Reichmann regains Canary Wharf
Property market: Jubilee link delays cloud Docklands finances but Birmingham deal gives hope for city centre
Thursday 24 August 1995
and CHRISTIAN WOLMAR
Paul Reichmann is poised to buy back the Canary Wharf development in London's Docklands which he lost three years ago when it went bust. An announcement could be as early as tomorrow.
Mr Reichmann's bid of around pounds 800m, lodged a month ago with backing from powerful investors, has won over the 11 banks led by Lloyds that rescued Canary Wharf. The sum covers virtually all the banks' outstanding loans to the development.
The talks have been overshadowed by growing fears that the vital Jubilee undergound link being built between Canary Wharf and central London may be slipping from its target completion date of 31 March 1998 accompanied by big cost overruns. One large tenant of Canary Wharf said last night: "We have been told the Jubilee Line extension will be about four to five months late."
A spokeswoman for the underground project said yesterday that while there had been problems it is still on schedule. Property sources suggest that any failure to complete the Jubilee Line extension on time may trigger penalty clauses in leases between Canary Wharf and its tenants, although this is denied by Canary Wharf.
It is widely believed that when Mr Reichmann built the development he offered many tenants guarantees that if the Jubilee extension was not completed in time, they would receive further rent-free periods.
The banks that own Canary Wharf refused to comment last night. A spokesman for Canary Wharf said: "I am not aware of any clauses in a lease where a penalty is payable."
Mr Reichmann, whose Toronto-based property empire Olympia & York collapsed due to the failure of Canary Wharf, has joined forces with a former rival bidder for the development, Prince Alwaleed Bin Talal Bin Abdulaziz Al Saud, the 38-year-old nephew of the King of Saudi Arabia.
At the time he unveiled his bid, the Canadian entrepreneur said: "Canary Wharf is a world-class project with a bright future." He is making his bid as the development is shedding its white-elephant image. Three quarters of office space is now let, and there is planning permission for another 600,000 square metres of offices. One reason Canary Wharf collapsed three years ago was inadequate infrastructure, particularily the lack of a tube link with central London. The future success of the project is closely linked with the Jubilee Line extension opening on time.
A series of problems with the extension's main tunnelling contracts over the past year have led to delays of up to 12 months in individual contracts. According to a spokeswoman for the project, "the work has been rescheduled and we are still on target to meet the completion target". However, the project manager, Mike Smith, told New Civil Engineer magazine recently that any further hiccups could lead to the target date - which allowed a 53 month construction period - not being met.
He said: "As the opening date gets closer and closer, it will become harder to accommodate changes. We are around the crunch now but it is not beyond us yet."
The worst delays have resulted from concern about the New Austrian Tunnelling Method, the method of building tunnels that appears to have been at fault in last year's collapse of a tunnel during the construction of the Heathrow Express. Work had to be stopped while investigations were carried out to ascertain the cause of the collapse, delaying that project by several months.
A source at one of the construction companies told the Independent that while the completion date may still be met, there is certain to be a big increase in the final cost from the estimated pounds 1.9bn.
Although only pounds 600m is due to be spent on the main contracts, the source suggested that the final cost of the work, given all the design changes and the need to catch up on unexpected delays, may lead to extra costs of 50 to 75 per cent on the main contracts, meaning the total bill could reach pounds 2.5bn.
There may also be consequential delays on other contracts, such as track- laying, because these need to be carried out after the tunnels are completed.
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