Profile: Paul Reichmann; The perils of towering ambition
Two years after the Canary Wharf debacle, its king is back in the castle, scanning fresh heights to conquer. Paul Rodgers explains what keeps him climbing
For last week Reichmann retook possession of his most famous landmark, the skyscraper at 1 Canada Square and its attendant office and retail complex. Not many businessmen can say they stumbled so badly, then rose again. The rapid comeback, taking less than three years, is a testament to his reputation for being not only canny but scrupulously straight in his business dealings. But while paying off the banks that backed him in the 1980s will have polished that image, the episode has left nagging doubts about his judgement.
At first glance the pounds 800m purchase from an international consortium of 11 banks vindicated his staunch belief in the project in 1992, when all around him were sceptical. At that time Olympia & York, the company founded by Reichmann and his two brothers, Albert and Ralph, owed its banks almost pounds 600m on the Docklands development. Reichmann claimed an extra pounds 590m in bridging loans would see him through until the London office market turned up again. After pushing the project into administration the banks, led by Lloyds, invested pounds 280m to complete the 4.5 million sq ft first phase of the development and deferred interest charges until 2007. Reichmann, you might conclude, was right all along.
The main difference between then and now is that while Canary Wharf was initially backed by debt, it is now financed by equity partners, Larry Tisch, the media mogul, and Prince al-Waleed bin Talal bin Abdulaziz of Saudi Arabia. Reichmann International, the family's new company, also has an ambitious pounds 800m plan for Mexico City.
But the failure of O&Y had other consequences, one of which was to shed more light on its secretive workings. Reichmann's distaste for publicity is well known. The Reichmann brothers, five in all, were the sons of orthodox Hungarian Jews who fled central Europe during the Second World War, first to France, then Spain and on to Tangiers. Paul Reichmann still recalls the Nazi bombing of refugees south of Paris when he was eight.
His father, Samuel, had made money in poultry but in Tangiers he switched to banking. His mother, Renee, began shipping chocolate into Europe in exchange for the lives of refugees smuggled out of Hitler's death camps.
From Tangiers Paul was sent to school at a Talmudic college in Gateshead, Tyne and Wear. His family wanted him to teach but in the 1950s he moved to Toronto and began building factories in the suburbs. From there he moved into office properties. In 1975 he put up First Canadian Place, a daring 5 million sq ft office and retail complex in Toronto.
But the big break came shortly afterwards when he expanded into New York, buying eight properties for $320m (pounds 202m) followed quickly by another 10. Although derided by critics, the portfolio is reported to have increased in value 10-fold over the next decade. Backed by the Bronfman family, the owners of Seagram, the international drinks company, he also built the $1.5bn World Financial Centre on Manhattan Island during the depths of recession in the early 1980s. It too was criticised for being over- ambitious, but again hindsight showed Reichmann to have been a wise investor.
Throughout O&Y's evolution into the world's largest property company the Reichmanns stuck to a family management structure typical of much smaller businesses. Outsiders were not allowed to peer into the boardroom. Decisions were made quickly and silently, sometimes by Paul alone, sometimes with Albert and Ralph present. And those decisions were heavily influenced by their strong spiritual and family ethos. Paul Reichmann is famous for sealing deals with a handshake, and eschewing corporate lawyers whenever possible.
While other moguls luxuriated in yachts and jets, Reichmann's extravagances were aimed wholly at family and faith. Peter C Newman, a Canadian business writer, described the Toronto wedding of a minor niece in his book The Acquisitors.
The women were dressed by the country's top fashion designer, in outfits that cost up to $50,000. But the dresses had to conform to orthodox traditions of modesty, and their wearers were separated from husbands and sons during the service. An orchestra was flown in from New York but played only Hasidic music. The dancing was segregated.
Those values also emerge in Reichmann's projects. Although Canary Wharf has many critics, it undeniably relies on classical sources. Apart from the tower itself, the development is well-proportioned and spacious, with shady arcades and wide pedestrian walks beside the waterfront. It is a reflection of the deep commitment to the aesthetic that lies at the heart of Reichmann's beliefs.
But around that core lie convictions that are, perhaps, less well founded. One of his ideas is a counter-cyclical theory of property markets - the theory that brought about his downfall. Reichmann was convinced that the boom and bust property markets moved in conflicting waves in different cities. When New York was down, for example, London would be up. The recession of the early 1990s did not prove him entirely wrong - merely that he had chosen the wrong cities. The downturn hit North America, Britain and Japan at about the same time, while leaving other European and East Asian economies buoyant. With rents falling in all his key markets, Reichmann was unable to keep up payments on Canary Wharf's debt.
His reliance on his own business instincts also led him astray, claims Peter Foster, author of Towers of Debt: The Rise and Fall of the Reichmanns. Persuaded that others would be bound by their word just as he was, he failed to get firm guarantees of transportation links to Canary Wharf. The development is still three years away from getting the Jubilee line extension it so badly needs.
Over-confidence, compounded by the banks' eagerness to lend, was also to blame. Reichmann borrowed billions of dollars for takeover bids in pulp and paper and the oil business, industries where he had little experience. Not until Canary Wharf ran into trouble did the banks question whether his balance sheet was strong enough to support the loans. When it collapsed, the O&Y empire owed between $13bn and $15bn.
Whether he has learnt from the debacle of 1993 is unclear. The cloak of secrecy, though parted by the banks, remains in place over most of his activities. If he is older and wiser, Reichmann can look forward to building a second great fortune. If not, another spectacular disaster could await him.
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