In preparation Recovery may still be some way off, but North West developers are not waiting around to formulate their plans for the future. Daniel Cunningham reports
The outlook for development may still be bleak, but the North West’s leading players are gearing up for the recovery. Among the region’s property professionals there is plenty of discussion about which developers are best placed to crank into gear once the market recovers.
Agents believe there will be no new kids on the block. Bob Dyson, chairman of Jones Lang LaSalle in the North West, says: “We are likely to see direct development by institutions because they have the access to the funds and can enter the development cycle at relatively modest land prices.”
But what position do the North West’s stalwart developers find themselves in ahead of the recovery, and what plans are they harbouring?
Ask Developments
Earlier this year, Ask was in the market looking for an injection of equity and facing local suggestions that its business model – which had seen it agree to partner several Greater Manchester councils on a raft of long-term regeneration schemes – was landing it with more liabilities than revenue.
At the time, chief executive Ken Knott argued that its model was not capital intensive, and that most of the land for its projects was held by the councils.
But in Q1, facing the prospect of putting increasing amounts of equity into its projects, Ask entered into discussions with private equity house Infinity Asset Management to buy as much as 20% of the business. Observers noted that, even at the height of the market in 2006, Morgan Stanley Real Estate was brought in to take a 25% stake.
Then, during the summer, Ask answered its critics. Knott led a management buy-out of Ask, backed by the Co-operative Bank. The MBO ended talks with Infinity, and allowed Ask to acquire all issued share capital, including MSRE’s stake.
With the refinancing with Co-op under its belt, development director John Hughes says, “we have a significant portfolio where we are either on site or will be on site, subject to prelets.”
Manchester agents agree that the MBO leaves Ask in a strong position for the recovery, and its 140,000 sq ft temporary letting to Manchester council at its recently completed 178,000 sq ft First Street scheme has boosted its position further.
The council will relocate from the scheme to a new HQ in 2012, and Hughes says that Ask will then refurbish the space and effectively deliver 140,000 sq ft of speculative offices to central Manchester.
Elsewhere, Ask recently secured a £12m forward funding deal with Bury council for the second phase of its Townside Fields scheme, which has been renamed Knowsley Place.
It means that a 25,000 sq ft office block and a 55,000 sq ft hotel, prelet to housing group Six Town Housing and Whitbread’s Premier Inn, will be on site in January for completion in 2011.
Ask, with Tesco and Lancashire County Cricket Club, also recently lodged an application for the redevelopment of Manchester’s Old Trafford cricket ground alongside a 100,000 sq ft Tesco, with work due to begin in Q3 next year for completion in 2012.
But perhaps the developer’s greatest test will be the £365m, 1.1m sq ft Greengate Embankment in Salford, for which Ask has outline consent for 500,000 sq ft of offices, a hotel, and 700 homes. The aim is to be on site in 2011, but Hughes admits that it is “very much led by occupier demand” and the hunt for prelets is on.
Ask has consent for a first-phase office scheme of either 250,000 sq ft or 110,000 sq ft, and Hughes says a 75% prelet on either project would spark development.
The Peel Group
James Whittaker, Peel’s development director, is clearly confident about the next cycle. He says that Peel Land & Property has a “fantastic” balance sheet, with assets of more than £1.5bn.
In fact, John Whittaker, Peel’s owner and James Whittaker’s father, clocked in at number eight in EG’s 2009 Rich List. His fortune is estimated at £1.36bn, up £60m from last year.
“The recession has only strengthened our relationship with our banking partners,” says James. “We’ve held our own, and our schemes have held their value.”
But how will Peel make its mark in the next upturn?
The group’s 25,000-acre portfolio includes major strategic sites such as the MediaCityUK site at Salford Quays, land around the Manchester Ship Canal, and much of Liverpool and Birkenhead’s docklands.
MediaCityUK, its 200-acre mixed-use regeneration, will surely be Peel’s flagship project in the next cycle. But although Peel has handed the BBC the keys to its first building, observers are keen to see momentum maintained with the signing of another major media occupier, to ensure that MediaCityUK is not merely the BBC’s northern campus.
All eyes are on ITV, which plans to vacate office and studio space in central Manchester, but has yet to strike a deal with Peel.
Whittaker insists that the firm is confident that ITV, which is going through internal changes, will resume its search. He also dismisses the suggestion that Peel had put its eggs in one basket by targeting the under-fire media industry.
“It’s been a tough time for the media industry, but we already have strong anchors here in the BBC and Salford University,” he says. “We’ve committed £600m, and there is 1m sq ft of space being developed. We just need to stick to the plan and keep building.”
Peel is not short on ambitious projects. It plans the £50bn transformation of the land bounding the Manchester Ship Canal, branded Ocean Gateway, and for which it is seeking special planning powers.
But perhaps most ambitious are Peel’s plans to transform the Birkenhead side of the River Mersey into a mixed-use cityscape. The company has secured consent for the 1.3m sq ft first phase of the £4.5bn Wirral Waters, and it is due to submit further plans in the coming weeks which some in Liverpool believe will be the largest planning application in the country – larger even than the Olympics site.
Whittaker argues that it is realistic to see the Wirral as the scene of major development: “This is a 20-year plan. And 20 years ago Salford Quays was not a commercial destination. Someone has to take the first step.”
Argent Group
Argent already has designs on Manchester’s office market for the next cycle. Along with joint venture partner the Greater Manchester Property Venture Fund, it has submitted plans for its £120m One St Peter’s Square project – the 270,000 sq ft rebuild of the dated Elisabeth House office block.
