• Overview
• Canary Wharf Owners see Property Value fall by 70%  
• Lehman owes $4.3 million in back rent
• HSBC head office at 8 Canada Square sold to Korean Pension Fund for £772m
• HSBC may sell London, NY and Paris HQ       >>  HSBC’s London HQ back on the block in £2.7bn sell-off     >>  May fetch 40% off peak value  
• Lehman Brothers' collapse leaves 1m sq.ft of unlet space in Canary Wharf vacancy   >> AIG insured rent
• 5 Canada Square & 25 Canada Square sale

With credit markets tight, many European companies are eager to turn property into badly needed cash. Efficient as the move looks in principle, selling and leasing back commercial property is now proving hard to pull off. It also comes with long-term costs.

The reason is that Europe's real-estate market has also hit the buffers, with prices falling and buyers thin on the ground. As for rental values, they typically lag the economic cycle so companies could find themselves locked in to long leases at high rents in return for a short-term cash injection.

At best, companies that successfully shore up their balance sheets by selling property will sacrifice longer-term returns. At worst, holding a big property portfolio won't prevent default if credit conditions don't improve.

It also spells leaner times for property-advisory firms who've done nicely as sale and leasebacks have gained in popularity through Europe's property boom and the early days of the credit crunch. The value of sale and lease-back deals rose to 46 billion euros in 2007, nearly a seven-fold increase from 2004, according to research from property firm CB Richard Ellis.

At the top of the market was HSBC's sale of its 20-storey London headquarters to Spanish property company Metrovacesa for 1.1 billion pounds in May last year. The bank leased it back for 20 years at a 3.9% yield. 

Today, Metrovacesa is struggling to pay back the short-term loan used to finance the acquisition, as property values have plummeted and yields have risen to around 6%. Selling the HSBC building would be possible only at a big loss given the oversupply of property in the U.K. capital. HSBC's building is a stone's throw away from Lehman Brothers' empty London headquarters in Canary Wharf.

There are signs that companies keen to pull off HSBC-like deals are struggling to do so. Regent Inns, under renewed pressure to reduce debt of 79 million pounds after takeover talks failed midyear, has got nowhere so far with a plan for the sale and leaseback of some its 90 U.K. pubs. - 2008 September 22    WALL ST Journal  

J.P. Morgan opts
for Canary Wharf

Bank rethinks plan to build
major facility in the City
as circumstances change

London's historic financial center appears to be losing a marquee bank -- to real-estate rival Canary Wharf. After efforts to build a new headquarters in the City, as the square-mile area is known, ran into problems, J.P. Morgan Chase said Friday it would instead move to Canary Wharf, the rival financial district developed over the past two decades.

There has been a strong rivalry between the two areas ever since the development in London's old docklands started winning way large banks, such as Citigroup, HSBC Holdings, Barclays and Lehman Brothers Holdings.

When J.P. Morgan began looking to consolidate employees scattered across several buildings into a new headquarters, local government officials offered a long lease on the land and agreed to give J.P. Morgan ownership of the building if the bank helped to redevelop the site.

But circumstances have changed. J.P. Morgan needs more space following the acquisition of Bear Stearns this year. Also, owning real estate is no longer so attractive. London real-estate values have tumbled, and a construction boom promises that more space will hit the market.

J.P. Morgan also ran into problems with its plans for St. Alphage, a post-World War II building. Strict planning constraints limit buildings blocking views of St. Paul's Cathedral. Residents of the neighbouring Barbican development, a residential area and public art space, objected to the bank's plans to James Dimon, J.P. Morgan's chief executive.

J.P. Morgan has a deal with Songbird Estates -- the Morgan Stanley-led consortium that owns the Canary Wharf Group -- to move to a single office tower with more than one million square feet (93,000 square meters) at Canary Riverside South in early 2013.

"Without a doubt, we are disappointed, as they are a big tenant," said Peter Bennett, city surveyor of the City of London Corp., as the local government is called. The City owns some of the land in the district.

