Decrepit landmark shows pain
A gust of wind howls around Battersea Power Station, an industrial wasteland by the Thames whose coal-fired furnaces were once used by the Bank of England to burn millions of pounds worth of banknotes20/01/2010
A
couple of tourists who have ventured off the beaten track around Buckingham
Palace stand on tiptoe as they strain to photograph the gargantuan structure
over a high screen. As debt-laden developers face the ruins of recent
extravagance, Batttersea Power Station Europe's largest brick building - is a
decrepit symbol of the past profligacy and present pain in Britain's real
estate market.
In World War Two the central bank turned
to Battersea to burn £120m of notes it had not had time to cancel
as it introduced a new design against feared enemy forgeries.
Now Battersea must consume much larger
sums if it is to remain standing.
The art-deco icon, which won global
recognition through appearances in movies such as Stanley Kubrick's "Full
Metal Jacket" and on the cover of Pink Floyd's 1977 album
"Animals", has been derelict for over a quarter of a century.
It has already passed through numerous
developers' hands since stopping power production in 1983 as Britain shifted to
oil, gas and nuclear.
Developers now are courting investors
for a £5.5bn ($8.9bn) redevelopment just as banks remain
focused on unscrambling exposure to commercial real estate. The market has
shown signs of recovery recently but is still treacherous.
"The building is likely to suffer
major structural damage in five years if full repairs don't start before
then," said Jeremy Castle, chief planning director at Treasury Holdings
UK, the power station's current developers, referring to damage sustained after
the roof was removed 20 years ago.
"We need to move fast to redevelop
the site because the building is deteriorating quickly," he said.
The two-year downturn in Britain sliced
almost 45 percent off average commercial property values. The Power Station's
owners, who bought it for £400m in 2006, say its value fell by 15
percent in the six months to end-June 2009, causing the company to breach terms
on some of its loans.
Battersea's imposing white brick
chimneys have been a popular feature of London's skyline for almost 80 years,
but its brickwork is held together by metal straps. Many bankers and financiers
say plans to redevelop it are a commercial anachronism in a city obsessed with
skyscrapers.
Years of deleveraging
For Nick Collins, English Heritage's
team leader for the east and south London, the listed Power Station is
"one of the most important buildings at risk in the country.
"It stands in splendid isolation,
it's seen and known and recognised so easily," he said.
Castle's employer Treasury Holdings is
an Irish property firm that controls the Battersea site through a 67 percent
share in debt-laden Real Estate Opportunities.
REO says the debt taken out to buy the
station is still performing, but part of it, along with the majority of its
loan book, will be transferred to Ireland's bad bank, or the National Asset
Management Agency (NAMA) next year.
The Irish government is paying 54bn euros ($78bn) to buy risky commercial property loans with a
combined book value of 77 billion from banks to clean up the legacy of
excessive lending.
Of an estimated £280bn worth
of unpaid commercial property loans in the UK, more than a quarter are tied to
poorer-quality assets, a problem also faced by other European countries,
according to CB Richard Ellis, the world's largest real estate consultancy.
Sector experts say until banks have
unwound their exposure to commercial real estate - particularly smaller loans
taken out by amateur investors which may have gone unnoticed in 2009 - their
ability to resume anything close to pre-crisis lending to property investors
will be limited.
The process may take five years or longer, they add.
Ambition and controversy
The power station is no stranger to
controversy. When construction began in 1929 it sparked protest from people who
thought it would be an eyesore and damage local buildings, parks and even
paintings in the nearby Tate Gallery.
Sir Giles Gilbert Scott, the architect
behind the red telephone box and the Bankside power station - now the Tate
Modern - was drafted in to boost its appeal for local residents.
The "upside-down table" of
four white chimneys, each a third of the height of the Eiffel Tower, was built
over a 20-year period to form two separate power stations in one building.
Situated a stone's throw from a famous
home for unwanted pets, the site passed into the hands of private developer
John Broome for £1.5m in 1987 but costs escalated and it was later
sold to Hong Kong-based development company Parkview International.
A one-table restaurant atop a 100
metre-high chimney was just one idea put forward by previous developers: an
indoor theme park and high-class shopping mall have been others that generated
little more than critical headlines for the site.
REO's plans - central London's largest
ever planning application - were submitted in October 2009. At more than
double the cost of a previous developer, they include an emphasis on
residential and commercial office space including 3,700 new homes and 1.6
million square feet (149,000 square metres) of office space.
The financial crisis had put paid to
earlier, more extravagant ideas including an "eco dome" and 300-metre
(1,000 ft) tower.
Adventurous schemes have long been
derided in Britain.
"Faneuil Hall in Boston city centre
was an example of how our American cousins can redevelop a historic building
and turn it into a great marketplace," said Chris Johnson, managing
partner at architects firm Gensler, and the creator of the Gate in Dubai which
houses the Dubai stock exchange.
"You can look at the Piers in San
Francisco and see how they have been transformed into a great attraction."
Hard to reach
Part of the problem is that while the
Power Station may be very easy to see, it is poorly served by public transport.
"You can build great things but
no-one will go to them if it's too hard to get there," said Johnson, whose
company is not involved with Battersea. "You will constantly keep
increasing the cost of the overall project."
Developers are promising that a
surrounding industrial area, one of few pockets of undeveloped land in central
London, will by 2020 be transformed into a new business hub similar to Canary
Wharf in London's east, with the extension of the Underground network. The area
will also house the US embassy.
"Previous projects for the Power
Station site failed because they underestimated the costs of repairing the
existing building, the transport links didn't deliver the capacity required and
they failed to encompass the entire area," said Treasury's Castle.
Fuelled by recession
Local resident Brian Barnes says the
economic downturn has, ironically, contributed to the enlarged scale of the
latest plans.
"They bought it for £400m, that was the high end before the recession, they've had to revalue it
downwards so its not worth what they paid for it, now they've got to do this
over-the-top scheme to realise any profit," he said.
Johnson, the architect, said the
difficulty with sites needing infrastructure is that commercial projects must
help fund them, but prospective commercial tenants demand residential
development to create a market for their goods and services.
"It's a spiralling problem which
eventually gets so monumental that nothing gets built," he said. "We
can make any building work in this city, we're a nation of inventors.
"But someone has to help, someone
has to help Battersea to get it moving. Whether it is the mayor (of London) or
the government. It is that important."
