Property firms plug into global telecoms potential

Mergers, deregulation, and new technology in the telecoms sector are all good news for property advisers. Richard Baillie reports. BT’s $20bn bid for MCI last month coincided with the flotation of shares in the giant Deutsche Telecom. The world’s telecommunications industry is in a period of rapid change, and the property industry is benefiting. The European Union is pushing ahead with its plans to privatise all state-owned telecoms companies by 1998. This has resulted in a series of mergers as national operators seek to play in international markets. In addition to the audacious bid for MCI, BT has already tied up a series of joint ventures with other European operators (see table opposite). France Telecom and Deutsche Telecom have combined with US operator Sprint to form Global One. The largest US telecoms company, AT&T, has merged its international activities with Unisource, a joint venture between the state operators of the Netherlands, Sweden, Spain and Switzerland. Meanwhile, the European rail networks have formed Hermes, with plans to create a pan-European fibre optic network. These giant operators are important players in Europe’s property markets. They are looking for headquarters buildings, sales offices and nodal sites for their networks, and they are prepared to sign some large lettings. Telfort, the joint venture between British Telecom, Enertel, a consortium of regional energy companies and providers of cable television, and Dutch National Railways, took a 10-year lease on the 21,000 m2 America Building in Amsterdam South in October. Telfort needed a new headquarters building after it was awarded one of two licences to install fixed-link telecoms services and compete with the Dutch privatised monopoly, KPN. AT&T has been particularly active in the UK property market. In August its communications division acquired 8,454 m2 in Skanska’s Thomas More Square development on the outskirts of the City of London. It took a five-year lease on the building, where it has established its headquarters. Outside the UK, AT&T use the headquarters buildings of local partners, Siris in France and Communications Network International in Germany. Richard Ellis acted for AT&T, having won a hotly-contested pitch in 1994 to act as the company’s exclusive adviser in Europe, the Middle East and Africa. The firm also advises AT&T throughout the Asia Pacific region. Such strategic alliances with agents, whether exclusive or simply on a “preferred supplier” basis, are not uncommon among telecoms companies, reflecting the pace and complexity of their expansion. King & Co Paris has a close relationship with Northern Telecom, the Canadian telecoms company, for example. In October, Nortel, advised by King & Co Paris, acquired a new 7,700 m2 building in La Dèfense. In recent years, King & Co has represented the company on nine projects in France, Switzerland, the Netherlands and Spain. It has also provided property advice in a number of countries such as the Czech Republic and Tunisia (see table). John Duckworth at King & Co in Paris, comments: “Although we are not exclusive consultants [to Northern Telecom], over the last eight years we have fulfilled that role. Northern Telecom wanted a new headquarters building in Paris, which was prestigious, good-looking, on a good lease and near their main users.” Although all EU member states have agreed to deregulate and privatise their telecoms by 1998, some countries, such as Spain and Italy, will struggle to meet this deadline. However, in October Rafael Aria Sagado, the Spanish minister for public works, issued a timetable to open the sector up to competition. The Spanish telecoms market is now due to be liberalised in 1999. This should provide major opportunities for international involvement as Telefonica, the Spanish government-controlled telephone monopoly and Unisource member, has access to a large domestic market. Telefonica has also made substantial inroads into Latin American countries through a series of joint ventures. BT agreed a merger with Banco Santander in 1994 but, so far, no major property transactions have taken place and the market remains under developed. The sale last month of a first tranche of shares in Deutsche Telecom marked the beginning of a massive privatisation of the German national operator, while France Telecom is due to be partially privatised next spring. Once privatised, the French and German companies, which are already partners in the Global One alliance with Sprint, could be tempted into cross-shareholdings. Global One, advised by Jones Lang Wootton, acquired an 8,500 m2 headquarters this summer at the Park Atrium complex in Brussels. Fiona Russell at telecoms specialist Pitcairn Surveyors in the UK, is targeting European telecoms business. “The market ranges between new headquarters buildings to node sites and small base stations,” says Russell. “We are looking at thousands of small sites such as roof top sites for satellite links and small pieces of green fields to put