LONDON SOUTH BANK

UNIVERSITY Agenda
Evaluarea Riscului Financiar in Dezvoltarea • London South Bank University
Cladirilor Comerciale
• The City of London

The City
y of London • Investment / Development Appraisal

Dr Gheorghe Multescu • Value & Risk Assessment for Commercial Property

Senior Lecturer • Discounted Cash Flow / Gearing Ratio of Capital

• The Gherkin / Plantation Place

DEPARTMENT OF DEPARTMENT OF
THE BUILT ENVIRONMENT THE BUILT ENVIRONMENT

Dr Gheorghe Multescu LSBU History

BArch PgDip MSc Arch PhD ACIAT We’ve been providing inspiring education with a strong focus on
our students’ future employability for 115 years.
• Graduate from UAU ‘Ion Mincu’ 1996 Originally called Borough Polytechnic Institute and established
• Advanced Studies Diploma / MSc from UAU ‘Ion Mincu’ 1998 1892.
• PhD from London South Bank University 2009
• 2001 – 2004 – Research Assistant London South Bank University Became a university in 1992.
• 2004 – present – Senior Lecturer at LSBU
– Course Director for RICS accredited In 2003 was named
BSc (Hons) Surveying (Building Surveying & London South Bank
Quantity Surveying) and MBA International Real University.
Estate Management (London Block)
– Erasmus programme Co-ordinator, etc
DEPARTMENT OF DEPARTMENT OF
THE BUILT ENVIRONMENT THE BUILT ENVIRONMENT

Mission: We have 4 faculties: Structure

ƒ ARTS AND HUMAN SCIENCES (AHS)
To provide students with relevant
Media, English & Performing Arts, Law, Criminology, Psychology , Social
and practical employment skills to & Policy Studies and Tourism & Hospitality
support local employers ƒ FACULTY OF BUSINESS (BUS)
Over 23,500 students Accounting & Finance, Business, Marketing, BIT, Computing and
International foundation course
ƒ ENGINEERING, SCIENCE AND THE BUILT ENVIRONMENT (ESBE)
• Arts and Human Sciences Architecture, Surveying & Construction, Product Design, Engineering,
Applied Sciences and Forensic Science
• Business ƒ HEALTH AND SOCIAL CARE (HSC)
• Engineering, Science & the Built Environment Nursing, Social Work, Physiotherapy, Occupational Therapy and
• Health and Social Care Radiography

DEPARTMENT OF DEPARTMENT OF
THE BUILT ENVIRONMENT THE BUILT ENVIRONMENT

1
 FACULTY OF ENGINEERING, SCIENCE AND THE BUILT
A few facts… ENVIRONMENT
• We have over 23,500 students from over 120 different countries!
• 10% Built Environment students Department of The Built Environment
• 57% are full time students
• 69% are undergraduate students
Ranked 3rd in Engineering research amongst modern
• 44% are international students (post-1992) UK universities in Research Assessment
• 48% ethnic minorities Exercise (RAE) 2008.
• 63% are over 25 years of age
• 42% are male Departments within Our Faculty
• 1 in 5 nurses are taught at LSBU
• We have over 600 courses to chose from! • Applied Science
• We have strong links within the industry and the local community. • Built Environment
• We host the oldest bakery school in the world! It was established 1894 • Engineering & Design
• Kevin Spacey, Desmond Tutu and Tessa Sanderson are honouree • Urban Engineering
graduates of the University
DEPARTMENT OF DEPARTMENT OF
THE BUILT ENVIRONMENT THE BUILT ENVIRONMENT

Opportunities and Threats

Department of The Built Environment

DEPARTMENT OF THE BUILT ENVIRONMENT

• 2012 Olympics
• Regeneration Projects • Approximately 1,900 students split between Full-
• Thames Gateway Time and Part-Time (sponsored by employers).
• Environmental and • 50 staff.
sustainability
• Performance of • All courses accredited by:
buildings – RIBA (Royal Institute of British Architects)
• Property maintenance – RICS (Royal Institution of Chartered Surveyors)
and asset management
– CIOB (Chartered Institute of Builders)
– CIAT (Chartered Institute of Architectural Technology)
– APM (Association of Project Managers)
DEPARTMENT OF DEPARTMENT OF
THE BUILT ENVIRONMENT THE BUILT ENVIRONMENT

