THE REICHMANN FAMILY HAS HIGH HOPES FOR ITS $8-BILLION CANARY WHARF PROJECT IN LONDON
ON THE WATERFRONT
THE REICHMANN FAMILY HAS HIGH HOPES FOR ITS $8-BILLION CANARY WHARF PROJECT IN LONDON
It is the biggest gamble so far for Toronto’s adventurous Reichmann family. Five kilometres from the centre of London’s financial district—the City—amid abandoned docks and warehouses in the formerly decrepit Docklands district, a gleaming new mini-city is rising by the River Thames. The billionaire Reichmanns, owners of giant Olympia & York Developments Ltd. (o&Y), are betting that the $8-billion Canary Wharf development will become the focal point of a new London business district and the gateway to the surging economies of Europe. While half of the office space in the first phase of the project, due to be completed next summer, is unfilled,
the project managers say that they are pleased with the occupancy rate, although critics say that the risk of failure is still great. Last week, despite a deepening real estate slump in London, the world’s largest private development project moved closer to viability when American Express Inc. announced that it will establish a European headquarters at Canary Wharf, putting its major London operations with 1,500 employees under one roof for the first time.
The Reichmanns have overcome huge odds before. In 1987, the same year that they assumed sole responsibility for Canary Wharf from three other partners, O&Y completed the
spectacular $1.5 billion World Financial Center in New York City. Despite widespread doubts that O&Y would find tenants for the Center, located in a previously rundown area near the tip of Manhattan, it is virtually 100-per-cent leased. The much larger Canary Wharf project, scheduled to be fully completed in 1995, covers a 71-acre rectangle in a waterfront area where trading ships loaded with goods from around the world once docked. Its setting on the north side of the Thames, east of the City, and nearby St. Paul’s Cathedral, evokes old London. The historic observatories of Greenwich are located directly across the river, which winds around Canary Wharf on three sides.
When completed in 1995,
Canary Wharf will contain 24 structures, including three office towers, two 400-room hotels, recreational facilities and office space for 60,000 employees. It will be O&Y’S European showpiece as the company considers the opportunities presented by a united Europe in 1992. As the European economy be-
comes more powerful, the need to replace antiquated office buildings with state-of-the-art office complexes will increase—and O&Y, with its Canary Wharf experience, will be in a position to expand even further.
Despite the recent leasings to large financial conglomerates such as New York-based Manufacturers Hanover Corp., Canary Wharf still has problems. With the first phase’s eight buildings set to open next summer, there remain some two million square feet available for rent. But a slump in London’s financial industry, and a recent construction boom, has led to a major oversupply of office space, driving down rents. Said Ira Gluskin, president of the Toronto investment firm Gluskin, Sheff and Associates Inc.: “Canary Wharf is like a five grenade. If the Docklands was a stock that started out with a value of 100, it has fallen to about six.” But because Paul Reichmann, the soft-spoken and reclusive billionaire who heads the family company, has been right so often in the past, even Gluskin acknowledges that he will eventually be successful with Canary Wharf. Added Gluskin: “He loves shaking hands with queens and princes. He’ll fill the place.”
Visitors to the construction site are greeted by a stunning spectacle. The skeletons of halfcompleted buildings reach skyward. In the centre, a pyramid-topped office tower designed by acclaimed Argentine architect César Pelli reaches above them all. At 50 storeys, the almost completed tower is the tallest skyscraper in Britain, and though spectacular, it has drawn criticism from the highest levels of British society, including Buckingham Palace.
Prince Charles, who has strongly criticized modem English architecture over the past two years, toured the Canary Wharf site for an hour earlier this year and repeated his earlier complaints that Pelli’s soaring edifice violates the human scale of many of London’s older buildings. Until the 1960s, the dome of Christopher Wren’s stately 18th-century St. Paul’s Cathedral dominated London’s skyline. But Pelli’s 800-foot-high tower will be almost three times taller than St. Paul’s, and the Prince said that it “will cast its shadow over generations of Londoners who have suffered enough from towers of architectural arrogance.” While the tower is starkly modem, models depicting a completed Canary Wharf appear to fit in better with London’s classical architecture. Buildings faced in natural stone and brick curve and sweep around a waterfront plaza that is almost the size of s« the city’s venerable Trafalgar Square. And about one§ third of the complex is devot| ed to public parks, squares g and gardens.
