“It’s during the boom that the crash is won and lost”
So says Nick Scarles. And whatever your view on where we are in the cycle, do take on board this very sound advice from the Grosvenor group finance director.
“You need to know what will make you go bust,” says a man who, you should be reassured to learn, is also a member of the Bank of England Commercial Property Forum. “If you don’t, you don’t properly understand the risks.”
Scarles’ words remind me of an evening in October 2008. It was a period when I spent much more time in the company of finance directors.
Two high street bank board members baulked as I approached them at one event. Given that they were clearly discussing the very real danger that the cash machines might run dry (we were two hours away from that nightmarish scenario the then chancellor of the exchequer Alasdair Darling would later say), mine wasn’t exactly ideal company.
Earlier a FTSE 100 FD, asked what advice he could offer as global markets turned red, said simply: “If you haven’t been through this before, start talking to someone who has.”
No one, it would turn out, had ever been through something quite like this before.
There will be no such excuses next time. The crisis is still seared on the minds of the market.
So even if you are right to believe that the property markets have some way to run before they turn, do pay attention.
Scarles, who still wears the scars of Grosvenor’s costly Liverpool One project, has worked up contingency plans that allow for a 40% fall in property values and a two-year freeze in the debt and transaction markets.
Could that happen? More to the point, could it happen quickly?
Consider this: just 20 months ago oil hit $115 a barrel. This week it touched $26. There is no direct parallel with real estate, of course, but I draw the comparison to show how quickly scenarios can change and how it is best to build a crash barrier. As Scarles, wisely, has done.
■ Green Property Ventures is set to quit London. Stephen Vernon and Pat Gunne’s private outfit is preparing 7-8 St James’s Square, SW1, for a £250m sale.
It is a fascinating move, not least as it is one that will bring to an end its ownership of a portfolio once owned by fraudster Achilleas Kallakis.
The sale would mark the conclusion of a remarkable workout process. Over the past eight years, Green has asset managed the portfolio and sold off all of the properties other than the St James’s asset at a considerable profit.
It has undoubtedly been a shrewd bit of business.
It is a process that highlights Vernon and Gunne’s asset management skills and perhaps their sense of timing too. History will be the judge of that. Perversely, it also demonstrates another virtue. Kallakis may have been a crook, but he wasn’t too bad a stock picker.
■ The controversial 72-storey “Paddington Pole” may be halved in height (p21). A fatter, 35-storey “Paddington Post” is mooted. It is a significant concession in the face of widespread opposition.
Meanwhile, in the City of London, and in the historic street of Norton Folgate more specifically, British Land continues to face opposition to its redevelopment plans. It too has made concessions, but these have done little to quell dissent.
The risk faced – and I’m sure recognised – by developers is that concessions will never be enough for some opponents. The question is whether they are enough to secure progress.
The reaction to Irvine Sellar’s revised plans for Paddington will be another test.
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