Bids for the Gherkin were submitted on Friday 17 October. At £650m, the asking price is arguably detached from the building’s fundamentals. But with a building such as the Gherkin, the term “brand value” can hardly be overstated. And it isn’t just the winning bidder that will bask in the brand’s glow. For the agents advising, this deal offers the chance to position themselves as market leaders in global property investment.
So the fact that the joint selling agent should be Deloitte Real Estate is intriguing. This week the EG London investment league tables are published (see p71). Deloitte Real Estate is not in the top 10. Nor was it in the previous quarter. But assuming the Gherkin is sold in the next few weeks, it certainly will be, come the end of Q4.
The instruction comes after the firm completed a top-level reshuffle this summer, which saw former Tishman Speyer UK boss and JLL head of capital markets Julian Stocks join Andy Rothery and Nigel Shilton as part of a top trio after Richard Owen returned to a client-facing role. The new structure is designed to play to the firm’s strengths, bringing core real estate nous together with financial, tax, accounting and all manner of other expertise. And the Gherkin illustrates how it is supposed to work. Deloitte’s restructuring services team won a pitch to act as receivers, following which Shilton and Stocks pitched to provide real estate advice. The latter wrote a business plan and exit strategy and was appointed as asset manager. And then the City investment team won a pitch to be joint disposal agents.
It is the highest-profile example of all the parts fitting into place. But as DRE’s new top trio explain, it isn’t so much about climbing investment league tables or winning high-volume, “low-margin” work as delivering on a plan to create the first truly full-service professional services adviser, all of which is a far cry from the Drivers Jonas business it merged with in 2010.
There was an element of surprise when Stocks announced he was joining Deloitte, five months after quitting Tishman Speyer.
Most people had assumed he would remain on the client side – or, if not, return to a senior position at one of the top two or three agents.
But instead he decided to join Deloitte, which was still attempting to integrate the 285‑year‑old surveying practice it had merged with three years previously.
Five portfolios
“The day job, and the bit that was the initial hook, was taking on five portfolios – roughly £1.4bn of assets under management – that Drivers Jonas, now Deloitte Real Estate, runs on varied mandates,” says Stocks.
This includes advising great estates and livery companies such as the Mercers’ Company or the Pollen Estate on everything from property management to development.
“For a real estate geek like me, that’s a wonderful toy box,” says Stocks. “I’ve got hundreds – probably thousands – of leases; a development in the City; and a development in Cork Street. Nothing else was as interesting in terms of other opportunities.”
The role is effectively that of a client-facing senior partner, focusing on key relationships and getting the message out about all the varied services Deloitte can offer the market.
And the partner element of the title was crucial, says Stocks, who became one of Deloitte’s 739 equity partners in the UK. There are few real estate advisory businesses left that offer the collegiate feel of a partnership.
Which was also a central reason why the 2010 Deloitte and Drivers Jonas merger happened in the first place, according to Rothery.
Four years on, any assessment of the success of the merger inevitably raises the question: why haven’t the rest of the big four followed suit? But Rothery is adamant that they would if they could – there simply aren’t any obvious targets left since JLL merged with King Sturge in 2011, because there are so few partnerships among the top agents.
Not that the merger has been easy.
“The first few years we kind of left the DJ guys to just bed themselves down and get used to being in a big organisation,” says Rothery.
The culture change could scarcely have more stark.
A business with a £91m turnover generated by 535 fee‑earners became part of a £34bn global giant with 220,000 employees.
Today Deloitte’s UK business alone generates revenues of £2.5bn – which, as Rothery points out, is larger than the combined UK turnover of the top 10 real estate agents.
Things really began to change 18 months ago, when the DJ name was dropped and a new strategy began to emerge.
That strategy is summed up by the company’s slogan – “Where business meets real estate”.
In the past, Rothery and Deloitte have been careful to play down the radical nature of the change for the old Drivers Jonas teams. But today all three of DRE’s top men strike a confident tone about the growing differentiation between them and the other big agents, reeling off a string of examples – in addition to the Gherkin – where Deloitte’s ability to offer an unrivalled suite of service lines has proved successful.
There’s HSBC, where DRE advised the bank on its global real estate strategy – an instruction that led to the outsourcing of all its facilities management in an £800m contract to JLL.
It advised the Ministry of Defence over its future estate strategy, which resulted in the effective privatisation of the entire Defence Infrastructure Organisation – a £400m contract won by Capita.
Chinese clients
Now it is advising a Chinese bank on the establishment of a real estate fund management platform.
But while it clearly has an impressive array of instructions, the examples throw up another question.
If Deloitte wants to be at the top table for global real estate advisory work, why is it advising HSBC and the DIO on outsourcing instead of competing for those massive contracts itself? The biggest agents, such as JLL and CBRE, now rely on these types of global mandates for the lion’s share of their enormous global turnover.
“You say they are big and important but it’s thin-margin,” says Shilton, who is managing partner of Deloitte Real Estate and focused on the real estate finance side of the business.
“Our idea is to blend the complementary businesses that are the most profitable.”
It all comes back to splitting out what is process and what is insight and judgment, adds Stocks. “For us, one of the underpinning factors in how we take this business forward is asking if it’s a commodity service,” he says. “We would rather be on the other side, where we’re bringing insight and judgment.”
So where does that leave much of Drivers Jonas’s traditional advisory work such as valuation and tenant representation?
“Our valuation team is a fantastic example of where we’ve turned this on its head,” says Shilton.
The company continues to do traditional red book valuation work but it is focused on where it can marry up with other service lines, such as auditing, or M&A, he says.
“Revenues, margins and profitability have gone through the roof for that business,” he adds.
This fits in to DRE’s wider priority around transactional work – one of three key service lines Stocks says he now wants to grow.
The other two are development advisory and occupier work.
These areas have been prioritised because there are clear synergies with the rest of the Deloitte business.
So, for example, Deloitte advises six of the top 10 luxury brands in the world. That expertise now feeds in to the advice it gives the great landlords of the West End, providing businesses with insight that informs their view of why the sky-high rents of Bond Street are, in fact, affordable.
Pitching for the leasing mandate of a top-100 insurer might now include a senior insurance partner, a financial adviser and a leasing agent.
Stocks says these priorities will be supported with some senior appointments in the short term.
The company has already promoted several key occupier and development partners in the past few months – it expects shortly to announce some heavy-hitting transactional hires, too.
All of which should help the next time a mandate to sell a skyscraper is up for grabs.
“The Gherkin is obviously high profile,” says Stocks.
“The snowball is moving and this is a big push behind that snowball. Let’s hope we find a buyer.”