towers in.” The UK was the first European country to privatise its telephone systems; as a result, BT has something of a headstart in forming joint ventures with other European operators. It has teamed up with indigenous utility companies such as Viag in Germany, or with banks such as Banco Nazionale del Lavoro in Italy where it is working with Berlusconi’s Mediaset to offer data communication services. BT set up its international property division in 1991 and, unlike AT&T and Northern Telecom, prefers to appoint local agents within each country. Most French business is looked after by Colliers Auguste-Thouard, while Eric Howard is the agent in Switzerland. Jones Lang Wootton and Eureal, the German operation of Colliers International, carry out most of BT’s work in Germany. Julian Cousins, international manager at BT Group Property, says: “No one agent in any country does everything for us. JLW did have the reputation for doing most of our work but some JLW offices were better than others. Where we felt we weren’t getting a particularly good service, we chopped and changed.” A typical requirement is to have one central headquarters building with node sites scattered throughout the country. The choice of headquarters location and building depends as much as anything on the image that the company wants to project. In France, BT is operating through Cégétel, its joint venture with Compagnie Générale des Eaux, which plans to build a £5bn network to rival France Telecom. “In France, we have our headquarters in La Défense. It is a typical good quality office building. It is not crash, bang, wallop in the centre of town, but it doesn’t need to be. The biggest node is a 1,700 m2 office building in Nanterre, Paris, but they can be as small as 70 m2 and cheap to acquire in terms of rent,” says Cousins. “The joint venture may well decide to reduce PTT connections to a minimum, we would then need to have node sites throughout France. BT and MCI coming together in Concert should also result in increased demand for new network sites in Europe and around the world,” said Cousins. Finding the sites is not always a straightforward business. “In some cases I’ve been looking at a site and found that France Telecom and Deutsche Telecom are looking at the same location. Also, we’ve found that the system of agents getting money from both the tenants and the landlord is pretty rife. We are not used to paying an agent 15% of the first year’s rent, particularly if they are already getting 15%,” he adds. BT is currently looking at Dutch National Railways’ property portfolio in the Netherlands for its Telfort operation. The company needs to set up between 60 and 70 node sites, the modern-day equivalent of the telephone exchange. These can range in size from 50 m2 to 2,000 m2 with the space taken up by expensive telephone switching equipment. Usually, these sites are located close to customers in secure town centre office blocks as out-of-town warehouse locations need long and expensive ISDN links. Healey & Baker acts as BT’s preferred supplier of services in the Netherlands. “Masterplanning and strategy planning is done by our London office,” says H&B partner Hugh Elphick. “The rest – such as looking at warehouses, offices, node sites and communication and satellite locations and working out which landlords can rent space – is all done by local offices. It should be a growing business for us but a lot depends on our local partners.” If the large agents can exploit their international networks to the full, there is huge potential to win big business from the telecoms sector. Hand in hand with the capability to service a wide range of locations, however, must go a real understanding of what is a fast-moving and highly political sector. ALIGN=”CENTER”>King & Co Paris’ European work for Northern Telecom 1989 Site acquisition and project/construction management of a 6000 m2 European training and showroom centre at Marne-la-Vallée 30 kms from Paris. 1992 Valuation of seven office and technical facilities France following Northern Telecom’s purchase of part of Matra Communications. 1992 Project management of new offices in Geneva. 1993 Acquisition and management of refurbishment in Madrid. 1994 Acquisition and project management of new offices in Amsterdam 1994 Acquisition of 5000 m2 European headquarters in Puteaux La Défense. 1995 Acquisition of 5000 m2 of offices and laboratories for Nortel Matra Cellular at St Quentin-en-Yvelines west of Paris. 1996 Acquisition of 8000 m2 European headquarters at Courbevoie La Défense. ALIGN=”CENTER”>BT’s Worldwide Partnership Network Name Country Type Partner BT stake Concert International Joint venture MCI 75% MCI United States Direct MCI 20% Viag Interkom Germany Joint venture Viag/RWE 37.5% Cegetel France Joint venture CGE 25% Telfort Netherlands Joint venture NS Enertel 33.3% BT Telecom Spain Joint venture B. Santander 50% Airtel ARS Spain Direct Airtouch 7% Albacom Italy Joint venture BNL/Mediaset 35% Telenordia Sweden Joint venture TeleDanmark/Telenor 33.3% SOURCE: INDUSTRY REPORTS