plot destined to take an IKEA is worth £20 million. The two gentlemen of L&S clearly disagree. So, the matter is to go to arbitration says the Telegraph.

The earth finally moved this morning with the consummation of a £197m deal for the takeover of King Sturge by Jones Lang LaSalle. CBRE will already be saying the price is too high, having apparently offered about £40-£50m less a month so back. There are 90 or so benefiting partners. Richard Batten and Chris Ireland hold about 5% each. That means the pair will get just under £10m each, half now and half over the next five years.

Those in the marzipan layer, who can no longer anticipate equity icing, will grumble. Some will leave. Cashing in on 251 years of goodwill by the present partners will trouble industry traditionalists. The "we had to do something" argument does not quite wash. Doing nothing was of course an option.But, as one partner confided "our hearts said stay independent, our heads said join JLL". The deal does appear to make sense.

Most KS staff will be flattered to join JLL, whether they admit it or not. JLL staff may not feel quite the same way. But those joining have come from a business which may be a lot smaller - but it is one that makes much bigger margins. There will be fallings out after the honeymoon period. But JLL will be all the better for subsuming King Sturge and KS staff will have wider opportunities at JLL.

The earth is beginning to be moved at Network Rail by former Olympic Delivery Authority chief, David Higgins. The rail-thin Aussie tells Building today that the major projects division is to be "run like a separate business" by current investment director, Simon Kirby, who has taken over the running of the 125-strong department from Ian Lindsay who is chuffing down the line to Cross rail to tend their land and property.

Higgins hints of shaping up the department to make it fit to tender for building parts of HS2. Fine: but that project is years away. What is more immediately relevant, to the property sector at least, is the interminably stalled development projects around Euston, Waterloo and Victoria stations, just for starters. Years ago British Land was appointed development partner at Euston, Hammerson at Victoria and nobody at Waterloo.

Higgins is the most capable man since Mussolini to keep the trains running on time. But unlike his predecessor, Iain Coucher, he is not prey to militaristic tendencies. "Change management" consultants have been appointed. Developers are to be brought in much earlier in the process of planning schemes. Eight different templates are being forged that will allow risk sharing with private firms who wish to hook up with Network Rail.

Can Higgins succeed? At making sure the trains run on time - no problem. Can he succeed in the narrower field of making major London station projects run on time? Hopefully, but it is 2 months too early to tell. A lot will depend on his new man, Simon Kirby. Higgins has promised transparency at Network Rail. So, let's hear it next from Kirby. Let's hear how he will get the London station projects out of the shunting yards.

Delighted to see British Land has adopted the Peter Bill Financial Reporting Standard by headlining this morning's results with the 9.9% increase in underlying profits to £256m, rather than boasting of International Financial Reporting Standard profit figure of £830m, an always specious number railed against in my EG column on April 9th. Actually, BL may have selected PBFRS rather than IFRS as the latter number shows a drop from 2009...

The rather silly government appointment of Mary Portas to "save our high streets" engendered a lot of silly "can we save our high streets" coverage this weekend. More interesting is the story in the Independent on Sunday. Walmart is setting up shop, so to speak, in West London. Asda's giant owner is seeking office space for up to 50 staff seconded to Europe for a second attempt at cracking the continent after pulling out of Germany in 2006.

All you need to know about the US real estate market is contained in two stories today. Bloomberg report that once-nearly-bust New York developer, Harry Macklowe, is planning a "monumental" skyscraper on 57th Street and Park. The New York Times provides a darker picture: an America facing a "tsunami" of home repossessions, depressing prices, causing a second wave of repossessions from banks up to their necks in foreclosed property.

A good deal of what you need to know about the UK market is delivered by the FT and the Times this morning. The pink paper provides a thoughtful summary of rising confidence in the listed real estate sector ahead of this morning's solid figures from British Land. What used to be called "The White Times" in the City tells of yet another ressi mezzanine fund being launched, this one from the irrepressible duo of Manish Chande and Martin Myers.

Finally, something solicitors need to know. City AM today reports that Harry Hill is setting up an residential conveyance Web site called In-Deed, which may prove far from a joke.For the Harry Hill in question is the former chairman of Countrywide. He is an intelligent and formidable character, one who is coming out of retirement to set up a site that will allow buyers and sellers to track progress of the property transfer. Only one step from doing it for them...

The Times today unearths an interesting fact from the administrators report into Peverel, the block management company once controlled by Vincent Tchenguiz. Zolfo Cooper says a loan of £594 million from one of the Tchenguiz Family Trust companies remains outstanding. Not that money has changed hands; rather the value of 200 000 ground rents (and presumably the income) was transferred from Peverel to a business owned by the family. 

 
This ground rent portfolio was the foundation of the Tchenguiz Empire and not originally owned by Peverel. Over the years much of it has been securitised to raise money for other ventures. So, who knows what it all means - except a tug of war over the assets will complicate Vincent's chances of restructuring what remains of his empire, bits of which appear for sale every few weeks, the last two bits being a French Villa and a stake in fund manager Bramdean.

