Irvine Sellar, son James and their credit crunch-defying Shard development
Irvine Sellar and son James have defied the critics and the credit crunch to secure funding for their London Bridge ‘Shard’. Photographs by James Royall
Irvine Sellar must have breathed a huge sigh of relief when he secured finance for the Shard – one of London’s most talked-about schemes.
From the very beginning – more than 10 years ago – the proposed 310 metre-tall tower near London Bridge station has had legions of doubters. A fractious partnership with former development partners Simon Halabi and CLS Holdings was aggravated by lawsuits and an expensive and long-drawn-out public planning inquiry.
The entire 2m sq ft scheme was almost dealt a death blow when Sellar attempted to secure funding at the moment that the world’s credit markets plunged into crisis and the City of London’s office market began to look volatile and oversupplied.
But in January this year Sellar proved his cynics wrong when he clinched backing from a consortium of four Qatari banks – Qatar National Bank, Q-Invest, Barwa International and the Qatar Islamic Bank – to bankroll the ambitious Renzo Piano-designed scheme.
‘I don’t have blind belief … but I did worry that it wouldn’t happen,’ confesses Sellar. ‘But if you have the right team around you … then you worry at the thing until you find a solution.’
Today, the developer and his son, James, tell Property Week how they worked out a funding solution and assess how the scheme will progress and fare in a tougher market. Irvine Sellar
‘We had got close to organising full funding for this project with Credit Suisse before the credit crunch,’ says Sellar. ‘We had already met the Qataris and started early discussions with them about joining the consortium or taking one or two of the partners out and these two negotiations were running parallel when the credit crisis hit.
‘As the markets were getting worse, the existing partners were getting anxious and that is when the Qataris took the position over.’
He does not resent having to reduce his one-third share in the project to 20%. ‘I would much rather have 20% of something good than 100% of something that isn’t,’ says Sellar.
He says Credit Suisse’s decision not to go ahead with funding was not caused by doubts about the viability of the scheme: ‘Credit Suisse and the Qataris and their separate advisers both ticked it off from a due diligence point of view: the building works.’
Sellar says the rebranded London Bridge Quarter consortium is finalising the funding arrangements, which will have a small sharia-compliant element, but will initially focus on development finance.
‘It is something we are working on,’ says Sellar. ‘A substantial layer of mezzanine equity will be provided, which means it won’t be as difficult to raise debt in front of that. It is only difficult when you have a thin layer of equity.
‘London Bridge amounts to two buildings that have a gross area of 2m sq ft. That is a lot of square feet to build. It is in fact a mini-city.’
And the cost of building was never going to be cheap. Sellar Property’s head of property Barry Ostle says the Shard’s ‘pure construction’ costs are around £320/sq ft, which is up from a previous Shell-and-core construction estimate of £210/sq ft in July last year. Sellar says it is keeping a tight rein on costs and has a rigid schedule allowing just six months between completion of the two buildings.
The construction team is now headed by former Millennium Dome project director Bernard Ainsworth, while main contractor Mace is recosting separate tenders to reduce costs.
The logistics and ‘value-engineering’ measures needed to ensure a smooth construction programme are not the sole responsibility of Sellar and his team, however. Here, the Qataris intend to play an active role.
‘The Qataris are bringing knowledge with them as they know how to build towers in Doha – which is another Chicago. They contribute to our fortnightly steering group meetings and the level of contribution of technical skills means it is vastly better than it has been,’ says Sellar.
Project managing the minutiae of the scheme is where Sellar’s son, James, takes the lead.
‘I have been on this project for a decade and that has seen me through engagement, marriage and two kids and it has been a fantastic experience,’ says Sellar Jnr. ‘I am interested in the development side of the business and the design element.’
This interest for the next few years will involve controlling construction costs and determining the right mix of tenants, while integrating prelets agreed before the credit crunch.
“Credit Suisse and the Qataris and their separate advisers both ticked it off from a due diligence point of view: the Building works”
And this is where the Sellars have been the subject of most debate. It has signed government tenant Transport for London in a 200,000 sq ft office prelet on an initial £38/sq ft, rising to £42/sq ft on completion.
But Sellar was unable to retain accountant PricewaterhouseCoopers, the original tenant at Southwark Towers, which will make way for the Shard, and had to pay a hefty £70m to buy in the long lease. PwC would have made a picture-perfect occupier for the smaller headquarters building, while TfL’s rent seems low for such a high-profile scheme.
‘TfL’s rent could be perceived to be low but it is a very long lease – a bond lease, effectively,’ says Ostle. ‘We have a retail prices index (RPI) with no collars or caps at all. It is a very secure financial instrument. It rolls up annually and rests every five years, whatever the compounded rate.’
Ostle believes the remaining space could achieve £60/sq ft and attract West End occupiers, hedge funds and creative occupiers – ‘once they can actually get inside the building it will make for a higher premium on the rent’.
‘This is not a City office building and to compare it with other schemes in the City is not appropriate,’ says Ostle. ‘We have to look at it across the board in terms of rental values and the aim is not to secure a further single major prelet. We see bigger activity in multi-letting this [remaining] space.’
