On Friday, Tokyo-based property owner Mitsubishi Estate Company, through its subsidiary Paternoster Associates, presented a pounds 350m plan to bulldoze the entire area and replace it with a stylish mixture of shops, offices and restaurants.
The new scheme addresses both the aesthetic and economic. There will be a piazza that looks more Tuscan than London, graceful loggias, and unimpeded views of the cathedral, but there will be also be 750,000 sq ft of office space and room for two dealing floors. There will also be 122,000 sq ft of retail and leisure accommodation.
In planning terms, Paternoster Square is probably the "most sensitive" project in London, said Ian Ellis, at property consultancy Richard Ellis. The site has been the subject of dispute for a decade.
After lambasting all proposals to replace the existing 1960s development 10 years ago, the Prince of Wales favoured a neo-classical plan but that fell through because the interior spaces were considered unworkable by the financial community.
Mitsubishi has enlisted the services of Sir William Whitfield, an architect with impeccable classic taste. Known as El Mellifluoso for his silky diplomatic skills, Sir William also happens to be in the good graces of Prince Charles.
If this latest scheme takes off, Paternoster Square could become the most prestigious office address in the City.
But will Mitsubishi make any money on it? As one of Japan's largest and wealthiest real estate companies, it is also known for a hugely embarrassing financial fiasco. In 1995, it pulled out of its controlling interest in New York's Rockefeller Center, losing an estimated $2bn (pounds 1.25bn), having bought in at the top of the market in 1990.
Has it got it right this time? "We're very confident of the pros- pects of the scheme," said William Hill, managing director of Schrod- er Properties, which represents Mitsubishi Estate. "The market is buoyant at the moment."
True enough. Provided it receives planning permission within the next few months, the Paternoster Square project should appear at just the right moment to take advantage of rising real estate rates.
Top leases in the City are running at about pounds 45 per sq ft, and some experts predict that by the new year, rents will reach pounds 50. That will still fall short of the pounds 60 and pounds 70 rents of 1989, but would nevertheless be at a seven-and-a-half-year high.
Space in the City is also tighter than it has been in a decade. Of about 76 million sq ft of existing office space, only 4.2 million - or 5.5 per cent - is vacant and available, compared with 5.1 million sq ft a year ago.
So far, Mitsubishi Estate's timing and taste seem ideal. It is nevertheless impossible to know whether the company will clear a profit on Paternoster Square. Although publicly traded, the company does not disclose costs and expenses associated with individual projects.
The company is reported to have spent pounds 200m to acquire the site. In 1990 it bought a one-third interest by joining a partnership between developer Greycoat Property Management and New York developer Park Tower Group. The two reportedly paid pounds 160m for the property. Five years later, Mitsubishi Estate bought out the two partners, each of which later wrote off their losses.
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