The slow progress in reducing the bank's £224 billion property exposure is exposed in the FT this morning with the publication of the De Montfort survey. Half these loans (£112 billion) will mature within two years and one fifth (£45b) are in breach. That number is down £13b from £58b last year, due to restructurings and write-offs. Not bad. But £14b of loans have been shoved into the "extend and pretend" box. No good pretending this won't be over before 2020.

Today's Standard column takes a look at efforts to squeeze billions from the £370 billion public estate. The article is based on private discussions with a few senior observers depressed at the lack of progress. They are most depressed about the emasculation of the Government Property Unit, headed by John McCready, which was going to make all the difference. Mandarins have apparently performed a successful removal of the GPU's testicles.

UK Fund manager Henderson has bought the Leadenhall Triangle site in the City of London, reports the Sunday Telegraph, pipping Canadian giant Brookfield perhaps? Either way, this is far from the last tale on the 2.8-acre site painstakingly assembled by Mark Morris and Morris Golker of Investream over nearly a decade for Joseph Schimmel of UKI Investments. 

 
Why? Because in March Brookfield paid Rockspring £15m for 65-68 Leadenhall, a plot which impinges on plans drawn up by Investream for a 1.5m sq ft 27-storey mega-bank. But no doubt this ransom plot has a price: as will other slices still owned by the Schimmel family, which lost control of the centrepiece to administrators when £127m of mortgages were called in.

The question now of course is this: does the value lie in building another whopping great office block on the fringe of the City? Well, Henderson would not be buying this rag-tag of ageing buildings for the income. Brookfield obviously felt the same. Both have clearly listened to the City Corporation, which is obviously keen to snag a mega-bank. But then, they always are...

One who has wasted many man years on this project feels the existing scheme has had its day. That Henderson should go back to the drawing board and work up fresh mixed-use plans on just the land they are acquiring - and sod Brookfield, UKI and a Grande Project. The story yet to develop is whether they dare go with a version of Plan A, or settle safely for a Plan B.

PS: The Times reports that Aon will finally announce this week a 200 000 sq ft pre-let in British Land's expensive Grande Project, the Cheesegrater. There is also a wonderful story about a Manchester company called Fresh Start selling flats over the internet to the Chinese, indicating the buy-to-let boom of the early noughties has now gone global.

PPS: Naïve buy-to-let punters were often encouraged to attend expensive courses run by iffy characters. America's most iffy presidential candidate, Donald Trump, has been exposed in the New York Times for doing the same and running a brand empire that appears no more substantial than his hair. Exposure that is helping reduce Trump to ex-candidate.Enjoy.

BNP Paribas Real Estate will drop a name as long as an elephant's trunk in favour of the letters DTZ. Also dropped will be Paul Idzik, the current chief executive of DTZ. The boss of BNPRE, Philippe Zivkovic, will take charge of the combined business. Staff at DTZ will breathe a sigh of relief. And a rather formidable global force will emerge to compete with Savills and Knight Frank and snap at the tails of C&W, JLL and CBRE. PS: this is just a guess.

That said, it is not hard to guess what will happen once the Mathy family transfer their 54% holding in DTZ to their Gallic chums at BNP. What is hard to guess how many tens of millions they lost buying lost buying into DTZ in the noughties. At a guess the motivation was that, one day, a merger with what was once Weatherall Green and Atis Real would take place. Presumably the plan was to have a successful DTZ as the senior partner.

But Paul Idzik has not succeeded in turning around DTZ since he joined in late 2008. The 50-year old American banker from Barclays did an efficient if brutal job cutting back in 2009. But he has failed to win the hearts and minds of staff or the City during the recovery. The shares were 60% down on the year by Tuesday. Savills were up 20%: the brutal verdict of the stock market told in December that DTZ would not be making a profit as others did.

Philippe Zivkovic appears to have done a good job at BNPRE. It is admittedly hard to tell from the outside. But the 3300-strong business seems enlivened & confident. But it is still essentially a Franco-European firm. Despite its travails, DTZ remains strong in Asia and has some very good staff in the UK. Plus the brand translates worldwide. Avoiding the temptation of adopting an alphabet soup name will also help the merger make sense.

Nick and Christian Candy have been dropped from the Sunday Times Rich list. The decision to exclude the development managers of One Hyde Park will not have been taken lightly. There was probably a great deal of discussion between Philip Beresford, compiler of the Sunday Times (and EG) Rich List, and the brothers. The paper obviously feels it has not been given sufficient evidence of their wealth, put last year at £300m.

The brothers were given a tough time by the Sunday Times four weeks ago over how many of the hyper-expensive flats at One Hyde Park had actually been sold. This forced them to reveal that 45 of the 80 flats have completed for a total of £963m. So the combative pair were probably not keen to give evidence of their wealth to the paper they feel has it in for them. But not being in the list will inevitably lead to speculation as to their worth, like it or not.

