Tall order for Canary Wharf
Sunday 06 August 1995
Their consortium wants to dust off plans to build a pair of 30-storey skycrapers to flank the existing tower, 1 Canada Square, enlarging the development from the present 4.5 million sq ft to 12 million.
A source close to the bidders said: "It is their intention to build out the complex, market conditions warranting." A group of banks which now owns Canary Wharf is considering their offer.
Canary Wharf was originally meant to have three towers, dominated by the 50-storey 1 Canada Square, the tallest building in the UK. The other towers now seem likely to be built, although construction may not finish until next century.
Occupants of the complex can expect severe disruption, noise and dust when work resumes.
Some see Paul Reichmann's involvement as a personal mission to vindicate his family's original concept. The family firm, Olympia & York, the project's developer, went bust in 1992. The new consortium includes CNA Financial Corporation, a US insurance business majority-owned by Loewes Corporation, the corporate vehicle of Lawrence Tisch. It also has the backing of Mutual Series Fund, headed by Michael Price, who is currently pressing Chase Manhattan Bank to increase its returns to shareholders.
The other consortium member is Prince Al-Waleed, the 38-year- old nephew of the King of Saudi Arabia. He has gained a reputation as a contrary investor, who is prepared to buy into businesses during troubled times, and reap the rewards as they recover. He is also willing to back his hunches with substantial sums of cash. He rode to the rescue of Euro Disney when he supported its emergency rights issue and in the process acquired a 24 per cent stake in the stricken theme park. Among his other holdings are substantial interests in the US bank Citicorp, Saks Fifth Avenue, the Plaza Hotel of New York, and the Four Seasons and Fairmont hotel chains.
Canary Wharf is now almost three-quarters let after several years standing mostly empty. Most recently the investment bank BZW signed up as a tenant. Canary Wharf's chief executive, Sir Peter Levene, is confident the remaining space can be filled by the end of next year. The extension to Docklands of the Underground's Jubilee Line will add to the development's appeal. However, the City of London Corporation is fighting back after rivalry flared up earlier this year. It has granted planning permission for a further 16 million sq ft of prime developments on its home ground, including the Paternoster Square development of 800,000 sq ft, and London Bridge Phase II. These and other sites will come on the market at a rate of about 2 milion sq ft a year until the turn of the century.
Average rents in Canary Wharf are around pounds 15 a sq ft, against rents of about pounds 30 for prime City office space.
The investment bank Deutsche Morgan Grenfell's decision to stay in the City, redeveloping its Winchester House address on a rent of pounds 40-pounds 42 a sq ft from 1998, was widely seen as setting a new benchmark for City rents. Canary Wharf is expected to be able to lift its rents as rents rise in the City.
One property analyst said: "Canary Wharf offers so many unique advantages to any buyer. Paul Reichmann knows the value of this project down to the last penny, and hopes to pick it up at a discount to its net asset value." The site includes lucrative hidden tax breaks, totalling up to pounds 200m, as well as existing foundations for the undeveloped blocks, which represent savings of millions of pounds.
While Canary Wharf remains in the hands of the banks, however, expansion plans will stay on the shelf.
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