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It's all coming up roses in the Cadogan garden
Peter Bill, on property23 May 2008
The Chelsea Flower Show is not a bad reason to give for ploughing through the history and workings of the Cadogan Estate. After all, the properties are spread richly along the streets surrounding the Royal Hospital, where the ultimate event in the gardening year is being held.
A better reason to survey the £3 billion realm of Earl Cadogan today is that a new chief executive was appointed last week. But the best reason to view the properties right now is that the 2007 report and accounts have just been published.
These show that 71-year-old Charles Gerald John Cadogan and his family took a £30 million dividend from the business in January. Sir Hans Sloane founded the estate when he bought the 90-acre country manor of Chelsea in 1712. The physician and collector who gave his name to a square and a crescent started to build as early as 1717.
The freehold lands passed via his Cadogan wife in 1753 into the hands of the family, who have kept a firm grip ever since. Well, as firm as possible. In 1993 legislation began to deplete the holdings as the leaseholders started to take advantage of increasingly strict "right to buy" laws to purchase their freeholds.
The family fought a bitter and costly rearguard action on leasehold enfranchisement for decades, selling freeholds with great reluctance.
Until last year the estate was still battling in the House of Lords about how much the leaseholders must pay.
That case is now settled, speeding up sales. In 2007 the estate sold 134 houses and flats for a total of £77.9 million, for a pay-off to the Earl averaging £581,000.
Cadogan admits to still owning "several hundred flats". But perhaps half the value of the estate is now vested in shops and offices, centred on Sloane Street and around Sloane Square. In 2007 the Earl received £73.2 million in rents, up from £55 million in 2003.
That has helped boost the value of the properties from £1700 million in 2003 to £3003 million at the end of 2007.
Not a bad legacy from the outgoing chief executive Stuart Corbyn. If Corbyn is the highest-paid director, he was paid a handsome £554,000 for his troubles last year.
The impish 63-year-old has worked from the Cadogan Square offices of the 68-strong group for 22 years. The incoming chief executive, Hugh Seaborn, who is 46 today, is a quiet but highly regarded character.
He takes up the job later this year following eight years running the slightly less desirable 110 acres of the Portman Estate in Marylebone.
That was for the 10th Viscount Portman, a more cerebral soul (recreation; molecular nanotechnology) than the mildly eccentric Earl, who throws a champagne party at the Carlton Tower hotel in Cadogan Square for his tenants every two years.
Here, he makes a traditionally non-PC speech. This year there came a crack about not wanting to move offices because he liked to watch ladies sunbathing in their bikinis in Cadogan Square Gardens.
The Earl can well afford not to care what people think. This year's £30 million dividend comes after the same amount was paid into the family trusts last year.
His son and heir, the 42-year-old Viscount Chelsea, will never have to worry. Hugh Seaborn will only have one worry: beating Corbyn's record. The Earl? No worries: his garden won gold at Chelsea.
Payment from the Spanish? Mañana...
Xenophobic delight abounds at the troubles of Spain's largest property company, Metrovacesa, which a year ago bought the HSBC headquarters in Canary Wharf for £1.1 billion.
Repayment of an £810 million loan (from HSBC, naturally) to purchase the 42-storey tower was due last November. No cheque. HSBC then agreed to give the Spanish grace until next November. Still no cheque promised.
Metrovacesa this week said that it is now trying to find a group of lenders who will give it a syndicated five-year mortgage. Good luck to the lenders.
The second big mistake made by Metrovacesa was to agree to pay Legal & General £240 million for the right to develop a one million sq ft scheme near Mansion House.
The Spanish have been trying to wriggle out of paying for months. This week they finally agreed to cough up after Legal & General allowed them various concessions on timing and design. But they are not writing the cheque until October. Good luck to L&G.