STUDENT EXCHANGE PROGRAMME

Department of The Built Environment
ARCHITECTURE PROPERTY, PROPERTY,
SURVEYING & SURVEYING &
• 1 Semester including min 3 units + practice
UNDERGRADUATE & CONSTRUCTION CONSTRUCTION • 1 LSBU unit = 20 CAT credits = 10 ECTS credits
POSTGRADUATE
POSTGRADUATE UNDERGRADUATE (3 units = 30 ECTS + practice = 40 ECTS)
BA Architecture
Diploma Architecture
MSc Real Estate
MSc Property,
FdSc Construction
Extended Degree
• Cost per Semester £1690.00 (2010-11*)
RIBA Part3 Development & Planning HNC Construction
MSc Building Surveying BSc Architectural
Units offered are from Semesters 5/6 of UG courses:
MSc Quantity Surveying Technology • BSc Surveying (Building or Quantity Surveying)
MSc Construction Project BSc Construction
Management Management • BSc Commercial Management (Quantity Surveying)
MSc Planning Buildings BSc Commercial
for Health Management • BSc Property Management (Building Surveying)
BSc Property
Management • BSc Construction Management
BSc Surveying
• Architectural Technology
RIBA accredited RICS, APM accredited RICS, CIOB, CIAT
Programme Leader Programme Leader ProgrammeDEPARTMENT
Leader OF DEPARTMENT OF
Mary-Jane Rooney Steve Pearson THE BUILT
Peter ENVIRONMENT
Haywood LONDON SOUTH BANK UNIVERSITY
THE BUILT ENVIRONMENT

2
WHERE ARE WE? WHERE ARE WE?

DEPARTMENT OF DEPARTMENT OF
THE BUILT ENVIRONMENT THE BUILT ENVIRONMENT

WHERE ARE WE? WHERE ARE WE?

DEPARTMENT OF DEPARTMENT OF
THE BUILT ENVIRONMENT THE BUILT ENVIRONMENT

WHERE ARE WE? WHERE ARE WE GOING TO BE?

DEPARTMENT OF DEPARTMENT OF
THE BUILT ENVIRONMENT THE BUILT ENVIRONMENT

3
 Life Cycle of Commercial
UNITED KINGDOM – BRITISH
Property
• Units
Feet/inches 1 foot = 0.305m
10 sq ft approx = 1 sq m
E.g. 500,000 sq ft building approx = 50,000 sq m
Stakeholders:
Area 1 acre = 0.405 hectare
• Currency 1) Developer / Investors + Financial Institutions
£ pounds £1 = 1.15 euros
2) Planning (Professional Services include: Architects,
Will UK EVER join the euro! (will there be one to
join?) Planners, Surveyors, Engineers, Services, etc)
• Lease structures 3) Contractor + Project Manager + Professional Services
Rents are paid quarterly in advance and quoted per annum 4) Real Estate Services
E.g. £35 per sq ft per annum approx = 410 euros per sq m 5) Asset Management
6) Developer + Contractor + Professional Services
DEPARTMENT OF DEPARTMENT OF
THE BUILT ENVIRONMENT THE BUILT ENVIRONMENT

Developers in
What Risk?
the City of London

• Major: British Land, Land Securities,

Canary Wharf
Wharf, Minerva plc
plc, ...... Risk is associated with Development
• Other: Legal & General, Swiss RE, etc / Investment and Financial Perspective
over Commercial Buildings!!!

DEPARTMENT OF DEPARTMENT OF
THE BUILT ENVIRONMENT THE BUILT ENVIRONMENT

FINANCIAL DECISION MAKING LONDON PROPERTY MARKET

COMMERCIAL
PROPERTY

CITY OF LONDON
DEPARTMENT OF DEPARTMENT OF
THE BUILT ENVIRONMENT THE BUILT ENVIRONMENT

4
 LONDON OFFICE MARKET CITY OFFICES – OWNERSHIP BY NATIONALITY

• The London office market is made up of several

distinct markets: Nationality 2005 1995 1985
City 8.4 million sq m
West End 9.9 million sq m UK 53.5% 74.7% 87.4%
Docklands 1.8 million sq m Germany 18.0% 2.8% 0.7%
W. Europep 10.9% 4.8% 4.4%
• The City is driven by London’s status as a global USA 6.8% 0.7% 0.5%
financial centre.
Japan 2.5% 10.0% 3.0%
• Market value of City offices: International 4.6% 0.3% 0.0%
8.0m sq m @ £400 psm @ 6% yield = £53bn Other 3.7% 6.8% 4.0%
Source: University of Reading