The City still has some major banking tenants: Merrill Lynch, Goldman Sachs Group, Deutsche Bank, and UBS. And J.P. Morgan's packing plans may not be a done deal. The City could still persuade the bank to change its mind.   - 2008   August 4   WALL ST. JOURNAL

Canary Wharf has received a timely boost with the first major letting at the Docklands office complex in two years. BP's Integrated Supply and Trading division has agreed terms to lease 128,000 sf in 20 Canada Square. This firm evidence of occupier demand could strengthen the Canary Wharf Group’s hand in negotiations with Brascan, Morgan Stanley and Goldman Sachs, which are attempting to take the company private.

The lease agreement is for 101,000 sf on a 20-year term with breaks at 10 years and 15 years. In addition, to allow for future growth, BP has agreed terms to lease a further 27,000 sf on a five-year lease, with an option to extend this so it runs concurrently with the other lease.

20 Canada Square is the only speculative building currently available at Canary Wharf, although a large amount of space is available for sub-letting from existing occupiers. The 535,500-sf 12-floor glass and steel building was designed by Skidmore Owings & Merrill. It offers large floor plates of typically 40,000-45,000 sq ft. Global information services provider the McGraw-Hill Companies will also be occupying 266,000 sf at 20 Canada Square and will be moving in during January 2004. - 12 Sept 2003    Globe St.  

Morgan Stanley bets big on Canary Wharf
It's a high-risk wager that another banking boom will spur office demand

Morgan Stanley may wager as much as US$9.2 billion on another banking boom by buying Canary Wharf Group Plc, builder of a financial district in London's Docklands where rents are falling and vacancies are rising.

Morgan Stanley, the world's second-biggest securities firm by capital, on June 9 said its real estate funds may bid for Canary Wharf, which has about 4 billion (S$11.6 billion) of debt and a stock market value of 1.5 billion.

An acquirer may have to wait more than five years for banks to start hiring again, boosting demand for offices at Canary Wharf, said Jeppe de Boer, an analyst at Goldman Sachs Group Inc in London. A new owner 'could eventually make quite good returns by building on the estate, but it would be at high risk,' he said. Investment banks in Britain have cut about 35,000 jobs, creating surplus space at Canary Wharf.

Morgan Stanley manages US$27 billion of real estate in collaboration with partners including Catellus Development Corp in the US and Italy's Pirelli & C Real Estate SpA. Morgan Stanley, a Canary Wharf tenant and former adviser to the company, may join with chairman Paul Reichmann and chief executive George Iacobescu, and other possible bidders such as Canada's Brascan Corp in a buyout, industry executives said.

Last year Morgan Stanley combined with management of Saville Gordon Estates, the owner of an aerodrome in central England, to take that company private for US$785 million in cash and debt. Morgan Stanley may do the same with Canary Wharf, said Peter Munk, chairman of Trizec Properties Inc, who works near Mr Reichmann in Toronto's office district.

Morgan Stanley spokesman Andrew Walton declined to comment, as did Canary Wharf spokeswoman Wendy Timmons and Brascan spokeswoman Katherine Vyse.

Canary Wharf on June 6 said it formed a committee to review offers from 'a number of parties' interested in acquiring the company, which Mr Reichmann led into and out of administration in the 1990s. Canary Wharf's stock has dropped 44 per cent from its peak of 478.6 pence in October 2000 as banks cut staff and vacancies in the financial district more than quadrupled.

'Reichmann believes the shares do not represent Canary Wharf's proper asset value,' Mr Munk said. 'Reichmann is 72, and he doesn't need to be hassled by young institutional investors' who are dissatisfied with the stock's performance, said Mr Munk, who created the second-largest US office real estate investment trust from a company bought from the Reichmann and Bronfman families.Other contendersBrascan, which bought New York's World Financial Center in 1996 after Mr Reichmann lost the property to creditors, acquired 9 per cent of Canary Wharf shares in April and May.

