United Kingdom Autumn 2012 Newsletter

 ULI HAS A  ULI UK PARTICI-  UK MEMBER WINS “CONVERSATION” WITH PATES IN ITS FIRST WOMEN’S LEADERSHIP IRELAND’S NAMA AND PARTY CONFERENCE IN INITIATIVE AWARD 5 JOHN MULCAHY 1 BIRMINGHAM 3  ULI JOINS THE  CROSSRAIL: A CAT-  YOUNG LEADERS PROPERTY INDUSTRY ALYST FOR URBAN TALK DISTRESSED ALLIANCE 5 CHANGE? 2 DEBT 4

A Conversation with Ireland’s National Asset Management Agency Ireland’s National Asset Manage- spread across Europe and the United Furthermore, NAMA must account for ment Agency (NAMA) has been a fix- States. The agency has been focusing the fact that its employees are on fixed- ture of real estate news since its creation first in markets that are liquid and where purpose contracts and will eventually in 2009. Established to address prob- it can add value, like London and the lose their jobs He gave examples of lems in the banking sector caused by US. The total loan portfolio stands at talented employees who have already excessive property lending, the agency €74 billion, for which taxpayers paid been recruited away for more profitable is now shifting gears from loan acquisi- €32 billion. From inception to now, Mr and steady career options elsewhere. tion to asset management. On October Mulcahy reported inward cash of €9 4th, John Mulcahy, Head of Asset Man- billion and this strong position has ena- agement at NAMA, flew to London to bled NAMA to start paying down their have a conversation with ULI. Mr Mul- senior debt and loans while maintaining cahy was formerly Chairman of Jones roughly €4 billion cash on the balance Lang LaSalle in Ireland, and had been sheet. brought in by the Irish government to When it came to questions regarding help establish their loan methodology. how the investment community should Subsequently, he was asked to help run engage with NAMA, Mr Mulcahy the new agency, being ultimately re- stressed that NAMA’s public role re- sponsible for the portfolio. The sold-out quires a very open relationship. The breakfast event was hosted by Lazard & agency is happy to organise conference Co. and sponsored by Eastdil Secured. calls or to find time to meet if investors Other challenges include the 29% of Patrick Long of Lazard and James are in Dublin, but assets must be sold on the portfolio comprise of land and de- McCaffrey of Eastdil served as facilita- an auction basis. While NAMA will velopment—land in rural Ireland is “not tors and interrogators. While the ses- respond if an investor puts in a bid, at hot” at the moment. NAMA has ad- sion was off the record, below are a few best it will only speed up the pace - NA- vanced some unfinished developments, of the topics discussed. MA must be able to show that every such as estates for social housing provi- The discussion kicked off with an transaction passed a market test (unless sion. Luckily, of the Irish property, over overview of the Irish property market by there is some sort of litigation). He said 90% is located in or near counties with Phil Tily, Managing Director for the UK NAMA maintains a database of every- large urban centres, 61% in Dublin and Ireland at IPD. He relayed that the one who contacts them, so potential alone. The long-term prospects for fundamentals in Ireland have been im- investors can remain aware of assets much of this property are positive, par- proving, such as downward trending going to market. They also publish a ticularly if the medium-term outlook for bond yields. From the mid-1990s up to significant amount of information in the Irish economy fulfils current growth the recession, Ireland had experienced a their annual report and appear multiple rate expectations. period of extended growth, withstanding times a year in front of the Irish Com- On personal guarantees, there is a a disconnect between values and under- mittee of Public Accounts. feeling among the public that developers lying indicators in 2005-07. Inflated Mr Mulcahy also discussed challeng- must be punished for plunging the coun- property prices and cheap, easily availa- es NAMA faces, like staffing. NAMA try into a financial crisis with their spec- ble debt resulted in the recession. Ire- has largely finished its recruitment initi- ulative investments. NAMA is working land emerged from the recession in 2011 ative with its 200 strong staff fairly with borrowers to resolve personal guar- and investment returns have been posi- equally split between those with bank- antees over time on a case-by-case basis tive for the last three quarters. There are ing and real estate background. This has and uses litigation when necessary. Mr pockets of recovery around the country, provided confidence in and resources Mulcahy commented on a range of other a high level of income return, and good for making decisions, but attracting the issues, but stressed that NAMA is open signs in the industrial and office sectors. best people to ensure the best deals are for business and happy for any capital NAMA’s loans are backed by assets made requires competitive salaries, coming into Ireland, even if it is not for primarily in Ireland and UK, with 8% which can be unpopular with the public. his agency.