DEPARTMENT OF DEPARTMENT OF
THE BUILT ENVIRONMENT THE BUILT ENVIRONMENT

CITY OFFICES – OCCUPATION BY NATIONALITY

CITY OFFICES – OWNERSHIP BY ORGANISATION
Core Fringe City Central
Nationality City City Total London (%)
Organisation 2005 1995 1985 UK 60.6 87.3 68.5 76.1
Traditional 7.0% 15.0% 25.0% USA 16.5 6.5 13.4 12.0
Institutional 28.0% 38.0% 37.0% Germany 6.3 0.3 4.4 2.0
Property Company 24 0%
24.0% 25 0%
25.0% 15 0%
15.0% W Europe
W.Europe 90
9.0 25
2.5 73
7.3 64
6.4
Private vehicle 14.0% 1.0% 0.0% Japan 3.5 0.5 2.8 1.5
Other Financial 20.0% 16.0% 19.0% Other Asian 0.6 0.2 0.5 0.2
Other 7.0% 5.0% 4.0% Other 3.5 2.7 3.1 1.8
Source: University of Reading Not Known 5.1 14.2 5.7 7.1
Source: University of Reading

DEPARTMENT OF DEPARTMENT OF
THE BUILT ENVIRONMENT THE BUILT ENVIRONMENT

6 The Gherkin

7 Plantation Place

DEPARTMENT OF DEPARTMENT OF
THE BUILT ENVIRONMENT THE BUILT ENVIRONMENT

5
 1 - THE HERON TOWER 2 - THE PINNACLE

• 230m tower (46 storey – 40,000 sq m) • “Helter-skelter” 288m tower (60 storey – 95,000 sq m)
• Built speculatively • Scheme put together by German fund Union
• March 2011 completion Investment Real Estate (formerly known as DIFA).
• 10 x 3 floor “villages” and 1 x 6 floor “village” – individual • May 2007: Sale to Khalis Affara’s Arab Investments for
self sufficient units £200m (Shari’ah compliant fund).

• D
Developer
l H
Heron IInternational
t ti l PLC • D
Developer
l A
Arab
b IInvestments
t t (current)
( t)
• Architect Kohn Pedersen Fox Associates • Architect Kohn Pedersen Fox Associates
• Quantity Surveyor Davis Langdon LLP • Services Engineer Hilson Moran Partnership
• Services Engineer Foreman Roberts • Structural Engineer Arup Group
• Structural Engineer Arup Group
• Main Contractor Brookfield Group
• Main Contractor Skanska
• Lift Supplier Schindler
• Concrete Frame Contractor Byrne Brothers
DEPARTMENT OF DEPARTMENT OF
THE BUILT ENVIRONMENT THE BUILT ENVIRONMENT

4 - WALBROOK SQUARE Discussion Drivers

Questions:
• 2006: Legal & General get French architect Jean
Nouvel to design 107m tall “Darth Vader helmet” tower • Why Commercial Buildings (Offices)?
as part of 500,000 sq m scheme.
• What is the Value of Commercial Buildings?
• Sep 2007: L&G get Spanish developer
Metrovacesa excited and sell it to them for £240m. • What are the Financial Risks?
• How do these influence the value of
MARKET CRASHES
buildings?
• Aug 2009: Force Metrovacesa to pay £100m in return • How important is the Architectural Design for
for walking away from the deal which has cost it £162m
to date (including previous payment of £40m to L&G).
the Value of Buildings?
Landmark Design vs. Shoebox Design
DEPARTMENT OF DEPARTMENT OF
THE BUILT ENVIRONMENT THE BUILT ENVIRONMENT

FINANCIAL DECISION MAKING FINANCIAL DECISION MAKING - WORTH

The word “value” is often used to describe three

distinct, albeit related, concepts. In these notes,
the following convention is adopted: Worth is a specific investor’s perception of
the capital sum that he/she would be
prepared to pay (or accept) for the stream of
benefits that he/she expects to be produced
WORTH by the investment.
PRICE
Worth = “value in use” (economics)
VALUE
DEPARTMENT OF DEPARTMENT OF
THE BUILT ENVIRONMENT THE BUILT ENVIRONMENT

6
FINANCIAL DECISION MAKING - PRICE FINANCIAL DECISION MAKING - VALUE

Price is the actual observable exchange point Value (or Market Value) is an estimation of the
in the open market. price that would be achieved if the property
were to be sold in the market (subject to certain
assumptions) .