Morgan Stanley's European real-estate funds are led by Stephane Theuriau. Such US-based funds have cash and are seeking large investments, said Tony Horrell, head of Jones Lang LaSalle's European capital markets unit.

Rents have tumbled at the 34.8 ha office park built on derelict London docks on the River Thames as banks try to sublet unwanted offices that they leased during the late 1990s.

Morgan Stanley, which owns and leases about 1.5 million square feet at Canary Wharf, sublet its Westferry Circus offices there to Tube Lines, a consortium that maintains London underground lines, at 35 a square foot, or an 'effective' rent after concessions of 27.50, wrote Citigroup Inc analyst Michael Prew in a research report. Peak rents in the Docklands were about 45 per sq ft.

The 'near term would not suggest the outlook for the industry is significantly better,' Morgan Stanley chief financial officer Stephen Crawford said on a June 18 conference call with reporters after announcing that the company's second-quarter earnings fell 25 per cent.

Vacancies at Canary Wharf in the next two years may reach 16.5 per cent if tenants break leases, Morgan Stanley analyst Martin Allen said in an April 2 report.

Vacancies may reach as high as 35 per cent in two or three years, Mr Allen said in the report. That would be enough to accommodate 20,000 employees. The calculations include offices that existing tenants may try to sublet, such as the 535,000 sq ft that Morgan Stanley may not need, he wrote.

Canary Wharf collects full rents from long-term tenants who sublet space. Still, the surplus space might delay an acquirer's profit on a buyout, analysts said. That's because new tenants won't pay 45 psf at Canary Wharf with older tenants subletting surplus space at 35, they said. Until the space is released, tenants will be competing with their landlord for occupants, said JLL's Mr Horrell.

By the end of next year, Canary Wharf will have completed 14 million sq ft of offices, including a new building for Barclays, making it second in size to the 32 million sq-ft La Defense office district in Paris. After the Sept 11 attacks, CEO Mr Iacobescu said he would slow construction of an additional 6.5 million sq ft envisaged for the property.

Those delayed projects would be Morgan Stanley's opportunity and risk, Goldman's Mr de Boer said. 'Much of the success depends on the London office market in five to 10 years time.' -  26 June 2003   Bloomberg  

The south bank of the Thames has for years been an underused asset.  Recently that has been changing with an air of prosperity and fine new  buildings suddenly available with wonderful views north over London. 

The mammoth Docklands project, 7 km east of the City of London has seen some of the steepest price rises - an average of £250  per sq ft a year ago now doubled, with a rumoued  £750  reached in some locations.

Singapore's Pidemco Land (50%) and Hotel Properrties (30%) each hold substantial stakes in the 4.6 hectare Canary Riverside residential apartments on the western riverfront of Canary Wharf.    The Canary Wharf Group, which has developed and manages the area, the remaining 20%. The buildings comprise 322 riverside luxury apartments, a sizeable health club, swimming club and a 150-room five-star hotel which opened in December and is leased to Four Seasons.

Already 70% of the apartments ranging from £362,000 to penthouses of £2.6 million have been sold.   Much of the apartment units have been sold to investors from Asia, Middle East and the US as well as European buyers.

The area is developing with critical mass with growing number of executives crowding into sleek, concrete, glass and metal jumbo-sized buildings of Credit Suisse First Boston, Morgan Stanley, Barclays Capital, and other investment banks.    Nearby building occupied by Reader's Digest, Daily Telegraph, Ogilvy & Mather, Texaco, UK Financial Services Authority.  Morgan Stanley now occupies the Canada Square penthouse.

Canary Wharf is flourishing because rents are also much lower than the rest of London and the improvements are technologically advanced in comparison and now the infrastructure is complete with completion of the Jubilee underground line and enhanced train routes.    Currently 27,000 work in Canary Wharf and expected to grow more than 50,000 within two years and will exceed 100,000 in the second half of the decade.