Crossrail is the largest engineering ed with the station foundations supporting project in Europe with major construc- the over site developments. The Collabora- tion currently taking place below and tion Agreements provided major landown- above ground in central London. Its ers with the right to buy back the over-site goal is to connect rail networks on both Crossrail: development opportunities after comple- sides of London through the city's cen- tion of the station's development. In ex- tre, bridging Maidenhead and Heathrow 40 Years in the change Crossrail obtained access to the in the west to Shenfield and Abbey Making… design and planning skills, experience and Wood in the east. resources of the top private sector firms. On September 18th, Colin Smith, The Vision Colin Smith has been instrumental in medi- Crossrail’s Head of Over-site Develop- ating between the design teams of Crossrail ment, spoke to ULI UK from the Cross- Becomes Reality and the landlord to ensure that the design rail Visitor Centre at Tottenham Court of the station fits the over-site development Road - Crossrail's most complex and and vice versa. Apparently, constructive advanced worksite in London. He dis- tension between developer and station de- cussed the project's history and construc- signer has led to some good designs. tion progress, including many details of Whilst Crossrail has a Parliamentary developments, especially those above Act which grants some planning powers, ground. He noted that millions of Lon- over-site developments are not covered by doners rely on a rail transport system this and are still subject to the normal plan- which is increasingly under pressure, and ning approval process. This has required that Crossrail is poised to make commut- regular collaboration with local planning ing easier for regular rail passengers by authorities. For example, many stations improving facilities, accessibility, and were in areas with height restrictions. In travel times. When Crossrail is com- obtaining planning permission for the over- plete, London's rail capacity will increase site development above Farringdon station, by 10%, providing connectivity for areas Crossrail and development partner Cardi- of expected population growth. Travel nal Lysander were asked to cut back Cardi- times across the board will fall; for ex- nal House to improve views of the dome of ample, the journey from Heathrow Airport to Liverpool Street St Paul's Cathedral. Cardinal Street is also to become fully will take just 32 minutes, compared to the current travel time of pedestrianized. Improved public spaces will accompany other 55 minutes. stations, such as at Tottenham Court Road station where it is Colin spoke about the challenges of building infrastructure intended that St. Giles will become a new square with im- on this scale in central London. Construction challenges in- proved pedestrian facilities and better connections to Covent clude navigating the city’s existing infrastructure, and minimis- Garden and Soho. Additionally, a new entrance to the Bond ing disruption to communities near to worksites. As Crossrail Street station will open in Hanover Square, which Westminster spans 19 boroughs it comes into contact with numerous land- City Council will be redesigning to make favourable to pedes- owners, residents, contractors, suppliers, and interested parties, trians. resulting in a great number of stakeholders for consultation. At Canary Wharf the station building will be topped by four Various challenges have resulted in each station being de- floors of much needed retail space and is likely to result in a signed and built differently, all involving a huge amount of profitable investment after it opens in 2015. There will also be design integration work. Crossrail stations will be spacious a landscaped park, restaurant, and community facility on the and modern and some, like Canary Wharf, will have a futuristic top floor. feel. Mr Smith said that Crossrail decided not to have a specif- In the future, Colin Smith's role will involve getting sites ic architectural statement so as to better reflect the diversity of ready for sale and selling them back to collaborators. Colin London's architecture, adding that Crossrail will provide a last- noted the variability in values across the Crossrail sites, but ing legacy with a good quality design. informed that Crossrail expects to derive £540 million from the Construction of the new stations required the acquisition of sale of sites. Crossrail’s effect on property values has been re- major central sites, the cost of which has totalled £800 million searched, and based on data from infrastructure projects around through use of compulsory powers. Certain major landowners, the world, it is suggested that the impact on property values including Grosvenor Estates, Great Portland Estates, Derwent will extend 500m for offices and 1000m for houses. This, how- London and Aviva wished to retain an interest in these sites ever, could extend even wider where there is significant change and this process has resulted in a number of Collaboration in the locale's accessibility. It is expected that Crossrail will Agreements with existing landowners for the delivery of the positively affect house and commercial values in London and over-site developments. In short, the landlords received the areas along the route, and that it will encourage major occupi- right to influence the over site development design and in ers to seek closer locations. On the whole, economists project some cases this led to significant changes and improvements Crossrail will bring the region £42 billion in benefits. in station design as the two elements have to be totally integrat- ULI engages policy world at its first party conference in Birmingham

