‘Songbird shot’ and ‘Canary crashes’ would have been the worst possible headlines for the property industry – so last week’s rescue rights issue at Songbird is fabulous news for a sector that is still a nervous wreck
By Giles Barrie
Confidence is still so fragile that a third crisis in Docklands – after G Ware Travelstead in the 1980s and Olympia & York in the 1990s hit trouble – would have caused reputational damage, not just for Canary Wharf but for the whole of UK Real Estate plc.
So how does each party emerge from the latest shake-up?
First, Citi. By recouping 95% of its loan, it only loses what amounts to a year’s interest payments. Verdict: a narrow escape.
Next, Morgan Stanley Real Estate Funds. As the spearhead of Songbird’s takeover of Canary Wharf in 2004, it had the most to lose. Having bestrode the global real estate sector for much of the decade (see September’s Property Week Global, published today), it has been battling the downturn in markets worldwide for the last two years.
By persuading China Investment Corporation and Qatar’s sovereign wealth fund to join it in stumping up £880m to repay Citi, it has secured a ‘get out of jail’ card.
Now Canary Wharf Group. Its chief executive, George Iacobescu, and his team deserve praise for remaining loyal while lumbered with a capital structure nowhere near as solid as the real estate they create.
And UK property overall should breathe a sigh of relief that, at a time when our financial services sector is under siege, the Chinese and Qataris have recognised a few property fundamentals that some at home might forget.
These are that Britain is a small island with a restrictive planning regime, leases that are still longer than most and stable legal and political systems – just what any defensive, long-term investor needs at a time of global turmoil.
So what happens next at Canary Wharf?
Talk of buying large swathes of distressed property seem misplaced. There are other issues that need to be dealt with closer to home.
Who are the big Docklands tenants for the next cycle? Speed of delivery, size of floorplate and cost efficiency still have a strong appeal, even if the likes of Nomura are moving back to the City. Government departments and state-controlled banks could all help Canary Wharf to belatedly become a Whitehall on water.
And who would also bet against the restructured Songbird reversing into Canary Wharf Group and, with a tidied-up vehicle, floated again?
For now, though, Songbird is stabilised, for which all for property should give thanks. (Giles Barrie, Property Week) http://www.propertyweek.com/story.asp?sectioncode=38&storycode=3148052
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