“We want to focus on programmatic collaboration, not a real estate deal,” said a director of the Smithsonian this week. He summed up what too many in this sector forget: not everything in business is about property.
Take the BHS saga. In an extraordinary performance at this week’s select committee hearing, Sir Philip Green told MPs the BHS CVA was a “wasted opportunity” and Dominic Chappell missed £100m of potential property sales. Had they been successful, however, property would only have provided a temporary reprieve; this was a retail business that failed because it had not kept up with consumer demand.
Of course, property can be a factor in mega-mergers, but rarely a defining one. Microsoft has acquired LinkedIn for $26bn (£18.4bn). Both businesses have significant live requirements in London. Microsoft will no doubt want to revisit that requirement – and possibly scale it up into a single requirement of area-defining significance – but that is unlikely to be a part of the 100-day plan. The core business of the two tech titans will dominate.
It was Al Horvath, the Smithsonian’s undersecretary for finance and administration, who this week best captured this tension between core business and real estate.
The Smithsonian – the world’s largest collection of museums – had been eyeing an outpost on the former Olympic Park in east London for some time. With Sadler’s Wells, the Victoria and Albert Museum, the London College of Fashion, and University College London East set to form a new cultural and higher education quarter, the addition of the Smithsonian was to have made real Boris Johnson’s ambition for the clumsily named Olympicopolis.
The scheme is expected to deliver 3,000 jobs, 1.5m additional visitors and £2.8bn of economic value to Stratford and the surrounding area; what it won’t have is a new Smithsonian building. Instead the US institution will work with the V&A to create a joint gallery space at V&A East and will not pursue a stand-alone presence.
Horvath said the high cost of a new building – estimated at £33m with annual costs of as much as £5m – had been a consideration. That shouldn’t surprise us.
Home to 19 museums and galleries and the national zoo in Washington DC, the Smithsonian’s aim is “shaping the future by preserving our heritage, discovering new knowledge, and sharing our resources with the world”.
BHS, meanwhile, has marched under the flag “modern living, made easy”. Owning property was a consequence of doing business, not the retailer’s raison d’être; the Smithsonian’s goal of furthering knowledge does not require it to become a property developer.
Of course, property can prove more lucrative than core business in the good times. Ownership can offer greater control over costs – witness the number of West End retailers looking to become their own landlords. And a property deal can transform an area. Should Apple move to Battersea Power Station, it would be a massive shot in the arm for Nine Elms and help it deliver on an ambition to become one of London’s most vibrant live, play and work destinations.
But for most businesses most of the time, property (ownership, at least) is an aside. Indeed, as the BHS saga suggests, paying too much attention to the balance sheet rather than the P&L might be unhelpful. Landlords and advisers need to think like their customers, not like each other. Or to put it another way, as JLL directors were told at their recent European conference: “Stop reading The Economist, start reading Wired.”
So does that mean the Smithsonian and the V&A will have no shared interest in real estate? Well, with RIBA, the V&A holds the world’s most comprehensive architectural resource. There is surely something complementary among the Smithsonian’s 138m artefacts, works of art, and specimens – or its 156,830 cubic feet of archival material, for that matter. But that is as far as it’s likely to go. Or should go, perhaps.
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