Price & Value = “value in exchange”

(economics)

DEPARTMENT OF DEPARTMENT OF
THE BUILT ENVIRONMENT THE BUILT ENVIRONMENT

Valuations: Definitions
Valuations: Definitions

DEPARTMENT OF DEPARTMENT OF
THE BUILT ENVIRONMENT THE BUILT ENVIRONMENT

FINANCIAL DECISION MAKING Known & Unknown

“There are known knowns. There are things

“When the decisions we make turn out to be
‘successful’
successful we ‘naturally’
naturally assume that this is the
result of our own ability. However, when they go
wrong we usually blame the ‘market’.”
we know that we know. There are known
unknowns. That is to say, there are things
that we now know we don’t know. But there
are also unknown unknowns. There are
things we do not know we don’t know.”
Statement made by Donald Rumsfeld (2002) at a Defense Department Briefing

DEPARTMENT OF DEPARTMENT OF
THE BUILT ENVIRONMENT THE BUILT ENVIRONMENT

7
 UNCERTAINTY & RISK RISK & HISTORICAL DATA
“Uncertainty is present in the decision-making
process, not so much because there is a future as
• Measurable uncertainty that there is, and will be, a past . . . . . We are
prisoners of the future because we will be ensnared
Risk can be quantified – mathematical models using by our past.”
probability.
Robert Dixon, 1986 (Australian economist)

• Immeasurable uncertainty

DEPARTMENT OF DEPARTMENT OF
THE BUILT ENVIRONMENT THE BUILT ENVIRONMENT

LAND REGISTRY UK MORTGAGE APPROVALS 1993 to date

SALES VOLUME 160

160,000

140
140,000

120
120,000

100
100,000

80
80 000
80,000

60
60,000
Oct -10

10
40,000 40

20,000 20

0 0
Apr 00
Jul 00
Oct 00
Jan 01
Apr 01
Jul 01
Oct 01
Jan 02
Apr 02
Jul 02
Oct 02
Jan 03
Apr 03
Jul 03
Oct 03
Jan 04
Apr 04
Jul 04
Oct 04
Jan 05
Apr 05
Jul 05
Oct 05
Jan 06
Apr 06
Jul 06
Oct 06
Jan 07
Apr 07
Jul 07
Oct 07
Jan 08
Apr 08

88 89 90 91 92 93 94 95 96 97 98 99 0 1 2 3 4 5 6 7 8
DEPARTMENT OF DEPARTMENT OF
THE BUILT ENVIRONMENT Source: Bank Of England
THE BUILT ENVIRONMENT

BANK OF ENGLAND
MORTGAGE APPROVALS
RISK & ECONOMIC DATA

Financial Markets

Economic figures

Demand & Supply

Oct -10

DEPARTMENT OF DEPARTMENT OF
THE BUILT ENVIRONMENT THE BUILT ENVIRONMENT

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 FINANCIAL TIMES FINANCIAL TIMES
2008 Headlines 2009 Headlines

September 15
“Fight for survival on Wall Street”
“Ground prepared for Lehman Bankruptcy”
“Merrill Lynch and B of A in merger talks”
September 22
September 17
“Markets rise amid hope of loan for AIG”
“Financial Turbulence for second day”
“Mansfield offers 100% mortgage”
September 18
“Landsecs sells Bullring stake to Australian fund”
“Panic grips credit markets” “Bank of England Report drives sterling lower”
“HBOS takeover Government grips credit markets”
“Turmoil Worsens Volatility sparks biggest flight to safety since second world war”
“Lending between banks grind to a halt”
“US Treasury yields lowest since 1941”
“Jobless claims rise”
“Lloyds TSB poised to rescue HBOS”
Global markets;
Three month Treasury bill yield 0.02%
September 23
FTSE 100 –2.25%
S&P 500 –4.7% “Rich increase wealth in spite of crisis”
“Russia: Its two main stock exchanges were closed to halt a market rout”
“Banks hit back at tax avoidance crackdown”
DEPARTMENT OF DEPARTMENT OF
THE BUILT ENVIRONMENT THE BUILT ENVIRONMENT

