Ross Clark says it’s not so much the Prince of Wales who has put the mockers on this controversial Qatari-backed development, but the grim economics of the credit crunch
Gordon Brown is well known for his bad timing in selling off half the nation’s gold reserves at the bottom of the market in 1999. But with the sale of the Chelsea Barracks site in 2007 the government could not have timed it better, picking up nearly £1 billion at the peak of the property boom, just before the credit crunch and before the intervention of the Prince of Wales sent the scheme into a tailspin of litigation and anti-royal fury.
In May this year, following Prince Charles’s criticism of the scheme, Qatari Diar, the property development arm of the Qatari royal family, withdrew its application for glass and steel apartment blocks designed by Richard Rogers — architect of the Millennium Dome, adviser on ‘urbanism’ to former London mayor Ken Livingstone, peer of the realm and prince of the New Labour cultural elite. The architect was furious, accusing the real prince of breaking a ‘constitutional understanding’ by interfering in the project. A fortnight ago Lord Rogers and the ubiquitous thirty-something Candy brothers, Christian and Nick, who had been involved with the project as co-developers, both revealed that they plan to sue Qatari Diar for unpaid fees. A more traditional, less lofty and almost certainly less profitable redesign is now awaited. But don’t expect anything to happen soon. It isn’t so much Prince Charles that has done for Chelsea Barracks; it is economics.
Property booms always leave behind a site like this: a mega-development which was going to transform a corner of London, only to catch the slump and spend years as a hole in the ground. Last time round it was Battersea power station, which was supposed to be reborn as a theme park. The project never recovered from the early-1990s slump. Sold in 2006 by Hong Kong Chinese owners to an Irish consortium, it has now passed through another property boom as an empty hulk.
Likewise, another high-profile Candy Brothers project, the three-acre hole where the Middlesex Hospital used to be in Fitzrovia and which they renamed ‘NoHo Square’, has stalled and been passed to another developer, Stanhope — which has offered neighbours part of the land for allotments until the prime property market improves.
There are glimmers of recovery in that sector, but it will be a long time before we get back to the manic conditions which inspired the plans for Chelsea Barracks. In 2001, when the Coldstream Guards were still resident in their poorly maintained 1960s blocks — considered by senior officers to be close to slum conditions — the 12.8 acre site was valued at £58.5 million. By the time the guardsmen marched off to Woolwich in 2006, the site was reported to be worth £250 million. Yet Qatari Diar, in a bidding war with other prominent developers — and the US government, which fancied the site for a new embassy — paid £959 million.
How did the government do so astonishingly well out of the deal? A back-of-an-envelope calculation of the project’s finances is not for the faint-hearted. The first plans by Rogers, submitted in the planning application to Westminster Council in 2008, envisaged 638 flats in ten-storey-high steel and glass blocks. But half of these, in accordance with planning rules introduced by Ken Livingstone, had to be affordable homes available for social tenants and public sector key workers such as nurses and teachers; this was made clear in the planning brief which Westminster Council produced for the site in 2006, before the sale. The bulk of the profits, therefore, would have to come from the 319 units which were to be sold on the open market.
The Qataris effectively paid, in other words, £3 million per flat for the site alone. Take into account construction costs — which include an awful lot of marble and gold taps when you’re selling at the very top end of the market — and the Qataris must have been reckoning on selling the flats for an average price of not much less than £10 million each, if they were to break even.
But that was only if the original plan went ahead. After objections from Westminster Council, Lord Rogers was forced to snip off a block or two and reduce the number of flats to 552, increasing even further the average price which the Qataris would have to charge for their flats in order to break even. Now that plans have gone back to the drawing board, to be reborn as what Westminster Council says it hopes will be a scheme more sympathetic to the surrounding five- and six-storey housing, it is even less easy to see how the figures might stack up. The London property market has its attractions for the world’s super-wealthy, but there is a limit. As Ed Mead of Chelsea estate agents Douglas & Gordon puts it, ‘They never were going to find three or four billionaires a week to pay £10 million for an apartment. But at the moment the very top of the market just isn’t functioning.’
