Recently in Property companies Category

The most interesting story to emerge over the weekend is the suggestion in the Independent on Sunday that Lloyds will favour listed property companies over private equity groups when it comes to setting up joint ventures to take billions in distressed real estate assets off their balance sheet.

How much appetite firms like Land Securities and British Land will have for investing in and then working out distressed assets is open to question. This is more familiar territory for the likes of Blackstone and Apollo. But apparently Lloyds fears bad PR from the quick profits that might accrue to the buy and break up merchants.

This tale does chime slightly with the news that unlisted by very respectable Grosvenor has been approached to do a joint venture with Lloyds. Further credibility is added by the now un-ignorable rumours that the bank is close to a rights issue that will allow it to put a much smaller proportion of its £50bn of real estate assets into the government insurance scheme.

This also feels like the sort of thing a reputable bank like Lloyds with a disreputable HBOS portfolio might at least try. It is also not hard to imagine the hand of the major shareholder (HM Government) gently steering the banks away from deals that will lead to headlines in three years time along the lines of "US vulture funds makes killing from Labour's bank rescue plans."

After Stephen Hester left British Land to save RBS, there was much speculation over who would get the top job. Would it be 44-year-old Tim Roberts, the former Drivers Jonas partner, who is the director in charge of investment and asset management? Or would it be 40-year-old Andrew Jones (pictured below), who spent 10 years at Pillar with Raymond Mould and Patrick Vaughan before joining BL in 2005, when former banker Stephen Hester acquired Pillar?

In the event, neither got the job. When Hester went back to banking, BL took on another banker in January this year in the capable shape of 49-year old Chris Grigg, who was chief executive of Barclay's commercial banking business. Being good soldiers Tim and Andrew stifled their disappointment and got on with the job.

But just nine months later came the oddly- worded announcement yesterday that Andrew Jones is "considering leaving British Land". Not going, but thinking about it. But where is he considering going? Shall we speculate? OK. But it is important to remember that what follows is based on total lack of knowledge of Andrew's intentions.

Which two men set up a very successful property business after raising £200m in 2007? Who are those two chaps, now in their sixties, who bought half of Meadowhall? Which pair of highly successful entrepreneurs now might be looking for a younger man with retail experience to run a business that has plans for full stock market floatation in a year or so?  Answer in paragraph one.

City rents have reached a new low of £28 sq ft. That is the roughly what Nomura will end up paying over 20 years for the lease on the 525 000 sq ft Watermark Place on Upper Thames Street. That is because the Japanese bank has wrung a rent free period of almost 6 years from developers UBS and the Ontario Pension fund on a headline rent of just over £40 sq ft.

Mark Lethbridge of Drivers Jonas, who is acting for Nomura, has disclosed the terms of the City's biggest letting to the FT today ahead of an official announcement tomorrow, when the deal will be signed.

The implications are chilling. What terms will RREEF get if they can ever let their 400 000 clunker in Aldersgate that used to be the home of Clifford Chance?  What terms will struggling Minerva now accept on their nearly finished 400 000 sq ft block on Cannon Street?  Or indeed their one-third let St Botolph's block, which is about the same size as Watermark Place.

But never mind that. First imagine the effect on all those big deals and major developments that will now have to include a worst-case scenario of six years rent free instead of three. Second imagine all those tenants with imminent lease breaks trying it on by quoting the £28 figure as the new benchmark level for City rents.

The chances of Real Estate Opportunities ever developing Battersea Power Station (pictured left) are surely diminishing.

Half-year results published yesterday for the listed business 66% owned by Treasury Holdings of Ireland make grim reading.  

REO has properties worth £1622m at the end of June -and £1621m of debt. There is just £61m in the bank. Yet £556m of loans are due to be repaid this year and another £201m in 2010. Agreement to roll over this £757m debt has not been reached.

REO say they have a "reasonable expectation" of these loans being rolled over, so the company will be able to meet its liabilities for the next 12 months. But the accounts have been qualified by auditors KPMG who say there is a "material uncertainty" over REO's ability to continue as a going concern - unless the banks defers these loan repayments.

The parlous state of REO raises a couple of questions. First, will Treasury Holding owners John Ronan and Richard Barrett stand behind REO's debts if it comes to the crunch? Second, where will the couple of billion needed to build out 3700 homes and 2m sq ft of commercial space at Battersea come from?

The old power station site value has been downgraded by 15% to £388m. This excludes £19m of capital already expended preparing at least three sets of plans including the first set with that ridiculous chimney. The designs now do look good. But the re-workings have wasted a year. Work needs to start soon to catch this cycle. Are there any debt or equity partners out their willing to risk it with REO on a site that has been a graveyard for developers for 30 years? 

Martin Barber is back. The former head Capital & Regional tells the FT this morning he has found a group of unnamed investors in America willing to back Zenith Estates, a company set up with his son Jamie, who part-owns the Hush restaurant in Mayfair amongst others.

The combative Barber was less-than-politely asked to leave C&R last spring after a fall out with the board of retail and leisure business which was struggling badly at the time. Not a happy parting.

Barber says his backers have committed enough equity to allow him to buy £2b-£2b of stock for Zenith, which will be floated in five years time. Time will tell.

Meanwhile C&R struggles still, despite the best efforts of its new and more emollient MD Hugh Scott-Barrett. Last week the former banker was forced to sell new shares in C&R at a 73% discount to raise £70 m for the still-struggling business.

Barber will now presumably be calling Scott-Barrett to suggest Zenith donate more fresh capital to C&R by the purchase of the odd shopping centre or retail park. Will Scott-Barrett return the call?