Transport ULI UK recently piloted a new form of public policy en- As highlighted in both sessions on transport, connectivity gagement – political party conferences. Through their Mid- and infrastructure are key drivers of competitiveness and lands committee, ULI organised six fringe events during the attractiveness for cities. The breakfast panel was moderated Conservative Party Conference in Birmingham. The confer- by Mark Reeves, Partner at RJF Public Affairs, and consisted ence took place from October 7th to 10th and includes nu- of Tom Magrath, Policy and Strategy Director at Centro; merous events from non-profits and companies seeking to Duncan Field, Partner at Wragge & Co.; Paul Kehoe, CEO at raise awareness of the issues in their field. ULI ran three sets Birmingham Airport; and Marc Barrow, Chief Executive at of events, each comprised of a breakfast panel and dinner Newcastle-under-Lyme Borough Council. discussion, on the topics of transport, housing, and the Tom Magrath highlighted the recent accomplishments in knowledge economy. While ULI is a non-lobbying organi- Birmingham’s transport network. By 2015, Birmingham sation, greater engagement with political conferences is will have a £600 million redeveloped transport hub at New hoped to raise ULI’s profile within the policy community. Street Station, a £65 million runway extension at Birming- The success of this experiment should also pave the way for ham Airport, and a £127 million extension of the tram sys- engaging with more party conferences next year. Video of tem through Birmingham city centre. Moreover, HS2 is the discussions can be found on ULI UK’s website, under the expected to be on the statute books by 2015. Among its ben- Midlands page. efits, these developments will encourage people to switch from cars, improving the traffic congestion in the city which The Knowledge Economy costs the region’s businesses £2.3 billion a year. The connection between higher education, city govern- Paul Kehoe pointed out that Birmingham has a great ment, and the businesses community is fundamental to the transport heritage: whether canals, road or rail, it’s been at future economy. According to participants at ULI’s the centre of all three. He said to be a top 25 city, as a num- knowledge economy sessions, Birmingham is particularly ber of Birmingham city officials like Sir Albert Bore has well suited to capitalize on improved relations between the aspired, requires connectivity to markets. While Birming- three. The panel was moderated by Bill Kistler, ULI Trustee ham Airport’s runway extension should have taken place 20 and Managing Partner at Kistler & Co., and consisted of Dr. years ago, accomplishing it today could have tremendous David Hardman MBE, CEO of the Birmingham Science benefits for the region. Park; Prof David Eastwood, Vice Chancellor, University of Duncan Field argued that governments have largely failed Birmingham; and Wouter Schuitemaker, Investment Director to grapple with the concept of integrated transport. Govern- at Business Birmingham. ments have tended to develop transport policy in silos – sep- According to Prof Eastwood, in 2010-11 UK universities arate for rail, airport, roads, etc. with little coordination be- contributed £3.3 bn to the economy through services to busi- tween them. In the absence of national leadership, the Tory nesses, including the commercialisation of new knowledge, localism policy has given local authorities the opportunity to the delivery of professional training, and consultancy. While do something for themselves. Mark Barrow agreed that any not recession proof, this was a 7% increase on the previous break in grey clouds was likely to be driven by the local lev- year. (The total impact of the University of Birmingham on el. the city is estimated to be £800 million and the total impact According to Barrow, the region is in a good position of all universities on the UK is estimated at £65 bn.) As because within the life cycle of a city, Birmingham is enter- Wouter Schuitemaker noted, universities often act as ambas- ing a renaissance period. But as Field also attested, Birming- sadors for FDI. Around the world, business clusters tend to ham’s future is tied to the future of England’s regional cities. focus around universities, such as computer science around Those cities and regions must work out how they can work Stanford or aerospace around the 34 Washington state col- together as an economic community apart from London. leges with programmes. He highlighted an aim of Birming- ham to build on its clusters by delineating six economic zones around the city, based on existing strengths and not aspirations, and bringing in investors from targeted sectors. David Hardman highlighted recent data from the US that showed that employee skills was the most significant deter- minant of high growth businesses over a 30 year period, and that university graduates correlate with this most closely. According to Hardman, the three parts of the knowledge economy need to work together, especially on promoting ideas, skills, and funding (and not just funding for university research, but also for early stage businesses). Eastwood stressed the responsibility of universities to R&D and the commercialization of that knowledge, being aware that uni- versities receive a lot of their resources from public funding. Transport Breakfast panel: (left to right) Tom Magrath, Centro; One way the University of Birmingham and others are giving Duncan Field, Wragge & Co.; moderator Mark Reeves, RJF back to the private sector is through Easy IP, an initiative to Public Affairs; Paul Kehoe, Birmingham Airport; and Marc Barrow, give away intellectual property. Newcastle-under-Lyme Borough Council.