Sellar Snr says: ‘With TfL we have a government tenant and lease. PwC were going to be temporarily housed in Little Britain [office scheme in the City] and we offered them a £40m profit and they decided in their ultimate wisdom they could do better. Irvine Sellar
‘But we can do better than the rent we had negotiated with PwC and that’s the silver lining to the outcome.’
Luxury Asian hotel operator Shangri-La has also signed a management contract and has a 30-year lease on an RPI-linked rent.
Critics also argue that a government tenant, while providing a secure income stream, is less attractive when coupled with a luxury hotel operator and high-end residential use, where values can be more than £3,000/sq ft.
One City source says: ‘If you are paying that much for a flat you are not going to want to walk past a grotty civil servant having a fag out the side of the building in London Bridge.’
In the mix
Sellar Snr is adamant the uses and tenants are compatible and says that, because the building will be ‘unlike any other building in London’, it can be ‘clever’ with the remaining occupiers.
‘I get the point you are making that no bicycle clip-wearing civil servant is going to mix well with the luxury end of the residential market,’ says Sellar Snr. ‘But if it was a shopping centre we would have a John Lewis at the one end and lesser retailers at the other end and that would not be unusual. The hotel links the office and residential space together and we will be choosy about the infill between them.’ Irvine Sellar
‘If you are a law firm working with clients you don’t have to watch the clock – you can keep them in until they have signed,’ he adds.
Sellar Jnr says the flats, which will have the best views of London from the south of the Thames, will sell themselves. ‘Our new partners wanted to acquire an option of 50% on the apartments. In fact, they wanted 100%. London Bridge is not a bad address. It is where I would want my apartment rather than certain streets in the back of Kensington. People will be buying into a cultural icon in London.’
But whether they buy into the icon in a downturn or an improving market is yet to be seen. Sellar Snr, a veteran of several downturns, can only see advantage by building now, when others are turning off the development tap, and predicts a recovery in two years.
‘We are fortunate that we will be coming out with our project by 2012. I wouldn’t like to be completing a building now,’ says Sellar.
‘There is no quick fix to what we are in but in a few years’ time there will be far less development taking place and far fewer competitive schemes, and construction prices are going to start coming down.’
It is a scenario which, if it pans outs, should be timed quite nicely for the Sellar-Qatari consortium’s plans.
‘There aren’t many buildings in this country like it and I think that it is a top 20 building within the world,’ says Sellar proudly.
‘We have been given an opportunity to create a development that could be here for 200 or 300 years.'
Property tycoon plans £300m spending spree - Irvine Sellar
IRVINE SELLAR, the property entrepreneur behind London’s proposed “Shard of Glass” skyscraper, is planning a £300 million-plus spending spree that will almost double the size of his property portfolio, The Times has learnt.
Mr Sellar, 67, has kicked off his acquisition programme with the £48 million purchase of an office investment portfolio from Africa Israel, an Israeli group, which will net him an initial 7.12 per cent return.
The portfolio includes Seal House in Swan Lane in the City of London, a 68,500 sq ft office building that is let to Merrill Lynch.
The bank rents the building on a lease that expires in 2014, but it is thought that Sellar Property Group believes that the property eventually has scope to be redeveloped.
Other buildings in the portfolio include the Cable & Wireless Communications building in Bletchley, near Milton Keynes, and a 40,000 sq ft office complex in Seer Green, Buckinghamshire, let to a British subsidiary of PerkinElmer, the technology company.
Mr Sellar said that he plans to spend a further £250 million over the next 12 months as part of a drive to expand his investment portfolio, which at present totals about £400 million.
His company, Sellar Property Group, has dedicated most of its energies in the past two years to large developments such as the proposed London Bridge Tower, popularly known as the Shard of Glass. The tower has already secured an advance leasing commitment from the luxury hotel chain Shangri-La.
The company is now keen to expand its investment portfolio to provide extra rental income to balance planned expenditure on the large developments.
Mr Sellar said that he was looking to buy properties across the UK, including offices, shops and industrial and distribution parks. He is also eyeing a number of opportunities in continental Europe.
The spending spree coincides with a record run for the commercial property investment market as investors look for alternatives to equities and gilts.
Mr Sellar shrugged off concerns that he may be buying at the top of the market. “It is still a good time to buy at the right price,” he said. “To say everything is overheated is a bit over the top. You just have to look a lot harder.”
* UBS Global Asset Management is understood to be the front-runner to buy Centre Point, London, for about £84 million. The 35-storey landmark was put up for sale this year by a consortium including Apollo Real Estate Advisors, Europa Fund and Deutsche Bank. Irvine Sellar
Irvine Sellar is one of the most colourful characters in the property industry. The 67-year-old entrepreneur has built up an estimated £120 million fortune, according to the Sunday Times Rich List, after spectacularly resurrecting his business career following the collapse of Ford Sellar Morris, a quoted property business that plunged into administration during the 1990s property crash. Before that, Mr Sellar helped to bring flower-power flares to the high street with a chain of fashion shops called Mates By Irvine Sellar.