FINANCIAL TIMES PROPERTY WEEK

2009 Headlines 2009 Headlines

September 23 August 7
“Bank crisis bring ‘long-lasting scars’” “Hammerson and Liberty post big first-
“Barratt and Redrow set for £850m cash call” half NAV drops”
drops
“Minerva breathing space”
September 18
“Distressed hotels fund” “Anglo Irish compelled to exit
“Level the global playing field for the horrid hedgies”
Yorkshire Shopping Centre”
“Dollar’s weakness reinvigorates equity traders”
“M&S climbs 1.7% on hopes of a positive update” “Pramerica heralds UK return with inflation-linked fund”
DEPARTMENT OF DEPARTMENT OF
THE BUILT ENVIRONMENT THE BUILT ENVIRONMENT

ESTATES GAZETTE FINANCIAL TIMES

2009 Headlines 2010 Headlines

September 12 September 13
“Valuations appear to have passed “Greece seeks to woo investors”
o est point”
lowest po t
“Borrowing by Europe’s banks hits fastest rate for almost
six months”
September 19
“Forced shopping centre sales to test investment market’s appetite”
“Ireland’s ‘bad bank’ could push loans to UK market”
“Merrill property team buy-out”
“Strong prices see Allsop raise £32m”
“Basel brings acceptance mixed with relief”
“Competitive bidding hands Savills 92%” “Deutsche Bank calls for €9.8bn”
“Surveyors report more price rises than falls”
DEPARTMENT OF DEPARTMENT OF
THE BUILT ENVIRONMENT THE BUILT ENVIRONMENT

9
 FINANCIAL TIMES
2010 Headlines
September 13
“Basel deal reached on banks’
reserves”
”
“Slowdown fears ease as China hits a ‘sweet
spot’”
“No Irish Lazarus -
Dublin should let banking sector zombies die”
DEPARTMENT OF
THE BUILT ENVIRONMENT
LONDON PROPERTY MARKET
DEPARTMENT OF
THE BUILT ENVIRONMENT
LONDON PROPERTY MARKET
DEPARTMENT OF
THE BUILT ENVIRONMENT
ESTATES GAZETTE
2010 Headlines
September 11
“RBS hunts for lenders for £3bn
loan vehicle”
“Anglo Irish to be split into two separate parts”
“Investream City portfolio sinks into
negative equity”
“Latest IMA figures reveal inflows are falling”
“C&W’s $2.4m loss is up on Q1”
“Sinking share price sees SEGRO slip out of FTSE 100”
“No rush of sales as Nama tries to keep borrowers afloat”
DEPARTMENT OF
THE BUILT ENVIRONMENT
LONDON PROPERTY MARKET
DEPARTMENT OF
THE BUILT ENVIRONMENT
FINANCIAL RISKS
1. Discounted Cash Flow (development risk assessment)
• Indicele de Discount (financial risk)
• Costul Mediu al capitalului investit (financial risk)
• Yields (project risk)
2. Gearing Ratio (investment lending risk assessment)
Indicele de indatorare
3. Securitization (investment risk assessment)
Valoarea certificatelor de securitizare
DEPARTMENT OF
THE BUILT ENVIRONMENT
10
 FINANCIAL DECISION MAKING DISCOUNTED CASH FLOW
Discount rate 7.0
The most common approach to evaluating a project Income growth rate 2.0
Exit yield 6.5 NPV £1,737,426
is to use a discounted cash flow analysis. Rent per annum 100000 IY 5.76 %

Period ERV Rent Exit value Net flow PV NPV

0 100000 100000 100000 1.00000 100000
A project is a series of cash flows – inflows and 1 102000 100000 100000 0.93458 93458
outflows. 2 104040 100000 100000 0.87344 87344
3 106121 100000 100000 0.81630 81630
4 108243 100000 100000 0.76290 76290
5 110408 110408 110408 0.71299 78719
The worth of the cash flows is derived by discounting 6 112616 110408 110408 0.66634 73570
7 114869 110408 110408 0.62275 68757
them back to the present day by using a suitable 8 117166 110408 110408 0.58201 64259
discount rate. 9 119509 110408 110408 0.54393 60055
10 121899 1875376 1875376 0.50835 953346