27,000 persons work in the area with all 13 completed office blocks fully let.  Readers' Digest, Daily Telegraph, Ogilvy & Mather, Texaco Ltd. are some of the other tenants who make the area vibrant.    Two office towers for the HSBC Group and Salmon Smith Barney Citibank are on their way to completion.  Office rents in the dockands range from 30 to 35 pounds, blow the 50 pound per sq ft in the City and £68 per sq ft for similar top quality buildings in the West End.

Canary Wharf will see another six million sf of office development in the next few years if the London Borough of Tower Hamlets approves plans for six new office towers on land to the north and west of the existing site.

Canary Wharf, the mammoth Docklands office complex 7km east of the City of London, has proven to be an outstanding project for Singapore's Pidemco Land and Hotel Properties. The companies hold a substantial stake in the 4.6-hectare Canary Riverside residential apartments on the western riverfront of Canary Wharf. The buildings comprise 322 riverside luxury apartments, a sizeable health club, swimming club and a 150-room five-star hotel which opened in December and is being leased to Four Seasons.

"We have already sold 70 per cent of the apartments ranging from £362,000 (S$944,313) to penthouses of £2.6 million," a Canary Riverside spokeswoman said. Two of the penthouses priced between £1.4 million and £2.6 million have found buyers. The going average is £538,000, putting the total apartment value of the project at £173 million. Buyers include Europeans and Asians as well as investors from the Middle East and the US.

Pidemco holds a 50 per cent stake in the project, Hotel Properties 30 per cent and Canary Wharf Group, which has developed and manages the area, the remaining 20 per cent.

Indeed, it is thanks to the remarkable turnaround in Canary Wharf's fortunes that executives of the two Singapore companies are smiling. They are looking forward to the next phase of the residential development due to take place within the next few years on a parking lot a few hundred metres away.

Only eight years ago, Canary Wharf was a bankrupt development of Canadian real estate tycoon Paul Reichman. Then, the penthouse of the 50-floor tower block, One Canada Square, was empty, recalled Jonathan Saxon, a Canary Wharf specialist and associate director of estate agents Knight Frank. "Shops were either dead quiet or vacant."

Now, growing numbers of executives and staff are crowding into sleek concrete, glass and metal jumbo-sized buildings of Credit Suisse First Boston -- which sports a massive trading floor about the size of two football pitches -- Morgan Stanley, Barclays Capital and other investment banks. Nearby buildings are occupied by Readers' Digest, Daily Telegraph and Ogilvy & Mather, Texaco Ltd, the UK Financial Services Authority and others. Morgan Stanley now occupies the Canada Square penthouse.

More than two dozen new shops opened recently, and all 13 completed office blocks are fully let, said Mr Saxon. Another 1.2 million sq ft building is three-quarters full and nearby, a 500,000 sq ft building should easily find tenants if the London commercial property sector remains buoyant, he predicted.

East of Canada Square, overlooking the Millennium Dome across the water, Canary Wharf is well on its way to completing two office towers for the HSBC Group and Salomon Smith Barney Citibank. "We are building them at the rate of a floor every four days," said George Iacobescu, chief executive officer of Canary Wharf Group plc, the revitalised management company of the complex that was listed on the London Stock Exchange last year. "This place is now vibrant because bank mergers led to demand for the high-tech large-scale buildings which we supply," he said. "In the meantime, infrastructure and transport facilities were at last being completed."

The next phase of development will include an underground shopping mall below parks, he said. "Canary Wharf's purpose-built large buildings and facilities will continue to suit the giant financial institutions and as the population grows there and facilities improve, other businesses will rent space," said Michael Ross, managing director of Stockton Estates, a London property investment firm.

"But there isn't any room for complacency for both Canary Wharf and the City," he cautioned. Both areas are highly dependent on the financial services boom and the test is how they will cope in a protracted stock market downturn.'

Mr Iacobescu estimated that the 27,000 people who work in Canary Wharf will grow to more than 50,000 within two years and will exceed 100,000 in the second half of the decade.

