It has been two years since Lloyds Banking Group used a pre-pack administration to restructure one of the largest property developers in the South East, placing Sven Töpel at the helm of what had been Ashwell.
The former Hammerson director, who replaced tycoon Paul Thwaites as head of the East Anglian property company, is doing what only a handful of developers outside London are managing to pull off: building.
The first phase of Brookgate’s 25-acre CB1 scheme, a joint venture with Network Rail next to Cambridge railway station, will not just be one of the first buildings to be built in the city centre for more than 20 years, but one of only a few major office schemes on site outside London.
“Properly passionate”
In his first in-depth interview as Brookgate chief executive, Töpel is bursting with enthusiasm. “I am properly passionate about this,” says the 46-year-old. “I want to look back at CB1 and say ‘that was a hoot’.”
So far, so good. In April 2010, the scheme landed a major prelet when technology giant Microsoft agreed to move to a 83,000 sq ft headquarters at CB1. Last summer, Töpel succeeded in bringing in two funding partners: Orchard Street Investment Management agreed a £37m deal to forward-fund the Microsoft HQ; and LaSalle Investment Management forward-purchased three student accommodation blocks, which will house 1,250 students.
If all goes according to plan, students will be able to move in from the start of July. Deals for the retail space on the ground floor of those blocks are under negotiation, says Töpel, and one “very obvious food store and an interesting mix of restaurants” have already signed up. Microsoft staff are expected to be in place by early next year.
Back in 2009 it must have felt very different. Ashwell’s flamboyant chairman and owner, Paul Thwaites, the man who lured Töpel away from his top job as head of London at Hammerson, was seriously ill, and the commercial real estate market was on its knees.
Having amassed a landbank which press reports placed as having a planning value of more than £2bn, Ashwell had £240m of debt, most of which was owed to Lloyds. Two portfolio valuations – in March 2009 and September 2009 – showed a significant drop in value, leaving the company underwater.
Attempts to sell CB1, the company’s major asset, failed after targeted parties – including Grosvenor, Macquarie Global Property
Advisers, Hines and Development Securities – could not offer prices that met the developer’s expectations of between £110m and £120m. Then, in December, the bank pulled the plug and forced a pre-pack administration. A debt-for-equity swap left Lloyds the major shareholder and Töpel, who had effectively been running the company since the end of 2008, became chief executive.
Figures for how much Brookgate paid for Ashwell’s assets are widely disputed, but an administrator’s report states that £3m was spent on the assets, which include CB1 and the 300-acre Chilton Woods mixed-use development in Sudbury, Suffolk.
“Our history is what it is, and a lot of people were going through a similar thing,” says Töpel. “At the time it didn’t feel so bad. We were in talks with an occupier for [the office element of our CB1 scheme at] Station Road, we were talking about the student accommodation and it felt like values had corrected.”
But the yield compression that happened in 2009-10 turned out to be a false dawn and, looking back, Töpel now admits that “we probably bought at the wrong time”.
That matters little now. Having come back from the brink, Töpel has had his head down sorting out the company’s affairs. In its first year of trading, the company reduced its debt from £92.4m to around £80m. And after refinancing with Santander last year, Töpel says Brookgate does not owe a penny in debt to major shareholder Lloyds.
Planning application
“I feel fabulous about it but now with everything we have coming forward we will have to reinvest back into the scheme. All our plans will take a bit of equity, and funds will need to be recycled back into CB1,” he says.
A planning application is in for two more student blocks, and Töpel expects further deals on the other buildings at the CB1 scheme. He says that this time next year the company hopes to be on site with either Number One The Square and/or one of the two 70,000 sq ft buildings – numbers 50 and 60 – subject to a suitable prelet being in place.
Brookgate is in discussions with occupiers, many of which have been drawn in because of partnerships with Microsoft. But, true to form, Töpel says: “We don’t want to overplay that we are in discussions in case we have a slip between now and then.” So, too, for the retail and a hotelier, which Brookgate also hopes to be on site with a “reasonable mid-range brand” in tow. “Give it 12 to 18 months and there could be a few more occupiers to talk about,” he says.
All development will be prelet-led. Töpel refuses to build speculatively, despite Cambridge being one of the best-performing regional markets. “Speculative development is not the right way to go,” he says, “because Cambridge is a very lumpy market. There are lots of little deals of 3,000-5,000 sq ft, then there are a couple of large deals that fill out the market, but it is not a London market where you get massive chunks of stock.”
But that has also meant that Brookgate has missed out. Last year, when law firm Mills & Reeve started looking for a new 50,000 sq ft headquarters, it looked closely at CB1 but ultimately dismissed it because the developer could not move fast enough.
In the end, the law firm opted for a deal with its existing landlord, Pace Development, at Botanic House, a flagship building that stands at the gateway of the CB1 site. Jamie Wheatley, partner at Mills & Reeve, says: “Elements of CB1 were challenging, such as if it would be ready and if it left us with some lease exposure.”
Is Töpel sore about failing to bag the deal? “It was a special case. Most landlords would have handed out a lease extension in this market.” Mills & Reeve’s landlord went to great lengths to provide it with new accommodation. “It is not a true representation of how the rest of the market will operate,” Töpel says.
The arrival of Microsoft has certainly got agents’ tongues wagging. The deal attracted top rents of a shade over £30 per sq ft, and Brookgate wants the next deals to be in the £32-£33 per sq ft bracket. But what most were surprised about was that a technology firm would set up on Station Road – the heart of Cambridge’s professional services industry – that, and the fact that it lured the technology firm off one of the city’s science parks. Will others follow? “It’s difficult to predict. Technology is where the majority of lease events are at the moment,” says Töpel.
Patrick McMahon, senior partner at the scheme’s lead agent, Bidwells, says many occupiers have watched the Microsoft deal, and “people want to be near them” – the biggest hint that other technology firms may soon be resident at the scheme.
If all the deals being talked about come to fruition, it would truly be a bumper year for the city, something few agents are predicting. “There’s going to be a reduction in the amount of space taken, but it will be the higher quality space occupiers go for,” says Töpel.
“If we get one on site in the next year that would be good, but we won’t be putting planning applications in for the sake of it.”
CB1 at a glance
25 acres, 1.6m sq ft
JV with Network Rail
Offices:
21 Station Road 83,500 sq ft prelet to Microsoft. Funded by Orchard Street Investment Management.
No1 Station Square 120,000 sq ft of offices and ground floor retail. Discussions are under way with companies, including those partnered to Microsoft.
50 & 60 Station Road 70,000 sq ft each. Planning permission being resubmitted to modify and lighten the stone facade.
500,000 sq ft resi and student accommodation
70,000 sq ft healthcare
70,000 sq ft hotel
50,000 sq ft retail
Developers take a punt on speculative schemes
Around the country, development schemes in progress can be counted on the fingers of one hand. A handful of schemes are under construction, such as Stoford’s David Street development in Cardiff, which is prelet to Admiral Insurance. In Bristol, HDG Mansur took a gamble and began developing the 117,000 sq ft Bridgewater House. But despite BDO signing up for nearly 9,000 sq ft of space, the developer is still awaiting its first big letting. Similarly, in Manchester, Argent and GMPVF are building One St Peter’s Square, a 280,000 sq ft development of which 215,000 sq ft is speculative. In Cardiff, JR Smart is in the process of putting up nearly 100,000 sq ft of speculative development at Capital Quarter, which is steadily filling up. But then the well runs dry.