The model for Chelsea Barracks is One Hyde Park, a block of 86 flats in Knightsbridge also marketed by Candy and Candy and financed by the Qataris. The Candys’ style is never to publish prices, leaving rumour to do much of their marketing for them. Tales that they have exchanged contracts on a flat in that block for £100 million seem a little far-fetched, given that it would be more than the highest price ever paid for an entire mansion in nearby Kensington Palace Gardens. We won’t know for sure until the block is complete and the sales start to appear on the Land Registry database.
The nearest equivalent to Chelsea Barracks is 199 Knightsbridge, a luxury block launched with much bombast in 2002 and with prices, square foot for square foot, twice as high as were being asked for any other London flats at the time. In the event, the flats sold, but even so only two are recorded on the Land Registry as having made in excess of £10 million.
Fortunately for the taxpayer, the deal done between the Qataris and Defence Estates was unconditional in relation to planning permission, so the government is due its money whatever happens to the site: the Qataris are paying in instalments of £198 million, the last due in 2011.
But the 500 residents who wrote in to comment on the plans for the Barracks site will be hoping that it doesn’t suffer an even worse fate than having Lord Rogers’s flats on it: to spend 20 years as a car park. That is what happened to the site of the old Imperial Hotel in South Kensington which got caught out in the last property slump. Developers who buy their land cheap can afford to downsize their ambitions; but for those who overpay, the temptation is to sit on land for as long as it takes for the investment to make some kind of financial sense. That can mean waiting an awfully long time.
To compound the misery for the Qataris, the pound has plunged since they bought the Barracks. But if any investor can withstand a drubbing in the property market, it is the sovereign stash of Qatar. Far from shying away from London property, the Qataris have decided to plunge in even deeper. They have already bought out most of their partners in the proposed 1,000-foot Shard at London Bridge — another heritage hot-potato designed by Renzo Piano, Lord Rogers’s partner on the Pompidou Centre in Paris, which made both their reputations. The name ‘Shard’ derives from a scornful comment from English Heritage, but has now been adopted officially.
Three weeks ago, the Qataris agreed yet another deal, to purchase the US embassy in Grosvenor Square, which the Americans plan to vacate in 2017 when they move to a new fortress embassy in Wandsworth. The Qataris have not disclosed the price they have agreed to pay for the Mayfair building, but it was reportedly valued at £500 mi llion in 2007. Given the plunge in commercial property, they could expect a substantial reduction on that figure.
Having burned their fingers on posh flats, the Qataris are thought to be planning a hotel in Grosvenor Square with perhaps just a few apartments — which would exempt them from the need to provide affordable housing alongside. In this case, Prince Charles would probably agree with the developers that anything would be better than the Finnish-American architect Eero Saarinen’s nine-storey building, completed in 1957, which bears more than a passing resemblance to a motorway service-station motel. But the Qataris shouldn’t expect an easy ride from the planners: just before the deal, English Heritage listed the building, 35-foot gilded eagle included. They are also believed to have their eyes on the Canadian embassy on the other side of Grosvenor Square.
The taxpayer has done well out of the sale of Chelsea Barracks, but the military are not entirely happy. The government promised to put the proceeds of the Chelsea sale towards improving dilapidated forces’ homes elsewhere, the legacy of the Tories’ disastrous decision to sell off the entire military housing stock to a developer — from which it leases some of it back — at the bottom of the housing market in 1996. But in the event, only £550 million is going back into forces’ housing. The rest of the money has simply vanished into the Treasury coffers.
Nevertheless, and even if the sale of Chelsea Barracks isn’t going to make much of a dent in the public deficit, we should be grateful that the Labour government, generally so incompetent in matters of finance, has managed to pull off this one blinder of a deal. When we get to the peak of the next property madness, can we sell off some more state assets to such deep-pocketed buyers? The ultimate prize for the Qataris in the next housing boom, I’m sure, will be the handsome neo-classical Wellington Barracks overlooking St James’s Park — and why not Buckingham Palace next door as well?