Is there still room for the buccaneer property developer?
Flamboyant property tycoons are responsible for some of the world's most visionary real estate projects.So, is there still room for the buccaneer developer?
Britain’s Harry Hyams gave London an early skyscraper with Centre Point at the end of Oxford Street while concentration camp survivor William Stern became, briefly, the UK’s biggest bankrupt after the collapse of his property empire in the mid-Seventies.
More recently, Canada’s Reichmann brothers were behind that symbol of the late Eighties – Canary Wharf in London’s docklands. Meanwhile, across the Atlantic, one flamboyant property tycoon set his sights on greater things. That man is Donald Trump.
But in the contemporary world of real-estate – corporatized, institutionalized and massively capitalized – is there any longer room for the swashbuckling “merchant developers” or are they doomed to go the way of the wildly-gesticulating floor traders in colourful blazers that once symbolized financial markets?
“There is always room for the entrepreneur,” says Richard Bloxam, JLL’s head of capital markets, Europe, the Middle East and Africa. “It is, however, fair to say that real estate has been on a journey away from total reliance on the entrepreneurial model.”
Growth of institutional investors
Driving this change, he explains, is a large and growing appetite for real-estate investments from pension funds and other institutional investors, who look to property to provide the sort of returns that are no longer available from bonds – and have not been for some time.
“As there has been this increased allocation to real-estate,” Bloxam says, “so it has become an institutionally acceptable asset class.”
But in return, the increased institutional involvement inevitably brings with it a more corporate approach in place of the often instinctive way of working that characterised the entrepreneurial era.
Does this translate into a loss of flair and inspiration in terms of the actual real-estate developments? Bloxam is adamant that it does not. “You need to remember that just because pension funds and other institutions operate on an enormous scale it does not mean they do not have the ability to be creative.”
Thinking outside the box
Free thinking city planner, Peter Rees, for example, is largely credited with ‘reshaping the square mile’ in London; he worked with the best known ‘buccaneers’ in the property world to create the UK capital’s now distinctive skyline. London’s 122 Leadenhall – the ‘Cheese Grater’ and 20 Fenchurch Street – the ‘Walkie Talkie’ were both built by institutional investors.
However, although creative deal-making continues to be driven by entrepreneurs, increasingly, the capital behind these developments is international as partnerships between visionaries and deep-pocketed foreign financiers become commonplace.
The Shard is a solid case in point. It was developed by property entrepreneur Irvine Sellar, who partnered with Qatari capital to finance the project. And, Gerald Ronson, the man behind the Heron Tower, now known as Salesforce tower, was backed by international investors. Further afield, in New York, real estate developer Harry Macklowe pioneered 432 Park Avenue, the ground-breaking, pencil-thin residential tower that dominates the city’s mid-town skyline.
“But it is much, much more difficult to get big projects off the ground as an entrepreneur,” says Bloxam. “Land prices in London and New York see to that.”
In what may be in part a self-reinforcing process, the involvement of institutional capital pushes up land values, which in turn makes it harder for the entrepreneur to operate at the highest level.
But no-one should expect an early end to this cycle: “The fundamental story is that there is so much capital, such as pension funds, looking for yields because people are saving more money in, for example, pensions,” says Bloxam. “They need the return that real estate can provide. It is not just core trophy assets that are being bought. All sorts are in demand, including riskier assets.”
In London, that means there are no no-go areas for institutional investors who, not so long ago, would have confined their interest to the City, West End and Mayfair.
Development has spread from the centre to King’s Cross, Shoreditch, the regeneration of Croydon and Paddington Basin as London pulls in global talent. “People want to work in places where they can see and meet other like-minded people,” Bloxam explains. “Café culture is strong in London.”
As the increasingly globalized business world continues to change at a rapid pace, real estate is adapting with it. “Real estate as an asset class has grown up a bit and is less the domain of entrepreneurs,” Bloxam concludes. “It is also less highly leveraged – the lessons of the past have been learned, to some extent. “It may be a little less exciting as a result but probably acts more in the public interest.”