Derwent still sitting pretty despite gloom over rents
Rents in the West End could fall by 37% from £120 to £75 per square foot, according to Morgan Stanley this week. The note from analyst Martin Allen says: "The UK property majors that have the greatest exposure to central London offices include Derwent London, Great Portland and British Land."
The clear implication: sell. Recommendation? Buy - Derwent London at least. They issued a trading update on Monday, saying they were "well positioned".
Indeed. They certainly have lovely offices in Savile Row. From here the business is run by the impeccably dressed and imperturbable John Burns. Burns need not be bothered by that Morgan Stanley note: Derwent owns 5.6 million sq ft of property worth £2.7 billion that lies mostly around the rim of the prime West End and City spots.
Why no worries? The average rent tenants pay Burns is £23 per sq ft, not £120. Morgan Stanley say the 37% fall will be triggered if the amount of vacant space in the West End rises from 5% to 9.4%. Maybe. Allen says the fringe locations that are the territory of Derwent and Great Portland (see box) will experience a similar plunge. Maybe not? For this is a bit like arguing that if the super rich hit hard times, and will only pay £20 million for a house priced at £30 million, prices in Acacia Avenue will fall by a third. Even if true, Derwent is a buy because it owns property, which, in agent-speak is "highly reversionary".
In other words Derwent has lots of tenants who signed fix-priced leases for perhaps five to ten years in the past five to ten years. They will be forced to "revert" to rent that reflects prices being paid today when their lease runs out. Note to unlucky tenants on £23: Mr Burns will be looking to double your rent, not cut it.
Will Unite graduate away from students?
Student accommodation specialist Unite held a happy annual meeting in Bristol last week, where the impossibly young chief executive Mark Allen (he is 35) gave an upbeat update on first-quarter trading.
The former KPMG accountant told shareholders in the £1.25 billion group that itwas on track to finish 13 new student blocks containing 3843 new beds by the end of the year and that 53% of the 2009-11 pipeline of 6358 beds will be housed in 29 London projects.
And some of these London flats are not for students; well, not for the 37,000 noisy undergraduates already housed. For Unite is branching into the post-grad market.This is being tested with a hard-to-pronounce brand called Livocity; it rhymes with velocity, not Liverpool. The first block of "double studios" was opened last year in a former ladies hostel in Devonshire Street, just south of Regent's Park. The single smallish rooms cost from £300 a week. But the bill includes everything from a broadband connection through free laundry to the council tax bill being paid.
Three more Livocity blocks are to open in spring 2009; one on the Fulham Road, another in Camden and the last in Highgate. Tenants need to have graduated in the past five years to qualify. Quite how Unite is going to weed out anyone not groovy and outside the 23-to-30 age bracket is not that clear.
What is clear is that the market for what might be called Nospra (Non-Subsidised Permanently Rented Accommodation) is attracting interest elsewhere. In the US you don't have to be a graduate to click on a website and rent an apartment from a supplier who may own 100,000 flats in 30 cities. One American supplier, Alliance, has been sniffing around the UK market for months.
But building and renting out flats on an industrial scale is neither easy, nor that profitable. In theory, landlords can earn a 7%-8% return on the money invested. In practice, the running and repair costs clip 2%-3% off that.
It will be interesting to see if "catch-em-young" Unite is tempted to expand in a year or so into the market where you don't have to be young or brainy to get a flat.
Rooms a steel at Travelodge
Travel tip: when you're booking into a Travelodge Hotel, ask if it was built in China. If so, you are in for a nice quiet night.
That is because the Dubai-owned operator of 330 budget hotels in Britain is planning to build 40 new hotels a year, many using fully fitted-out rooms built inside stackable containers from China. A 307-room hotel using the steel containers is due to open near Heathrow in December.
Rather than the flimsy four-inch block walls that divide the rooms in most budget hotels, it will have double steel walls, floors and ceilings. The sound of planes screaming in to land may still come in through the windows, but at least you won't have to endure the screams of ecstasy from the room next door.