"Previously, business people shunned the area because they believed it was out of the way," said Michael Hussey, who is in charge of leasing at Canary Wharf. "Now the Jubilee underground line and enhanced train routes raise the catchment area for employees to 1.2 million in Greater London from 320,000 and further out in the south-east commuter belt, three million people find the place easily accessible. Canary Wharf commuting time seriously competes with the City of London."

Canary Wharf is also doing well because rents are also much lower than the rest of London. Five years ago rents there were £20 per sq ft. But as demand grew, they jumped and are currently in the £30-£35 range, still competitive with £50 psf in the City and £68 psf for similar top quality buildings in the West End, added Mathew Oakley, head of commercial property research at FPD Savills, international agents and property consultants.

Canary Wharf rates and service charges for the larger buildings are also lower, he said. But he cautioned that planned developments around Tower and London bridges, Paddington and King's Cross will be serious competitors.     -  Singapore Business Times   15 June 2000

Canary Wharf, part of the London Docklands region redeveloped under former prime minister Margaret Thatcher in the 1980s, is set to embark on a new wave of high-profile construction projects.

The group that manages the site set out plans last week for a further 3.1 million square feet of development at Canary Wharf South. When completed, the total development will comprise 13.5 million sq ft of office and retail space.

Canary Wharf unveiled its lofty ambitions to Chancellor of the Exchequer Gordon Brown, with Canary Wharf executive chairman Canadian developer Paul Reichmann and a group of United States businessmen.

It said Mr Brown had highlighted the area, which houses a mix of bankers and journalists and is a rival location to the City of London for financial businesses, as an example of "what business can do to help achieve regeneration".

"We are pleased to be one of the catalysts for regeneration in this area," Mr Reichmann added.

The area itself, which hosts Britain's tallest building - Canada Tower - has a prosperous feel, with its glitzy office blocks, upmarket wine bars and well-heeled young professionals.

But the surrounding region of Tower Hamlets, in London's East End, tells a different story.

Tower Hamlets, an area with a high immigrant population, has an unemployment rate believed to be more than 20 per cent.

Kumar Murshid, Tower Hamlets lead councillor for regeneration, voiced concern at the effects the office developments in Canary Wharf could have on the local community.

Tower Hamlets has 16,000 people on its housing waiting list.

He said there was a danger that as increasing numbers of affluent professionals such as bankers and lawyers moved into the area, local property prices would rise and the neighbouring community might become dispersed.

"We are in favour of Canary Wharf being turned into an international financial centre but it cannot be at the cost of the local community," Mr Murshid said.

Mr Murshid also said that although the development of Canary Wharf would create employment opportunities, many jobs, especially high-skilled ones, were bypassing local workers.

Canary Wharf said that last year 8.4 per cent of people working in the area were from Tower Hamlets, a rise of more than 4 per cent from the previous year.

"Current employment at Canary Wharf reflects approximately 28,000. This is due to increase to 50,000 by [the end of] 2002 and up to 90,000 when the project is complete," Canary Wharf added.

Canary Wharf will welcome Britain's Clifford Chance, one of the world's largest legal practices, when the firm relocates to a 30-storey Docklands building from the City of London in 2003.

Clifford Chance will be following in the footsteps of other leading City institutions, such as investment banks HSBC and Citigroup which are due to move in by the end of 2002.

The Canary Wharf development is expected to be completed in the next five years.

A Clifford Chance spokesman said 50 per cent of its Canary Wharf workforce would be support staff, so "there will inevitably be opportunities for the local community in the support area".

He added that, with regard to locals getting more senior posts within the firm, Clifford Chance would be "eager to hear" from any suitably qualified lawyers in the Tower Hamlets area.

However, Mr Murshid feels Canary Wharf's new white-collar residents could do more to provide jobs within Tower Hamlets.

"If the employers coming into the region are serious about local employment, then they'll have to do a lot better than they have done so far," he said.    -      12 July 2000   Reuters

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