Recently in City of London Category

On Friday the stock market judged Minerva to be worth £67m. This morning the property company holding 1m sq ft of almost-finished developments in the City reported that liabilities of £847m exceeded assets by £46m. Does that mean the £113m gap between what the market thinks the company is worth and what they auditors thought on 30 June is down entirely to the hope value of the two sites at Walbrook in Cannon Street and St Botolph's in Aldgate?

                                                 St Botolphs, Aldgate

Not entirely. But clearly letting and selling the 445,000 sq ft in Cannon Street and the 560,000 sq ft in Aldgate are life or death deals for a business brought back from a near-death experience by chief executive Salmaan Hasan two weeks ago. Then he persuaded the banks to extend deadlines on loans of nearly £700m out to mid-2011: and he was given another £300m to keep going.

This was an extraordinary achievement for Hasan, whose experience as the head of property finance at Deutche Postbank in London will have come in handy. Sterling work. He will of course have been helped by the growing perception that Minerva has two of only five mega-developments in the City, where Cushman & Wakefield said last week occupiers are starting to "jostle for space."

The banks have presumably worked out that the end value of both developments adds up to more than the £570m given in loans. A rough (and generous) calculation using the £40 a foot paid by Nomura at Watermark Place, using a 6.5% yield, shows a small surplus. But that forgets the 4 years rent free given to Nomura. Thanks to Hasan Minerva will survive. But unless yields fall to 5% by his mid-2011 refinancing deadline, the sale of both sites will yield returns that do not add up to the present hope value.

 Apologies for returning to the terms of the Watermark Place deal. But the FT does again this morning. Again, it seems to have it a bit wrong, persisting in the view that Nomura is getting six years rent free for the 525 000 sq ft building on Upper Thames Street in the City of London.

As this is the biggest-ever letting of already build spec office space in the City, it is worth trying to clarify the terms. So, after a chat with both Mark Lethbridge of Drivers Jonas, who acted for Nomura, and Chris Vydra of Knight Frank, who acted for Oxford Properties, this is what appears to have been agreed.

In theory Nomura is getting five years and nine months free. In practice Oxford has granted a 4-year rent free period from when Nomura move in late next year. This agreement forgoes rent of £21m a year at a theoretical average of £40.50 - an £84m sweetener. The bad space has a theoretical rent of under £40 and the good space £45.

These figures provide the base rents for the first review of the 20 year lease in 2015.  Then Nomura will be paying no more than £50 for the best space for the next five years. The final 10 years of the lease are at open market rents. The other one year and nine months comes from turning costs into time of altering the building to suit Nomura. One year and nine months rent equals £36m.

One last point - promise: a generous 5% yield values the building at £420m. That is comfortably more than the cost of some $500m (£306m) Oxford admits so far to spending. But it would be interesting for some student of surveying to put the terms of this deal into an Internal Rate of Return (IRR) model.

Would a spreadsheet that simply measures cash in and the cash out over time come up with a profit for Oxford? Work started a couple of years ago. By 2015 they will have had cash out for more 8 years before a single penny comes in.

 Yesterday's report in the FT suggesting that Nomura had secured a rent free period of six years at the start of their 20-year lease of 525 000 sq ft at Watermark Place (below) in the City is a bit wide of the mark.

Today Mark Lethbridge of Drivers Jonas, who acted for Nomura, tells a slightly different tale.

The rent in years one to five is £40.50 sq ft; then £45 between year five and 10. Between 10 and 15 years, and between 15 and 20 years, it's up (or down) to the open market rent. Those extra 2 years are equivalent to the costs Canadian developers Oxford Properties have absorbed in fitting out and filling in the atrium - after which they will be able to charge rent on the additional space.

That is quite a cost to absorb - more than £40m on the £300m development bill. But Mark Lethbridge says Oxford (which is owned by a Canadian public service pension fund) is happy and relaxed and wants to do more in London. "They were really great people to deal with. There was none of the usual legal tensions". Is it because they are Canadian, not American? "Well, yes, perhaps."

US wealth fund manager AllianceBernstein has been looking around for new offices in either the City or the West End for at least three years now.  The question now is: City or West End? 

Since May the AXA-controlled business has employed the considerable talents of Bradley Baker of Knight Frank to find them 110 000 sq ft in a single building to replace about the same amount of space currently occupied in Devonshire House W1 and close by at Mayfair Place, where they are paying are around £65 sq ft.  

Prime rents in the West End are round £85 foot today, with limited incentives and limited choice. In the City headline rents are about half those in the West End - and, if you push hard, three years rent free is still available. And there are a fair number of rather fancy offices of the right size lying empty.  

It is not hard to imagine that all those wealth and hedge funds so attracted to the West End in boom times might start to return to their ancient home in the City as their leases fall in. Led perhaps by AllianceBernstein - if they can finally make up their minds.

