Afternoon:
15°c
"We are looking for an attractive return,” says Alasdair Nicholls, chief executive of Native Land and one half of the 50:50 partnership with the Duke of Westminster building 197 very posh flats just behind the Tate Modern on Bankside.
Neither Nicholls nor the Duke's property company, Grosvenor, look set to be disappointed. At the urging of Nicholls, a doubtful Grosvenor agreed they should buy the 1.75-acre site from Land Securities in July 2006 for £24.2 million. The price was arrived at by calculating that the flats could be sold for £725 per square foot.
The 67 flats sold so far at NEO Bankside have gone for an average of £1250 per sq ft, £525 higher than estimated in 2006. For those anxious to know how much this bounty will add to the treasure chest of Britain's richest Duke, it is £55 million.
Here is the calculation: the numbers are based on a not very big “if” — if the remaining half-built 130 flats are sold for similar prices in a market choked with overseas buyers. (See below).
The cost of buying the site and building the four 12- to 24-storey towers designed by Rogers Stirk Harbour & Partners is about £220 million. Add £25 million for financing costs and another £30 million in fees and you reach a cost of £275 million.
The income from selling 300,000 sq ft of flats at £1250 per sq ft and 10,000 sq ft of shops is roughly £400 million. That leaves £125 million profit to be split three ways. Land Securities was wise enough to include what is quaintly called an “overage” clause in the contract. This allows the seller to skim the winnings if the buyer makes a profit over a stated figure.
In this case, Land Securities will get £15 million and the joint-venture partners will split the remaining £110 million, so £55 million each. “Well, it has been an eight-year project,” says the capable and universally liked Nicholls, who worked up the idea long before the deal with Land Securities was done. “So I would say that we have earned it.”
The Grosvenor board took a good deal of convincing in 2006 to buy into the Bankside development by their then UK MD, Stephen Musgrave. Today the Duke's company is expanding into upmarket residential across London.
In February, Grosvenor entered into a second joint venture with Native Land. This time no persuading was needed to pay £100 million for the two-acre Holland Park School site. When the pupils vacate in three years' time, 72 very posh flats will be built.
Overseas buyers reap an exchange-rate reward
Knight Frank is the sales agent for the Bankside apartments being developed by Grosvenor and Native Land. Almost a third of the 67 flats so far sold have gone to overseas buyers from 15 countries. The best-known seller of upmarket properties last week reported that 49% of all new build properties sold in the year to March in London went to foreign purchasers.
But a less well-known firm of agents is the most successful overseas sales agent for London flats. King Sturge has sold 1500 homes to buyers, mostly in Asia, on 28 developments in the year to March worth some £500 million. To put that into context, Knight Frank says the total sales to Asian buyers in the same period was £761 million.
Simple arithmetic will tell you that King Sturge's average sale price of £333,000 won't buy you a broom cupboard on Bankside. But Tim Wright, who heads the sales teams based in Kuala Lumpur, Hong Kong and Singapore, says that the market has always been there for midpriced flats bought unseen and off-plan at roadshows in Asia.
“These markets, especially where there is a historic link to the UK, can be treated as subsidiary to the home market. London is a leader not only in commerce but also education. The city is seen as a safe haven for overseas buyers to purchase a pied-à-terre — or for their children to use whilst gaining higher education.”
But there is a more powerful reason for the surge in overseas buyers since early 2009: money. Prices in sterling may be up by 22% in the 14 months to May 2010, says Knight Frank but, thanks to a weakening pound and strengthening Asian currencies, the actual price paid by King Sturge buyers is 32% lower than the peak in March 2008.
Barnet has four-year wait for the train
The good people of Barnet will have to wait at least four years before there is any visible sign of activity on the new £4.5 billion Brent Cross Cricklewood plan approved last week. Never mind. Developers Hammerson and Brookfield have had to be twice as patient.
Eight years ago, Hammerson bought the old sidings to the south of Brent Cross as part of a job lot sold for £63 million by the receivers of Railtrack.
Four years ago, the drawings were unrolled, revealing a 590,000 sq ft southern extension to the shopping centre, a combined heat and power station feeding 7500 new homes, several schools, and four million square feet of office space nestled near a new station on the adjacent main line.
The green light has now been given by the Government which says it will not review the plans backed enthusiastically by Barnet council. Which is just as well: Jonathan Joseph has headed the developer's partnership for so long he jokes that “my hair has turned from grey to white”.
But locals who see the new railway station as a way of cashing in on the rising value of their homes will need to be extremely patient. Joseph says building the new station depends on the success of those four million feet of offices — on which last week's announcement was curiously muted.
Battersea owner's power cut
The owner of Battersea Power Station, Real Estate Opportunities, produced results this week which make one thing plain: the business will be sunk by January 2011 unless it manages to float a separate company to help pay the £4.5 billion cost of developing the 38-acre site, which has lain empty since 1983.
The AIM-listed business is controlled by Irish developer Treasury Holdings. REO has £1.72 billion of debt, half of which is now controlled by Irish “bad bank” Nama. REO bought Battersea from Victor Hwang for £400 million in 2006 after the Asian developer spent an unsuccessful decade trying to get started. Now REO wants to sell perhaps 50% of the equity in a new company? They will need much more than the luck of the Irish to succeed.
