JP Morgan to move to Docklands after ditching City scheme
City disappointment as Bear Stearns acquisition leaves bank in need of extra space
JP Morgan has dealt a major blow to the City of London Corporation, the local authority in charge of the Square Mile, after a drawn-out planning process and "challenges" with a potential site caused it to walk away from a proposed 1m sq ft City office scheme in favour of a move to London's Canary Wharf.
The US investment bank has this morning announced that it has signed heads of terms with Songbird Estates – the Morgan Stanley-led consortium that owns the Canary Wharf Group – to relocate to the Docklands. JP Morgan will consolidate employees from several London buildings into a single 1m sq ft-plus (93,000 sq m) office block at a site known as Canary Riverside South.
The deal marks a major U-turn for the bank, which last year rejected Canary Wharf in favour of the St Alphage site. It signed up to a deal with the City of London Corporation and developer Hammerson over the development of a 1m sq ft scheme on a site at St Alphage House, next to London Wall.
However, obtaining planning consent proved difficult. Hammerson and the Corporation have still failed to submit an application for the scheme because of strict planning constraints, including important viewing corridors of St Paul’s Cathedral that prohibit a high-rise tower on part of the scheme. Residents of the neighbouring Barbican estate had also objected to the scheme, which lead to the Barbican Association writing a letter of complaint to Jamie Dimon, JP Morgan’s chairman and chief executive.
Sources close to the St Alphage development team also said that the “game changed” when property valuations fell, making the structure of the deal less attractive to the bank.
It is understood that as part of the deal, JP Morgan agreed to pay for the costs of the development in return for owning the 1m sq ft office building. This would have meant it could have owned a £1bn-plus office building, as similar-sized blocks occupied by rival banks HSBC and Citigroup were last year sold for more than £1bn.
One source close to negotiations said: “As part of the structure, they would pay for the cost of the scheme, own it and then have an asset that they could securitise. But the markets are quite different and that opportunity has totally reversed, as values have dropped significantly and costs have risen - with material costs huge at the moment.”
He said that overall estimated development costs soared over the year from £300m to £500m. Meanwhile, property values have fallen in that time, making the acquisition less attractive.
A JP Morgan spokesman denied that falls in property values caused the deal to fall apart.
She said: “Property values go up and down. Our aim was to move our staff from several buildings into one. It was always our intention to stay in the City, as JP Morgan has been there for a long time. But after 15 months of working on it, the site presented itself with new challenges. It was not one thing, it was many things. The City has so many interested parties whose voices have to be heard.”
Peter Bennett, the City surveyor, said: “We are disappointed. The writing has been on the wall for a little while. The optimists tried to put on a brave face, but while we were trying to fit 1m sq ft into a relatively tight site, JP Morgan as a company has changed. They have taken over Bear Stearns and are looking for more space, not less. “
JP Morgan's spokesman said that the proposed new HQ in Canary Wharf will be “well over 1m sq ft” and that the bank will move in early 2013. She said that the proposed move has not been held up by the planning delays.
It is expected that, as part of the deal, Canary Wharf will take back JP Morgan’s lease at the 250,000 sq ft development that was to built for Bear Stearns. Two weeks ago, JP Morgan appointed property consultant Knight Frank to sublet the space.
Bill Winters, co-head of JPMorgan’s investment bank, said: “We are delighted to be negotiating with Canary Wharf for a new building, which we intend to be a premier facility in the heart of a premier financial district.”
Stuart Fraser, the City of London's policy and resources chairman, said: "Of course it is disappointing that this particular deal has not gone ahead, but we are confident of the site's future as a location for international financial services industry."
He added: "This decision leaves unaltered the fact that the Square Mile - with its 350,000 workers and 8,000 firms - remains a premier location for global business, with unrivalled transport links, a safe working and living environment, the Barbican arts centre, and all the other amenities that go with a world-class business cluster."
Hammerson has said that it is making full provision for its costs, amounting to £17m, which will be written off in the half year accounts.
-- Write to Darren Lazarus at dlazarus@efinancialnews.com
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