IF THESE WALLS COULD TALK: London’s whitest of elephants

The south side of London’s Thames River is furnished with a wide array of iconic architecture, but few building enthusiasts can find bolder examples than the works of Sir Giles Gilbert Scott’s power stations at Bankside and Battersea. These hulking wonders – mainstays of London’s skyline – share so much, yet their fortunes couldn’t be more different.

While the former oil-fired station at Bankside is now home to the Tate Modern art gallery – the most visited modern gallery globally, with approximately 4.7 million visitors per year – its coal-fired sister further west receives little more attention than the odd camera crew shooting a music video. In addition, the biggest white elephant in central London is unlikely to see a reversal of its dismal fortunes anytime soon either. That is because the latest in a string of opportunistic property investors finally was forced to admit defeat in its ambitious plans to turn the 40-acre site into something meaningful.

Another victim of the credit crunch, Real Estate Opportunities (REO) announced on 12 December that Ernst & Young was appointed administrators to four subsidiaries owning the station and surrounding land. Within days, the UK property press reported that the professional services giant already had sparked a beauty parade for selling agents on behalf of the site’s lenders – Royal Bank of Scotland, Lloyds Banking Group and Ireland’s National Asset Management Agency.

Not surprisingly, the lenders want back the capital on their £324 million (€387 million; $506 million) loan, granted to REO when it purchased the site for £400 million five years ago. Also seeking recompense is the sites’ previous owner, Hong Kong developer Victor Hwang, who is owed £178 million. After REO admitted in November that it was “not currently in a position to satisfy these demands for repayment,” administration and yet another sale was an easy bet.

The likes of The Blackstone Group and a Malaysian state investor have since been touted as possible buyers when the beauty parade for brokers becomes an active sales process this year. In the meantime, London’s already protracted wait for the four white pillars of Battersea Power Station to encase paying occupiers once again – and not just memories – continues.

Consolidated power

Today, Battersea Power Station is one giant derelict building, although it actually comprised two separate power stations, the first of which was built in the early 1930s. The stations were built for the London Power Company, the result of several private power companies consolidating in the years immediately beforehand in response to UK parliament’s decision to uniform the country’s power resources by using fewer, bigger grids.

In stark contrast to most Londoners’ desires to see activity on the site today, Londoners at the time of construction opposed Battersea, forewarning that it would be an eyesore and pollute local residents and businesses.  Indeed, it was these protests that prompted the government to enlist the services of Scott to design an exterior that would appease all parties. It wasn’t long, however, before London’s focus and concerns were distracted by an altogether bigger matter: World War II.

Eventually construction finished and, by 1953, both stations on the site produced electricity – and lots of it. At one stage, the stations generated the third-most electricity in the UK and a fifth of London’s requirement. In the proceeding years to 1975, however, there were multiple electricity generating failures and, coupled with spiralling costs, the original power station was forced to close. By 1983, both stations had ceased producing but, in the interim, it had become a certified heritage site. From that day forth, it became as equally attractive a development opportunity as it was fraught with planning constraints and complexities.

Today, most energy at Battersea is spent by the various (and changing) interested parties as they design and attempt to implement the development of the site. Practically every real estate asset class has been mooted across numerous proposals, including homes and offices (one time, even a theme park), yet the ground remains effectively unbroken. The site currently has planning permission (no mean feat in itself) for 3,400 homes with an end valuation of £5.5 billion. It also still benefits from approvals for a London Underground extension of the Northern Line, which would tackle longstanding concerns over accessibility.

Positive sentiment, however, continues to compete with lingering doubts. Under the current approved plans, £200 million must be invested, as a levy, for the construction of the underground station alone. In today’s capital-constrained environment, particularly for speculative development, finding investors willing to meet previous valuations could be tricky.

With so many casualties left in its slipstream, it would take a brave investor to engage with London’s whitest of elephants. Then again, every risk gets priced eventually. In a market bereft of readily available financing and considering that Battersea’s state-backed lenders are in real need of capital receipts, private equity real estate firms just might be primed to offer the right kind of capital to see life flow back to the power station for the first time in decades.