Business big shot: Irvine Sellar
Irvine Sellar may be best known for his involvement in the Shard of Glass project in London – on which construction is due to begin today – but Europe’s tallest building is only the latest of many projects masterminded by the former textile entrepreneur, who with his son James has a fortune of £210 million, according to the Sunday Times Rich List. Sellar Property Group’s portfolio of completed buildings is worth £800 million and it has a further £3 billion or so of projects in the pipeline.
The path has not always been a smooth one for Mr Sellar, who brought floral-patterned flared trousers to the high street when he set up the Mates By Irvine Sellar chain. In between selling flares and setting up Sellar Property Group, he worked in Ford Sellar Morris, a real estate business that plunged into administration during the 1990s property crash.
Some doubted that the 1,016ft Shard of Glass would ever be built. Mr Sellar first proposed the project more than a decade ago. CLS Holdings and Simon Halabi, two of the original backers, pulled out after they fell out with him. A cash injection from Qatari investors last summer enabled the building to go ahead. Mace – a contractor more often associated with projects such as the Dome – has signed up to a fixed-term contract, to ensure that it is ready before the 2012 Olympic Games.
With construction finally under way, Savills and CB Richard Ellis are to start marketing offices in the new building, beside London Bridge, within months. Transport for London has already taken close to 200,000 square feet in the building, for a rumoured £38.50 per sq ft. Shangri-La, the hotel chain, will take over the hotel part of the building, which will have 44 lifts. Irvine Sellar
Mr Sellar’s next challenge may be finding buyers in the present market. Apartments in the tower are predicted to sell for upwards of £5 million, for a flat of about 3,000 sq ft, through Knight Frank, the estate agent.
“These sort of prime prestige properties will always have a market, although they probably won’t fetch as much as they would have a couple of years ago,” one property source said.
There had been some interest in the apartments, although nothing serious as yet, Michelle van Vuuren, the marketing director, said.
“We’re not marketing it too hard at the moment as we’re waiting for the market to change,” Bernard Ainsworth, managing director of the project, said.
Irvine Sellar to get Humberts estate agency
The property tycoon Irvine Sellar is understood to have been picked as the preferred bidder for the estate agency chain Humberts, which has become a victim of Britian's ailing housing market.
Sellar, who has an £800m investment portfolio including hotels, offices and shopping centres through his Sellar Property Group, is thought to have been told on Friday he is in exclusive talks to buy Humberts by the group's advisers, who are preparing to sell the company in a so-called "pre-pack" administration.
If he completes a deal, Sellar will have seen off competition from Lord Marland, the former Conservative Party chairman. Sellar is estimated to be worth £210m alongside his son James, managing director of his property company.
Humberts' shares were suspended in the middle of May at 3.2p - a 94 per cent fall which valued the 165-year-old company at £2m, having been worth £32m less than a year ago. Irvine Sellar
Shares in the company fell 16 per cent in one day before they were suspended from trading on the Aim market. Earlier this month, its board appointed professional services firm Smith & Williamson to advise on options to restructure.
On Friday, it revealed that it had sold Richard Harding Estate Agents for £1.06m and would use the proceeds to assist its working capital position. This followed the sales of Halls Participations and Thomson Currie for £1.9m each last month.
Humberts's rapid expansion in recent years was largely achieved through a series of acquisitions, which expanded the business beyond its traditional base as a full-service chain of estate agents, surveyors and valuers focused on rural communities in the south-west.
Sellar's 80-storey tower set to rise
Irvine Sellar, the larger-than-life property tycoon, is to lodge a planning application within two weeks to develop Europe's tallest building in London.
Irvine Sellar, the larger-than-life property tycoon, is to lodge a planning application within two weeks to develop Europe's tallest building in London.
Mr Sellar and Italian architect Renzo Piano are putting the finishing touches to the plans and are expected to present them to Southwark council before 15 January. The team is confident, given the council's proactive approach to urban regeneration. If permission is granted, it will represent the last hurdle before the 1,280ft building known as London Bridge Tower can be developed.
London's Mayor, Ken Livingstone, has already welcomed the project because the 80-storey skyscraper will be located near public transport at London Bridge and will not produce extra traffic. Irvine Sellar
The tower will include one million sq ft of office, residential, hotel, retail, restaurant and exhibition space. If all goes to plan, construction is due to start in spring 2002; it will first involve demolishing an office block currently occupied by PriceWaterhouseCoopers. The professional services company has been tipped as a future tenant in the tower. Mr Sellar hopes to complete the project by 2005 and estimates that it could be worth £750m. Irvine Sellar
The move will seal Mr Sellar's return to the big property development league. He has teamed up with two financial partners to build the tower, each taking a one-third stake in the project. They are: CLS Holdings, a quoted property company with a market capitalisation of £227m, and the Halabi family trust. Contrary to press speculation, neither the family trust nor Mr Sellar is backed by Russian money.