British Land failed to pull the Broadgate sale rabbit out of the hat yesterday. And chief executive Chris Grigg failed to give an unambiguous steer on where the company is going.

That much is clear from this morning's mixed coverage in the FT, the Daily Telegraph and the Guardian. BL will sell anything "at the right price" and there are "no sacred cows." In the same breath there was talk about "taking the opportunity to buy distressed assets."

There are perfectly understandable reasons for selling - cutting down the £4.8b of net debt in a business where the assets have shrunk from £12b to £8b. There are perfectly understandable reasons for buying - prices are down 40% and look set to rise.

But BL has plenty high quality distressed assets of its own worth 40% less than 2 years ago. Why sell them to buy more? BL's own property will go back up in price as fast, if not faster, than anything new that can be bought. Why not improve your own assets?

Broadgate is the perfect example. That "sacred cow" does need £350m spent on repairs according to one authoritative source. If you factor this in and do the sums, the £150m bid by Blackstone for half the equity values the estate at roughly £2.75b - a yield of just under 6%.

But there are plans on the table to upgrade and upsize the estate from 4.3m to 5.5m sq ft, which would take the end value well over £4b. As has been suggested here before, why give away half the uplift for £150m at the bottom of the market?

British Land chief executive Chris Grigg better come out fighting tomorrow when the UK's second largest property company announces its first quarter results. 

In the nine months since the former chief of Barclay's commercial division took the job not much has been heard from the low profile banker. But in the last few weeks a great deal has been heard about BL.

The company is now being destabilised by bid rumours and talk again at the weekend of selling half of Broadgate for a ridiculously low price . The bid rumours may not be true. But if it turns out that BL is to give away half the equity in Broadgate for as little as £150m then Grigg will have to make a very convincing case against the argument that BL is so desperate for the cash it will sell at any price.

There are plans for Grigg to raise his low profile in the autumn, which is fine. Expect to see the odd interview. But what is actually needed - right now - is a clear and unambiguous line from the man himself on where BL is headed.

It will be interesting to see if Grigg can match the effortless superiority of his predecessor Stephen Hester, or even get close to demonstrating the iron grip of Hester's predecessor Sir John Ritblat. 

Friday's publication of the Investment Property Databank July indices now makes it possible to look back and see the shape of the nastiest recession since the 1930's, which began in July 2007 and seems to have finished in July 2009, with the monthly index barely down on the month before.

The shape is a wonky "W" - if you chart the three-month rolling average fall in the IPD index over the 24 month period. The bottom of the second half of the letter is a lot lower than the first half. What this shows is what all felt; nerves steadied early last year. But the second dip from July 2008 to July 2009 was even scarier than dip from July 2007 to January 2008.

The indices also show that that the fear of capital values halving never quite materialised. Office and retail values fell by about 45%, sheds by 40%. Prices in these latter two sectors now stand at what they were in November 1997.

But subscribers to the full database can look back even further - and see what an appalling investment commercial property is for anyone foolish enough to rely upon capital appreciation alone. Shop prices are just 39% up since 1986 and sheds 49%. Over the same period the Retail Prices Index has more than doubled and FTSE index trebled.

And why are offices the most fashionable sector? Steady income perhaps. But the IPD Capital Growth index for offices stood at 99.53 last month.  The index began life at 100 in December 1986: twenty two and half years - and zero capital growth.

The argument about buying in the trough and selling at the peak of course holds water. But take a look back through the index: the peaks in retail and sheds are a lot higher than they are for offices.

Trevor Osborne (pictured left) has had his ups and downs. But just-filed results for the 12 months to September 2008 show the former chairman of Speyhawk, now in his mid-sixties, is ticking along well enough.

Those with long memories will recall Speyhawk going bust in 1993 owing the banks £360m.

Bitter bankers with long memories still recall the after dinner speech in which Osborne made a joke about how he could not have achieved so much without their help. Clang.

He bounced back, ending up in an unlikely joint venture with consulting engineers Pell Frischmann called Hawk. That ended in a terrible legal fight over profit sharing with Dr Wilem Frischmann, which Osborne lost in 1998. He was forced to issue a public apology and hand his stake in the business to Frischmann.

For the last 10 years or so The Trevor Osborne Property Group has generally stuck to developing hotels and the like in genteel spots like Oxford, Bath and Buxton. The accounts show investment properties valued by Osborne himself in September 2008 at £49m

The good news is those properties only cost £32m. The bad news is that development activities pushed the bank overdraft up from £31m to £41m in the 12 months to last September. Even so, an £8m gap between assets and overdraft doesn't seem that bad. 

Group net asset value may have got better or worse in the last 10 months, who knows? But, bankers, well, they do have long memories. One persuaded Osborne to sign a  £1.39m personal guarantee against the company overdraft.

Why has the convivial John Richards (pictured left) retired from Hammerson after 30 years, at the still tender age of 53? 

There are few clues in the half year results out today which announce that head of UK David Atkins, (age 43) will be taking over as chief executive.

There is of course that £818m loss in the six months to June 30^th - and the whopping 28% fall in the value of the portfolio from £6.5bn to £4.7bn. But almost half of that £1.8bn shrinkage can be blamed on DTZ who down-valued the portfolio by 12%.

Much of the rest can be blamed on Richards. But only because he flogged off nearly £600m of stock to get the overdraft down. Those sales, plus a timely rights issue of £584m at the beginning of the year helped reduce Hammerson's net debt from £3.3bn to £2bn and leaves the business with £900m of undrawn facilities.

So, why leave now? That will probably become clear in the coming days. Meanwhile, its farewell to a jolly, funny, plainspoken character who's barking laugh and West-country burr will no longer echo down the corridors of Hammerson HQ in Grosvenor Street.