Gerald Ronson is not content with having one tower under construction in the City.  Work on a second will start next year. The former is of course the 46-storey Heron Tower in Bishopsgate which is beginning to dominate the skyline, even though a further 20 storey's are to yet be added.

Observers were wondering if Ronson was having second thoughts about his second tower. Planning permission was granted in November 2007 for the 27-storey Barbican Centre Tower which will house the Guildhall School of Music underneath 284 flats.

The land next door to the main entrance to the Barbican concert halls has long been cleared. Had Gerald lost his nerve? Heaven forbid. Heron MD Peter Ferrari says that the £100m scheme will go out to tender in September and work will start next year.

A tip for builders Carillion: Don't even bother trying to get on the tender list. Gerald Ronson is deeply fed-up with your performance on "The Peak" - a 98 000 sq ft block in Victoria nearing completion - but many months late.

A question for City agents with long memories: has there ever been a bigger spec letting in the City or Canary Wharf than the 525,000 sq ft deal that will see Nomura move into Watermark Place (below) in Upper Thames Street in August 2010? If there is Chris Vydra of Knight Frank will be a touch disappointed.

During a walk round the Fletcher Priest designed block this morning that almost let to News International (James Murdoch wanted to do the deal, daddy Rupert did not) and to Bloomberg (last minute change of mind) Vydra said he thought the letting to the Japanese Bank was the largest of an already-built block the City had ever seen.

The tour followed a tetchy review here of the design seen from the back. A look round the front and the innards made it clear why the Japanese Bank preferred this block to the Minerva scheme in Cannon Street, just up the road. The view over the river is to die for - and the chief executive gets the best seat.

What really matters to City agents are of course the terms. Here Vydra stopped praising the building and became tight-lipped.  But well informed sources suggest the rent is between £40 and £50, and the rent free period on the 20 year lease is over 2 years. PS: despite reports to the contrary, Nomura is retaining the old HQ in St Martin's Le Grand

Legal & General (L&G) have done pretty well today out of the non-sale of the 3.7 acre Wallbrook site in the City of London to Metrovacesa, haven't they?  Presumably by accident, but here's how:

Step one: come up with an overblown design in 2006 by using funky French Architect Jean Nouvel. Funky French architect obliges with 350ft tall "Darth Vader helmet" tower as part of 1m sq ft scheme (pictured right).

Step two: find developer in the shape of Metrovacesa. Get them excited. Sell them the site (plus overblown plans) for £240m in September 2007.

Step three: force almost-bust Spanish developer to pay £100m today in return for walking away from a deal that has cost them £162m to date, including a previous payment to L&G of maybe £40m.

Next step:  Right, we have got our £140m. That is what the site was really worth in the first place. All we need to do now is to get that much again to double our money. Result.

Just one thing guys. Perhaps this time you will let the buyer work out what can be built?  It will save a lot of time and may even allow something decent to be erected on a site currently occupied by empty sixties office blocks.

This morning comes news of British Land appointing a new head of strategy.This is of course normally the job of the chief executive.

But BL's newish CEO Chris Grigg is an ex-banker. He presumably feels the need for a second opinion. So Jean-Marc Vandevivere is joining BL from Horsley Bridge Partners, a low profile US venture capital business.

Jean-Marc, who used to work for Boston Consulting, might want to have an early chat with BL director Paul Burgess, who seems to have come up with the bones of a new London development strategy all by himself.

Take a look at a speech made by Burgess to a group of architects at Claridges on July 9th. BL's head of London leasing paints three scenarios.

One, the future of the City of London will be the same as the past. Two, that future will be a pared-down version of the past. Three, forget the past. The future will be a whole lot different: no more just sticking up office blocks for financial institutions and lawyers.

The speech is both thoughtful and thought-provoking. The immediate thought Burgess provokes is this: does the City Corporation also need to rethink its own planning strategy which takes for granted the future will look just like the past.

What will Nomura do now with its 275,000 sq ft European HQ in St Martin's le Grand, now they have signed up to go Watermark Place (below), a deeply undistinguished glass box of some 525,000 sq ft nearing completion on Upper Thames Street?

The building designed by Fletcher Priest - if design is the right word - has the capacity to hold not just the staff from the elegant stone-fronted St Martin's Le Grand building, but also 2,500 lost souls from Lehman Brothers in Canary Wharf who were rescued from banking perdition by Nomura. 

The decision to take Watermark Place was both technical (two sources of power supply thanks to the legacy of the even uglier BT building, Mondial House, that used to sit on the site) and political: OK, let's all get everyone together in the one spot, even though it is not such a nice spot.

There is of course a second question surrounding the letting. How many years rent free did Drivers Jonas negotiate for Nomura from UBS and the Canadian public service pension fund that paid the US$500m (£308m) construction cost. Guesses over three years welcome.