If you pop up from the Tube at Canary Wharf in central London, you could be forgiven for thinking you were in New York.
It is an impression not lost on Arabian Gulf investors.
Buildings dwarf the office workers who inhabit them and the pavements are as wide as an athletics track.
Add in the throng of sharp-suited, fast-walking, coffee-clutching investment bankers and corporate lawyers, and it is no wonder the area is sometimes called Wall Street on the water.
This year, the manicured office development became the subject of the biggest deal in UK property for a decade, adding another layer to its long and complicated history.
The Qatar Investment Authority (QIA) and its Canadian partner Brookfield, the world’s biggest office developer, clinched control of Canary Wharf with a £2.6 billion (Dh14.7bn) bid.
The office district, 11 kilometres east of Mayfair, boasts eight towers and is home to 110,000 workers, heavily dominated by the financial services sector.
The 34 office buildings, 300 shops and restaurants that make up Canary Wharf are a shiny steel and glass jewel in a once-grimy nook, where the River Thames meanders through an industrial landscape.
The estate is a symbol of London’s transformation into a global financial services centre and also the best example of regeneration in Britain, if not the world.
The project began when Margaret Thatcher, the UK prime minister at the time, earmarked the Docklands as an Enterprise Zone. However, it took the vision of the Canadian developer Paul Reichmann to get spades in the ground, at a time when no one else would touch it.
QIA and Brookfield’s attempt to seize control of Canary Wharf Group began at the end of last year, with a lowball cash offer for Songbird, which is the listed vehicle that owns 69 per cent of Canary Wharf Group. QIA and Brookfield are already shareholders of the Songbird-subsidiary Canary Wharf Group.
The initial offer of 295 pence a share was immediately rejected, with shareholders such as David Cumming at Standard Life Investments, which owns close to 3 per cent of Songbird, saying the offer was “so low it can’t be taken seriously”.
Meanwhile, analysts at Oriel Securities said they could “comfortably justify a number closer to 400 pence”.
The stage seemed set for a protracted hostile takeover bid, not for the first time in Songbird’s history. An improved offer of 350 pence a share was still considered too low.
Then, against all the odds, at the end of last month Songbird did an about-turn and recommended the offer on the table.
QIA, which owns 28.6 per cent of Songbird, and Brookfield, which has a 22 per cent stake in its subsidiary Canary Wharf Group, said they received acceptances representing a further 65.49 per cent of Songbird’s issued shares.
“Accordingly, the acceptance condition has now been satisfied and the Songbird offer has become unconditional as to acceptances and is now declared unconditional in all other respects,” the consortium said on February 4. Under the terms of the Canary Wharf Group offer, Canary Wharf Group shareholders shall be entitled to receive for each Canary Wharf Group Share: £6.45 in cash, the bidders said.
There has been huge interest from Middle East investors in some of London’s trophy commercial and residential property assets of late. With the oil price falling, market experts suggested this was a good time for oil and gas barons to diversify into other asset classes.
At the same time, with huge resources, it was expected QIA and the Canadians could — and would — pay more for Canary Wharf. Yet the fate of the offer changed when it became clear other shareholders sided with bidders. “As soon as one shareholder went [with the offer] the others followed. You wouldn’t want to be left with a stake, that couldn’t really be sold,” an insider says.
Canary Wharf had been owned in a complicated and illiquid shareholding structure since 2004, when another attempt to take over the company failed and left it owned by two groups (the listed Songbird and the private Canary Wharf, with shareholders in common).
The decision by Simon Glick, China Investment Corporation and Morgan Stanley Real Estate Funds to back the QIA and Brookfield move enabled the bidders to effectively force through the takeover.
The reason that 350 pence eventually clinched the deal was that there was no realistic alternative offer around, despite Songbird’s advisers’ efforts to drum up a competing offer from other sovereign wealth funds around the world.
“The complicated shareholder structure probably put some funds off. Not many people would want to take on Qatar,” one adviser said.
Mike Prew, a real estate analyst at Jefferies, says Songbird had become becalmed.
“Songbird was a vehicle designed for the outright acquisition of Canary Wharf Group [in 2004], but as 67 per cent owner it became an illiquid stock market backwater, despite the Wharf changing the shape of the London office market and the undoubted genius of its chief executive, George Iacobescu.”
It has been a coup for Brookfield and for QIA, whose former chief executive Ahmad Al Sayed is believed to have masterminded the takeover and the timing of the deal.
Key to the successful bid has been persuading Sir George Iacobescu, the chief executive of Canary Wharf Group, who has overseen the development of the estate since the beginning, to stay on.
Those who know him say Sir George, 70, is a pragmatic man and realised the QIA and Brookfield takeover would give him the best chance of completing his dream. He is extremely protective of the company and the people within Canary Wharf and wants them to have their best chance of building out the vision that he and many others have worked on since the 1980s.
QIA and Brookfield said throughout the bidding they backed Sir George and the business plan that will involve the group building a further 11 million square feet of space, including the opening of a new rail link to Heathrow Airport and thousands of new homes.
The estate will also encourage smaller companies, including tech companies and start-ups, to settle in the area in a deliberate attempt to reduce the dominance of large financial service firms on the estate.
Convincing new types of businesses and occupiers to come to Canary Wharf is critical for its success, as many regenerating areas of London are now competing for occupiers. QIA would not comment on what difference it would make to have it and its partner Brookfield in control, but people close to the investors say the pair support this strategy.
But a question remains as to whether QIA and Brookfield have bought at the top of the market.
Even at the final hour, the Canary Wharf camp continued to say that the final bid did not reflect the full value of the group. But even those close to the deal have reservations about the future: “You have to believe that the demand [for offices] will hold up,” says one, requesting anonymity.
Some people think that with rents surpassing their 2008 peak, that demand can not continue at these levels.
The amount of space available to lease in the capital has also fallen to its lowest level for 14 years, according to the latest figures from BNP Paribas Real Estate.
That should work in Canary Wharf’s favour, but the property market is notoriously cyclical and building space at the right time can be a challenge for even the most seasoned developers.
If anyone can get the timing right, it is Sir George. As the Qataris and Canadians know only too well.
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