Nick and Christian have lifted their financial skirts a couple of times to the press. But there has never been anything fully convincing published - like a set of group accounts signed off by a big four auditor for instance. That seems unlikely to happen. But how about revealing the C&C equity stake in One Hyde Park, plus any cut of the increase in sales prices since the original development agreement was signed with the Qataris?

The reason for suggesting this is that a profit of half a billion is in prospect. The current sales income of £963m covers the cost of the entire development. The 35 flats left to sell will be mostly bunce. The current average sales price of £20m would produce £750m. But the flats left are mostly cheaper, road-facing, units. Even at half the average price, the development profit could be £350m. So, £500m feels a reasonable guess. But who gets this money?

That question has never been fully answered. The brothers appear to have taken payment in kind, in the shape of one flat. Early re-financing may have provided a windfall. But it is not clear who will benefit from the profits flowing from the development. Nobody's business? Normally, yes. But this is the one big project the Candy brothers have seen to fruition. Knowing what fruits they are due would dissolve worries over exclusion from the Rich List.

Readers of EG will smile at tomorrow's front cover containing the words "coming together is progress, keeping together is success." The advertisement was paid for by King Sturge, who spent several sweaty weeks denying they were talking to CBRE (and then A N Other) about "coming together". The advert is an implicit admission that talks did take place. Keeping together this successful and well-defined brand always felt like the best option. The explicit message of the advert is that there will be no more flirtations for a long while.

CapCo boss, Ian Hawksworth, will not be smiling over news in The Times that the Association of Event Organisers would like him to keep Earls Court standing. Demolition will have "disastrous consequences" for the exhibition industry says AEO boss, Austen Hawkins. Not demolishing would have disastrous consequences for CapCo's multi-billion plans to redevelop 77 acres on and around Earls Court. Hawksworth keeps his temper, says only, "we are responding to the planning environment and have invested in Olympia." 

Today's Standard column contains an unsmiling account of the lack of demand in the City. Ire is reserved for Drivers Jonas Deloitte and BNP Paribas. The booster-ism of their recent reports concentrating almost entirely on the level of supply has a hollow ring. Not so the research of CBRE. The agent indulges in its own booster-ism, head-lining the squeeze on Grade A space in Central London. But anyone who attended the breakfast presentation on Wednesday could not fail to hear the underlying caution in CBRE's view of the City market.

Today three stories buried by the royal wedding and the killing of Osama bin Laden by US special forces. The first tale is directly related to that wedding, the second and third related to the American cousins of Knight Frank. 

On the eve of Will and Kate's wedding, Capita Symonds made two announcements. The first, in Building magazine, is a naked pitch to become the chosen "strategic partner" of the Ministry of Defence, which is looking for help in managing its property portfolio. Capita Symonds currently collects soldier's rents. But MD Jonathan Goring says he hopes to win the MoD property contract. His aim will no doubt be improved by the appointment of a new non-executive director at Capita Symonds.

"Tim Laurence joins Capita Symonds board," was the ignored announcement. Yes, indeed: the husband of Princess Anne. The man you saw standing by her in the Abbey on Friday in his Vice Admiral's naval uniform is to provide counsel and advice to Capita Symonds. The timing of this slightly embarrassing semi-Royal appointment must have been the subject of delicate discussions. But the reasons are clear: after commanding four warships, Laurence moved on up the MoD chain of command and ended up running Defence Estates.

Laurence restructured Defence Estates into the Defence Infrastructure Organisation, before retiring last year: the organisation now looking for a strategic partner. PS: Jonathan Goring is looking for "partners" as well. He wants to buy more construction and property related consultancies in the wake of the purchase of the firm once known as Nelson Bakewell. Goring is after  "top ten" consultants as part of a strategy to grow the business by 50% in five years. The Royal appointment may help that aim as well.

Knight Frank will not be pleased by the sale of their US affiliate, Knight Frank Newmark, to hard-nosed money brokers BGC Partners. "This is the beginning of a dramatic new footprint in commercial real estate" said Howard W. Lutnick, CEO of BGC last Thursday, deploying an overblown rhetoric that will be an anathema to the gents at Knight Frank. Scroll down the Web page showing the tough faces running BGC and its hard not to conclude KF has been landed with a second "household cavalry meets the marines" JV.

The first was of course the ill-fated JV with Grubb and Ellis in March 2000, which sank in the boggy ground of social misunderstandings. Bad luck to Grubb & Ellis, which has floundered ever since: Last week fund managers, Colony Capital, who have pumped in $18m (at 11% interest no less) to keep the business going during a 60-day period while it decides how little to pay for the firm which provides a precarious living for 6000 property folk including 1800 brokers in 125 offices, mainly in the US.