stock needs to be used better. For exam- supply and the effects of Section 106 Midlands: Housing— ple, there many students in Birmingham regulations. John Frankiewicz concurred Exploding the myths living in housing designed for families. that the cost of land is a major issue; con- Ebbs pointed out that the Tory govern- struction costs are at the lowest level they Over the past two years in England, ment in the 1960s looked to the public have been at in many years. Montague average housing starts across all tenures sector to resolve their housing crisis. suggested that local authorities should have numbered 109,000, while projected Local authorities today have potential wave part of the S106 requirements, for need is twice that. This has put housing with their control of so much land and example, if a developer commits to pri- on the minds of many politicians and planning regulations. vate rental for 10-20 years. This proposal pressure on the industry. ULI’s two Richard Parker, who worked on hous- wouldn’t alter S106 for build to sale, but events on housing were in conjunction ing revenue accounts under the previous has still caused issue with people who with Inside Housing magazine and mod- government, highlighted the potential feel private building could take place at erated by its editor, Stuart Macdonald. funding opportunity of allowing local social building’s expense. Jopling assert- The breakfast panellists included Nick authorities to borrow against their asset ed that Montague’s review was a signifi- Jopling, Executive Director at Grainger base. In today’s terms, this is equal to cant piece of work for the industry. and Chair of ULI’s Residential Council; about £25 billion (£16,000 per unit). Chris White explained how CBRE has Richard Parker, Partner and Head of the While an opportunity to create housing tried to sell large private rental schemes Housing Team at PwC; Nick Ebbs, CEO supply without drastic action, one hold up and institutional investors have shown of Blueprint and Director at Igloo; John to this chancellor’s deficit reduction plan. interest but pull back before signing. He Frankiewicz, CEO of Willmott Dixon Sir Adrian Monta- said that the private rental Capital Works; and Chris White, Director gue’s recent report on A private rental sector sector must be seen as an in CBRE’s Regeneration Consultancy. ways to increase home- is an inevitability... asset class equal to commer-

Nick Ebbs asserted that the housing building and get institu- CHRIS WHITE, CBRE cial development or student market is in meltdown. Of an estimated tional money into the accommodation. He also need for 9,000 homes in Birmingham, private rented sector was a feature of the brought up the issue of delivery organisa- only 1,500 were built last year. There is discussion. While there is demand for tions: major house builders are not set up a whole generation of people not getting rental homes and interest from institu- to deliver private rented accommodation; decent homes within their means. As tions, panellists concurred there is a dis- their models are based on private sale. Kate Barker said in her report, supply is a connect. Institutions want finished, He said he sees a stronger private rental major issue, including supply of land. On leased buildings that they can get a yield sector in the UK as an inevitability. Just land supply, panellists addressed the need off, but the cost of buying such properties as there were few suppliers of student to be more relaxed about the greenbelt is lower than the cost of building them. accommodation in the 1990s and today while highlighting the capacity for infill Montague determined that the problem there are many, he believes the private development within cities like Birming- wasn’t a matter of poorly priced rents or rental sector will eventually see its de- ham. Ebbs also said that existing housing high management costs, but of the cost of sired growth.

Young Leaders talk How do you define a distressed loan? tressed assets on the balance sheet of This question stirred up inquiring debate banks/financial institutions and the gen-

