Following a partial sale of King’s Cross, NW1, in March this year to Australian pensions heavyweight Australian Super, the government has appointed advisers to sell its remaining interest in the north London scheme. On offer is a 36.5% interest in a limited partnership that owns the entire site.
In addition to Australian Super, the other partners are development manager Argent, in joint venture with Hermes, and DHL, which has also put its 6% share on the market. The sale by the government and DHL will see the original King’s Cross land owners and promoters of the project exit the scheme entirely.
The sale by the government is clearly in line with its much-emphasised policy to unload state-owned assets to balance the country’s books. Having set a challenging target of £23bn of sales by the end of 2016, announced by George Osborne in May 2015, it needs to take advantage of every opportunity to cash in.
However, following the heavy criticism levied at the coalition’s handling of the Royal Mail privatisation, the new Conservative government will be keen to ensure that it receives full value for its interests. By instructing agents to sell King’s Cross on the open market it will hope to stem any complaints that it is selling out too cheaply as well as comply with its legal obligations as a public sector vendor.
There will be conjecture as to who the likely purchasers will be. The sovereign wealth funds and Far Eastern investors who lost out to Australian Super are again likely to be the most interested parties for this relatively passive investment into an established scheme.
However, Australian Super itself must be the front-runner. Having recently bought into the project, it has a head start, and adding the government’s share to its own will give it a controlling interest, which must add to its appeal and value.
The government could have gone straight to Australian Super, but Osborne will have been mindful of the headlines that would inevitably result from yielding control of a former public asset to foreign hands in an off-market deal. Much less criticism will be received if Australian Super happens to offer the best price after a transparent competitive process.
The government and any potential purchaser will also be keen to avoid anything that could provide grounds for a legal challenge. Without there being clear evidence that the best value reasonably obtainable is being paid for the asset, there is a risk of someone, perhaps a disgruntled potential purchaser who has lost out, popping up and seeking a judicial review of the government’s decision. Even if such a move is ultimately unsuccessful, it would not help Osborne make his sales targets or the purchaser spend its money if the deal is held up for months on end while the challenge is dealt with.
Worse still would be if it were to get bogged down by Europe. Selling public land other than after a competitive process and without establishing that it is on market terms could be at risk of a legal challenge.
There is a process for getting the EU Commission’s prior clearance, but that means delays. There will be even more delays and very long ones at that, though, if the proper processes are not followed and the EU takes action or a third party mounts a challenge as a result. This can all be
mitigated if the government sells to the highest bidder after a competitive marketing process.
Even if the government achieves the best price today and its decision holds up to legal scrutiny, the sale will still have its critics. The King’s Cross scheme has already delivered significant value but there is a long way to go. Would the taxpayer not have been better off hanging on to the investment and collecting the potential future income and capital growth?
Perhaps not, if Mike Prew at Jefferies is proved correct in calling the top of the market. Maybe the government’s decision to cash in its property interests now is not only politically expedient but actually commercially astute.
Jason Tann is head of commercial real estate at Pemberton Greenish