1737426
The discount rate should reflect the riskiness of the
NPV rental income 784080 45.1%
cash flows. NPV exit value 953346 54.9%
DEPARTMENT OF DEPARTMENT OF
THE BUILT ENVIRONMENT THE BUILT ENVIRONMENT

FINANCIAL DECISION MAKING

Weighted Average Cost of Capital
How do we know what discount rate to use?

• Experience from previous projects

• Weighted average cost of capital
• Cost of Debt Capital
g
Modigliani & Miller

• Yield = annual rate of return on an investment (i.e. • Cost of Equity Capital

real estate) expressed as a percentage
Net Income / Capital value x 100/1 = Yield
• High Yields = Low Capital values
• Low Yields = High Capital values
DEPARTMENT OF DEPARTMENT OF
THE BUILT ENVIRONMENT THE BUILT ENVIRONMENT

COST OF DEBT CAPITAL COST OF EQUITY CAPITAL

Base rate 5.0% (2008)
Short-term Long term Risk Free Rate + Risk Premium
Libor 5.15% 20 year Gilt 4.60%
Risk premium 0.75% 20 year Swap 4.90% RFR usually taken as GRY on Government Gilts
5.90% Risk premium 1.00%
say 4.60%
5.90%
The above figures reflect an expectation that base rate will be
cut. Risk Premium = Equity Risk Premium * Beta Coefficient
Normally the longer the term the higher the rate – to reflect
more risk. ERP = 4.0% (long run average)
Beta = how risky is company compared to the market
Base rate 0.5% (2009) Blue chip property companies = 0.8
Short-term Long term
Libor 0.61% 20 year Gilt 4.60% CoE = 4.60 + (4.0*0.8) = 7.8%
Risk premium 3.75% 20 year Swap 4.90%
4.36% Risk premium 1.00%
DEPARTMENT OF
5.90% DEPARTMENT OF
THE BUILT ENVIRONMENT THE BUILT ENVIRONMENT

11
 WEIGHTED AVERAGE COST OF CAPITAL THE MAGIC OF GEARING
Assume a capital structure of 40% equity and 60%
debt. Scenario 1: Capital values fall 25%
Scenario 2: Capital values fall a further 20%
Scenario 3: Capital values fall a further 20% but £25 worth of
property is sold first and used to repay debt
2008
Scenario 1 2 3
WACC = (0.4
(0 4 * 7.8)
7 8) + (0.6
(0 6 * 5.9)
5 9) = 6.66%
6 66% Year 1 2 3 3
Assets 100 75 60 40
2009 Debt 50 50 50 25
WACC = (0.4 * 7.8) + (0.6 * 4.3) = 5.7% Equity 50 25 10 15

Gearing 100% 200% 500% 167%

LTV 50% 67% 83.3% 62.5%
DEPARTMENT OF DEPARTMENT OF
THE BUILT ENVIRONMENT THE BUILT ENVIRONMENT

Primary Use:
6 – THE GHERKIN Office
Floorspace (sq m):
76,641.00
(30 Mary St Axe / Car Parking Spaces
SwissRE) 5
Land Costs
£90,600,000.00
Date of Purchase
1998
Construction Cost
£138,000,000.00
Last Sale Value (2006)
£595,000,000.00

DEPARTMENT OF DEPARTMENT OF
THE BUILT ENVIRONMENT THE BUILT ENVIRONMENT

Public / Investors’ Survey

finds Gherkin is ugly !?
Developer:
Swiss Re 2007
Architect:
Foster + Partners IVG Asticus (Asset
Cost Consultant: Management) buys The
Gardiner & Theobald Main
Gherkin at top price (almost
Contractor:
Skanska £600,000,000.00)
Planning Consultant: 2006
M t
Montague E
Evans
Quantity Surveyor: Why would Swiss RE sell
Gardiner & Theobald
The Gherkin?
Services Engineer:
Hilson Moran Partnership • £27,000,000.00 rent / year
Structural Engineer: • top commercial property
Arup Group prices in 2006 (property
cycles)
DEPARTMENT OF
• 4.5 yield DEPARTMENT OF
THE BUILT ENVIRONMENT THE BUILT ENVIRONMENT

