The EG Interview: Jonathan Harris’s hat-trick at Soho Square

When the European arm of Japan’s Kajima bought 27 Soho Square, W1, from Federated Hermes this month, the deal marked a hat-trick for Jonathan Harris, the agent who advised the seller. Over the past two decades, Harris has helped investors to buy or sell the West End office block three times. Before that, he leased it up in the mid-1980s and, as a senior partner at Allsop, worked in it. Harris sat with EG in the new Brook Street offices of Harris Associates, the advisory firm he set up in 2002, for a trip down memory lane. As he reflected on his deals at Soho Square, he explored the challenging market conditions in which those transactions took shape – a misunderstood submarket in 2000, the aftermath of the global financial crisis a decade later and the economic woes of today – and how dealmakers and agents can best respond to such testing times. Selling a lifestyle Tentative approaches from would-be buyers last year piqued Federated Hermes’ interest in offloading the Soho block, which it had owned since 2010.  By the time the building was being marketed in March, Harris and his team had gone all out, hiring actors for an elaborate video that pitched not just the office or Soho Square but Soho itself – its nightlife, restaurants and bars, Shaftesbury Avenue, Ronnie Scott’s Jazz Club and more. Harris says: “We came at it from a lifestyle point of view: Who wants to work in Soho Square? What type of people are in Soho Square?”  He adds: “What investors want to know is not just about the bricks and mortar. They want to know what type of people are going to take it, is it an environment that I want to buy into? “People assume they know Soho. But do they really? Do they know the type of people who are going to be there? Music, editors, film people, tech? There’s Muse Developments in the building, fintech, an online gaming company. It’s very varied.” Around 50 potential buyers inspected the building, coming from countries including Japan, Singapore, France, Germany and Italy, to name just a few.  They included high-net-worth individuals, investment firms and property companies, including GPE, which considered the site for its growing flexible office portfolio.  “One of the things I said to Hermes was ‘You’re not competing with anything, because a freehold in Soho Square is a rare piece, and it’s going to galvanise quite a bit of interest’, which it did,” says Harris. After two rounds of offers and a visit from Kajima’s Tokyo-based investment committee, the deal was sealed at just over £45m, down on the £50m at which the building had been marketed.  The block has had a Barclays bank on the ground floor and offices above since it was built. Federated Hermes gained consent in 2016 to turn the ground floor into a restaurant or retail space and the upper floors into flats.  Harris expects Kajima to push for an eatery to replace the bank but to keep the offices as they are. The site is being added to a portfolio that also includes 77 Coleman Street, EC2, and Orwell House, W1, which received planning permission in May for a refurbishment and extension. Soho memories 27 Soho Square was built in the mid-1980s from designs by Rolfe Judd, combining sites on Soho Square and Greek Street. UK Provident, later Friends Provident, owned the former 27 Soho Square, and Harris and colleagues at Allsop helped it to buy 60 Greek Street too. The buildings were demolished and the new 27 Soho Square built. Allsop prelet the basement, ground, first and second floors to Barclays. Allsop itself, which was leaving its existing base at 21 Soho Square, took the remainder on a 25-year lease. The top rents in the building were £17 per sq ft – a record for the time. Harris searches for the right way to describe Soho in the 1980s before settling simply on “great fun”.  “You had Ronnie Scott’s. A lot more film companies than you do now – 20th Century Fox, Warner Brothers. WEA Records, EMI, all the record companies. A lot of the ad agencies as well.” Harris and the team would end days of dealmaking in The George pub or in Romeo & Juliet, an Italian restaurant that Harris remembers as a “great haunt”. Perhaps L’Escargot on Greek Street. “It was a Soho community, it was close and it was just fun being there,” he adds. By 2000, the Friends Provident portfolio had been bought by Benchmark Group, and the building was sold to the Pickerings, a family from Nottingham with its own development company, for £19.5m, with Harris advising the vendor. But Harris had unfinished business with the building. A decade later, having struck up a rapport with the top team at Federated Hermes, Harris suggested the investment house make a move for the block, which he saw as undervalued. Hermes picked it up for £20m. “2010 was tough,” Harris says. “It was just after the subprime and banking crisis, and not much money around in terms of lending. So the privates were out the market. I had always done a lot of work for Hermes – buying from them and selling to them, but never acting for them on buying. So I said, ‘this is what we’re going to do now and this is how we’re going to change the relationship’.” Expanding and shrinking markets 27 Soho Square isn’t the only building Harris has returned to for deal after deal. He delves into a host of other buildings he’s bought or sold on numerous occasions – 55 Old Broad Street and 36 Poultry, both EC2, are just two more examples. “I like the history. I like getting under the skin,” Harris says. “Not just doing deals for the sake of it but really understanding the whys and wherefores and the rationale.” No prize for guessing that Harris is a glass-half-full kind of guy. But even the most optimistic of dealmakers can find themselves tested by what’s happening in the investment markets at the moment as rates rise and assets reprice fast. Harris has been around the block of course, and he knows that things could always be worse. He recalls a presentation held at the offices of a big UK bank during the global financial crisis at which the institution’s chief economist spoke of a 40-year recession. When he left he called his wife and said: “They’re talking rubbish, aren’t they?” So how should an agent navigate a rocky market? Focus on the right submarkets, Harris advises. “What tends to happen is that in a bull market, the market in terms of geography expands – Old Street becomes very active, Aldgate becomes very active, Hammersmith becomes very active,” he says.  “Then it shrinks back. Investors will only follow trends in terms of occupation. So the likes of Hammersmith is very challenging now. That comes and goes quite quickly in terms of the barometer of the market… Everybody comes back to the West End, Fitzrovia, Soho, Mayfair, St James’s, Victoria, Paddington.” Harris’s three Soho Square deals all came at distinct points in the cycle. “2000 wasn’t a particularly bullish marketplace in the investment arena and people didn’t really understand Soho that well,” he says.  ”They thought it was fringe. They thought some of Covent Garden was fringe. So it was quite a struggle in 2000. And then 2010 was also a challenging marketplace because banks and institutions were out of the market.” Overcoming challenges Today has its own challenges. “What I’ve seen over quite a few years is that whereas markets used to go bull for a reasonable amount of time and then bear for quite a reasonable time, now the peaks and troughs are shallower and shorter because of technology,” Harris says. “In the days of the sale in 2000, there was no looking [properties] up on Google. You had to do a Land Registry search to find out who owned it, it was manual. And maybe in 2010 you could, but then they didn’t have the systems. You’ve got to embrace the change. I always embrace the change. Why not?” Harris believes that having the nerve to commit capital now will define those who exit this downturn without regrets. “Four and a half percent or 5% interest rates don’t worry me – I remember when it was 10% and 15%,” he says. “It’s going to come back down again. So the opportunity is now. I’ve always seen the opportunity when things are slightly out of kilter and they’re slightly out of kilter at the moment. “The lenders will be back. The institutions will come back. The occupiers will start feeling better. If you walk around the West End, in particular, look how many people are there. A year ago, if you went round office buildings in the City, they were empty, but they’re not now. People are back and that supports other businesses. “If people look back in 12-18 months, [they’ll say] ‘I should have bought then.’” To send feedback, e-mail tim.burke@eg.co.uk or tweet @_tim_burke or @EGPropertyNews Main photo: Harris Associates; Ronnie Scott’s: Nicholas Bailey/Shutterstock