Joint chief executive David Partridge says that a prelet on one-third of the building could spark its development. Manchester agents praise the scheme’s designs, but question where that all important prelet will come from.
There is no definite timeframe for the scheme, although 2013-14 is pencilled in as a completion date. Partridge says: “When we complete the scheme, there will be no other prime stock in central Manchester, and there are a number of professional and financial occupiers in they city that took 15-year leases in the early 1990s, so they will have requirements.”
But how will Argent take on such a large project while simultaneously developing its £2bn London masterpiece – the 67-acre King’s Cross Central?
“We have ring-fenced two sources of funding from our backer, the BT Pension Scheme, so King’s Cross is funded separately to all our other ventures” says Partridge. “We have £160m set aside, of which St Peter’s Square could account for a third.”
The project will be funded without debt, insists Partridge, with BTPS and GMPVF financing the scheme with equal amounts of equity. That is, of course, assuming the right-sized prelet can be landed – a challenge given that Argent already has large chunks of office space in the city to find occupiers for.
Argent is marketing and managing the Piccadilly Place estate, which it developed for the Carlyle Group. A number of requirements, including 35,000 sq ft for the Equality and Human Rights Commission, are linked to Three Piccadilly Place, which has 80,000 sq ft available. Then there is the small matter of letting the 110,000 sq ft Four Piccadilly Place, which was completed in September.
“It might take 18 months to fill up, but there are requirements out there and we feel very positive about Manchester,” says Partridge. “It’s not a fantastic time to deliver new stock, but there’s little else of grade A quality in the city.”
He also reveals that Argent is negotiating options on landholdings adjacent to Piccadilly Place, with potential for hotel or student accommodation development. “It would be the logical extension of Piccadilly Place towards Manchester University,” he says.
Bruntwood
Bruntwood chief executive Chris Oglesby is quick to point out that the firm’s prudent approach to development will continue into the next cycle.
“The business was set up by my father in the 1970s with £50,000 equity, and has had no fresh equity since because we roll capital into the next scheme. We entered the downturn with a 40% loan-to-value gearing and we have remained within our banking covenants,” he says.
Best known for its grade A-standard refurbishments in Manchester and Liverpool, Bruntwood completed its first city centre new-build scheme this year – the 107,000 sq ft 1 New York Street in Manchester.
Oglesby denies that 1 New York Street, which is only one-third occupied, has jeopardised Bruntwood’s financial position. “No development has recently provided the returns developers expected, but it is not a significant drag, and we predict it will be fully let within 12 months,” he says.
But Oglesby says the business model will not change dramatically next cycle. “We’ll do both refurbishments and new-build, but in the next few years we want to roll out our brand in the core regional cities, and there are a lot of neglected buildings which can be turned around quickly and where the end value reflects the right price point for occupiers.”
Despite spreading its wings, Oglesby says Bruntwood will retain its focus on its home town of Manchester, as well as Liverpool where it has enjoyed success at schemes such as its 180,000 sq ft The Plaza – the refurbishment of Littlewoods’ former HQ on Old Hall Street.
As for future projects, Bruntwood will soon begin two speculative refurbishments in Liverpool, 70,000 sq ft within the Queens Buildings and 40,000 sq ft at Oriel Chambers in the city centre.
Bruntwood is probably the most unlikely North West developer to announce grand visions for the next market cycle, but regional agents say that its niche product is likely to remain an important aspect of the Manchester and Liverpool markets for years to come.
Muse Developments
“Would we speculatively develop 100,000 sq ft in Manchester at the moment? Probably not,” says Muse managing director Matt Crompton. “But we have gambled on where the Liverpool market will be in two years’ time, and our building will be the only show in town.”
This summer, Muse, through its English Cities Fund joint venture with the Homes and Communities Agency and Legal & General, struck an £8.8m gap funding deal with Liverpool Vision and the North West Regional Development Agency. ECF has since started speculative construction on the final phase of its St Paul’s Square scheme in Liverpool (see p114) – the £41m, 109,000 sq ft No 4 St Paul’s Square.
ECF now faces the challenge of letting the building in a market where top-of-the-cycle rents of £22 per sq ft have not been seen for more than a year, and where gap funding is back on the agenda.
“Liverpool is 10 years behind Manchester in its gestation. But when we developed Barbirolli Square in Manchester 15 years ago as AMEC, we moved the city’s centre of gravity by offering large floorplates, and attracted people such as Ernst & Young and PricewaterhouseCoopers,” says Crompton.
Elsewhere, Muse, under its ECF guise, faces the challenge of extending Manchester’s city centre into Salford, with the 22.5-acre, 1.3m sq ft Chapel Street regeneration.
Outline plans were recently submitted – Salford’s largest planning application. A timeframe has not been specified, but Crompton says the regeneration will have to be phased.
“The ingredients are there – the linkage to Salford University, plus Salford and Manchester city centres,” he says. “We’re looking to use all the benefits of readily developable sites and use the proceeds to do the less developable sites. That’s what we do as ECF,” he adds.
By the end of the year, Muse will also submit plans for Talbot Gateway, a 25-acre refurbishment in Blackpool town centre, at which the council and local police have already agreed to take offices. Again, it is a huge scheme, including more than 900,000 sq ft of offices and a plethora of other uses. Muse aims to be on site in 2011.
But Crompton insists that Muse is in a position to deliver. “We have a well-funded parent in Morgan Sindall. Yes, we use project finance secured against assets, but MS provides us with funds.”