12
 7 – PLANTATION PLACE

Primary Use:
Office

Floorspace (sq m):

50,170.00

Construction Cost:
£134,000,000.00

Budget Date:
2004

DEPARTMENT OF DEPARTMENT OF
THE BUILT ENVIRONMENT THE BUILT ENVIRONMENT

Developer:
British Land

Architect:
Arup Group

Main Contractor:
Bovis Lend Lease

Quantity Surveyor:
Gardiner & Theobald

Services Engineer:
Hayden Young

Structural Engineer:
Arup Group

DEPARTMENT OF DEPARTMENT OF
THE BUILT ENVIRONMENT THE BUILT ENVIRONMENT

• Plantation Place occupies almost an entire block of

approximately 1.02 hectares bounded by Fenchurch St,
Mincing Lane, Eastcheap and Rood Lane

• Plantation Place is built on on the remains of the old

Roman colony of Londonium burned down by Boadicea in
AD 60. A hoard of gold coins from the 2nd century was found
on site.

• The complex contains almost three quarters of an acre of

roof gardens.

• The central focal point of the development is a 43 metre tall

south facing main atrium.
DEPARTMENT OF DEPARTMENT OF
THE BUILT ENVIRONMENT THE BUILT ENVIRONMENT

13
 PLANTATION PLACE
• Completed in 2004 by British Land.
• 545,000 sqft of Grade A office space.
• Net rental income of £27,084,070 (£49.50 psf).
• 72% of rent covered by Accenture Ltd on 25 year
lease.
• Other tenants include Wachovia Bank
Bank, Aspen
Insurance and Royal & Sun Alliance.
• Bought in March 2006 for £527m by joint venture
between Invista fund management, Stobart Group
and consortium of private investors.
• Valued in June 2006 at £560m by CBRE.

DEPARTMENT OF DEPARTMENT OF
THE BUILT ENVIRONMENT THE BUILT ENVIRONMENT

PLANTATION PLACE - SECURITIZATION PLANTATION PLACE

• Securitisation Class Amount Libor + S&P rating
• £435m of Secured Floating Rate Notes due 2016. A £295m 0.23% AAA
• Loan to Value ratio 77.68% B £40m 0.32% AA
• Interest Cover ratio 120% C £45m 0.55% A
• Remaining Term 6.94 years D £40m 0.90% BBB
E £15
£15m 1 00%
1.00% BBB
BBB-
• 21 years unexpired on Accenture lease
• Average weighted unexpired lease length 17.5 years Expected maturity July 2013
Legal Final maturity July 2016

Interest Rate Swap

DEPARTMENT OF DEPARTMENT OF
THE BUILT ENVIRONMENT THE BUILT ENVIRONMENT

PLANTATION PLACE PLANTATION PLACE

• In 2007 value rises over £600m and owners consider • If building sold with loan of around £300m, chances
selling. of achieving a higher consideration much better.
• By June 2008 value has fallen to £477m. • In all scenarios a sale would result in a loss to some
• In September 2008 Invista writes off equity. note holders.
• In January 2009 value has fallen to £385m (Knight • Loss compounded by need to sever existing interest
Frank)
Frank). rate swap.p Break cost estimated at £34m.
• CBRE asked to report on likely sale: • Small chance even AAA note holders would see
Amount Net IY Likelihood some loss on a sale of the property.
£368m 7.25% 25%
£356m 7.50% 40%
£345m 7.75% 60%
£332m 8.00% 80%
DEPARTMENT OF DEPARTMENT OF
THE BUILT ENVIRONMENT THE BUILT ENVIRONMENT

14
 Discussion Drivers COMMERCIAL PROPERTY
Questions: Question?

• Why Commercial Buildings (Offices)?

To answer this question we need to think about the
• What is the Value of Commercial Buildings? influence of architectural design over:
• What are the Financial Risks?
- Value and potential of rental income / growth
• How do these influence the value of - Profile and strength of tenants
buildings?
• How important is the Architectural Design for
the Value of Buildings?
Landmark Design vs. Shoebox Design
DEPARTMENT OF DEPARTMENT OF
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