distressed debt amongst the panel members at the ULI eral willingness (or often unwillingness) YL’s sold-out event “Loan Maturities, to sell off assets at a discount; pricing Insolvencies...Are we restructuring our differentials/return expectations between way out of the debt crisis?” Graciously primary, secondary and tertiary markets; hosted and moderated by Ernst & and reworking complex CMBS struc- Young’s Dean Hodcroft, Head of Real tures. Estate for EMEA, the evening’s panel When the panel was asked the million consisted of a distinct group of real es- dollar question of when will the lending tate professionals from various sectors of markets return to ‘normal’, the collective the business including: response was... well... let’s just say we  Dan Smith, former Head of UK Re- likely have a few more years to go. The structuring at Eurohypo and now sentiment being that, while the world has Head of Origination at Laxfield become technologically and socially Capital Partners; advanced, we still haven’t figured out  Martyn McCarthy, CEO of Valad how to assess risk and lend accordingly. Europe; The discussion ended with some in-  Douglas Kirkman, Managing Direc- valuable career advice from the panel – tor at Blackstone Real Estate Debt make sure you’re in the deal mix (any & Advisory; and kind of deals) as opposed to becoming Young Leaders speak with Douglas Kirk-  Rishi Bhuchar, Partner in Ernst & stagnant, gain exposure to the UK man, Managing Director at Blackstone Young’s Real Estate Corporate Fi- (particularly London) which is consid- Real Estate Debt & Advisory after the ered one of the deepest and most liquid event. nance division. The attendees, many of whom were markets in Europe, and search for com- ULI YLs, benefited from the evening’s panies that are growing and expanding. discussion which circled around dis- Carey, who chose the three recipients. Member Spotlight: “Each of this year’s Chair’s Award winners has dedicated her time and energy in an out- Vanessa Hale wins ULI standing way to move the WLI mission for- Upcoming ward. WLI is extremely appreciative of their efforts and wants to recognize and re- Events award ward their important contributions to ad- vancing the theme of women in leadership.” Vanessa was selected in recognition of her early efforts to move WLI to an interna- tional platform, which the initiative is just starting to explore. WLI’s inaugural event in the UK will be taking place this winter. Vanessa Hale is a senior analyst at Strutt Vanessa Hale of Strutt & Parker recently & Parker, where she is assisting in establish- won the Chair’s Award from ULI’s Wom- ing the company’s first research team to en’s Leadership Initiative. WLI’s mission is support all of its property sectors. Vanessa to promote the advancement of female lead- previously worked as a senior research ana- ers in real estate, an industry in which fe- lyst for CBRE in Chicago. She is co-chair of male voices are lacking among company the membership division of the UK’s Young 24 October leadership. The Chair’s Award recognizes Leaders Group and is in the process of es- Banks Deleveraging and Real up to three outstanding ULI members who tablishing a chapter of WLI in the UK. Estate: Implications of a €400- have made significant contributions to WLI Vanessa was also a member of the Young 700bn Financing Gap and its mission. It includes complimentary Leaders in Chicago, where she also headed Morgan Stanley, London registration to the 2012 Fall Meeting in up membership efforts. She earned a bache- Denver, Colorado this October and a capped lor’s degree from the University of Illinois 29 November reimbursement of travel, lodging, and relat- at Urbana-Champaign and a master’s degree Issues for Cities in the Future ed expenses. from Roosevelt University in Chicago. with Herbert Giradet “The mission of the WLI is to raise the Vanessa has a managing residential broker’s Gensler, London visibility and number of women leaders in license in the State of Illinois and is also a ULI and in the real estate industry,” said U.S. Green Building Council LEED accred- 5-6 February WLI Steering Committee Chair Kathleen ited professional. 17th Annual ULI Europe Paris Conference The Westin, Paris ULI joins the Property Also in Winter... Industry Alliance ULI has joined the Property Industry European Investment Bank and Alliance - an association of leading property Brian Field, Senior Economist bodies in the UK working together to Birmingham achieve a more coordinated and effective approach on policy, research and best prac- Women’s Leadership Initiative tice issues. PIA consists of eight leading Inaugural Event industry bodies: Association of British In- surers, Association of Real Estate Funds, Big Data in Retail with marketing British Council for Offices, British Council genius Clive Humby of Shopping Centres, British Property Fed- eration, Investment Property Forum, Royal Breakfast briefings on 2013 Institution of Chartered Surveyors, and now Eccleston Place , London Emerging Trends in Real Estate the Urban Land Institute. report with PwC Among its efforts, PIA publishes an an- research published nual Property Data Report, highlighting the property industry’s contribution to the econ- ULI has recently published an advisory omy. “This document sets out some key service panel report on Eccleston Place by facts about commercial property, a sector Victoria Station in London. ULI advisory that makes up a major part of the UK econo- service panels provide strategic advice to my in its own right, as well as providing a sponsors on land use and real estate devel- platform for virtually all the country’s other opment issues. Established in 1947, this major industries.” Current and past editions programme has completed over 600 panels of the Property Data Report, as well as PIA in 47 states, 12 countries, and 4 conti-

Updates on UK Commercial Property Debt nents. The report, sponsored by Risk will be published online in ULI Eu- Grosvenor, is available on ULI Europe’s rope’s Knowledge Bank. website. Register for events online at www.uli-europe.org