z The booming construction ¡ü site, which now provides
3,000 jobs, contrasts sharply with Reichmann’s original approach to Canary Wharf. Recalled the developer in a 1988 interview with Maclean’s: “It was first suggested to me by a former president of Citibank Canada [Charles Young], who was at Citibank in London. He arranged to give me a tour, but I refused to go. I was afraid it was going to be a waste of my time. But then, later, I found out more about it and I became very interested.” Since Reichmann launched Canary Wharf in 1987, numerous obstacles have emerged. In addition to the drop in property values and rents, the October, 1987, stock market crash forced many financial institutions to lay off
employees, depressing the demand for office space. Many of the buildings begun before the crash are just now being completed. Last year, an unprecedented 7.5 million square feet of new office space was completed in central London, and this year an additional 9.8 million square feet will be added. With the first phase of Canary Wharf slated to add another 4.6 million square feet by 1992, competition for tenants is intense. In fact, some London real estate agents predict that rental rates will drop a further 20 or 30 per cent this year.
In recent interviews, Reichmann said that Canary Wharf will succeed because London remains Europe’s financial heart and, together with Tokyo and New York, forms an economic and commercial centre for the world. He adds that the move to erase all trade and financial barriers between the EC’s 12-member countries will only add to London’s importance as a major financial centre. If he is right, Canary Wharf’s luxurious, modern offices and retail
shops will provide London with a booming new business district.
Reichmann, who says that critics have raised doubts about every major O&Y project in the past, may already be on the verge of proving his critics wrong. Over the past two weeks O&Y announced that two major new tenants and a third smaller one will move into Canary Wharf. First, banking and financial services giant Manufacturers Hanover rented seven floors in the Canary Wharf Tower. Currently, Hanover houses its 1,000 employees in more than six offices in London’s overcrowded central business district. Says Hanover vice-president John Zutter: “We will be able to bring together our
London operations in a single building for the first time.”
American Express followed with its announcement that it will move into Canary Wharf’s Cabot Square, a 10-storey marblefaced building overlooking gardens on one side and the Thames on the other. American Express chairman James Robinson III said that the move will allow the company to “accommodate future business plans, while substantially containing real estate costs.”
Still, critics say that Canary Wharfs location remains an obstacle to achieving full occupancy. Within the square mile of the City, businessmen and professionals can walk between appointments and exchange gossip on the street and in local restaurants. As a result, London property analysts say that some potential tenants are reluctant to forgo that convenience to move to Canary Wharf. While the distance between Canary Wharf and the City is just five kilometres, the only available artery is the frequently clogged East India Dock Road. A
cab ride between the two points often takes an hour or more.
As well, the existing railway connections do not have the capacity to service the increasing volume of passengers, and a waterbus that runs between Canary Wharf and the London City Airport, just to the west of the Docklands, runs infrequently. A survey of 100 overseas companies based in London about their relocation plans found that the area’s perceived inaccessibility by public transport was the major factor against locating in the Docklands.
In order to encourage Docklands development, Margaret Thatcher’s government has offered O&Y and other developers in the Docklands tax incentives such as government subsidies and relaxed planning controls and, to make the area more accessible, built the Docklands Light Railway, connecting it with Tower Bridge station and the City. But the railway’s passenger capacity is only 6,600 per hour and several thousand more want to use it. To ease the transit problem, the government last year approved a $ 1.8-billion expansion of London’s subway system. The Reichmanns will pay $400 million of the cost of extending the Jubilee subway line, which winds through central London to Canary Wharf.
On the construction site itself, despite aggressive action by the Reichmanns to speed up the pace of building, other forces have slowed its progress. In January and February, strikes and a series of unusually harsh winter storms set construction back. In March, O&Y dismissed Ellis-Don Construction Ltd. of
Toronto and Robert Me Alpine & Sons of London, as construction managers on the $600-million tower and took over the management of the project themselves. Said Michael Dennis, Canary Wharfs executive director: “We have been involved in U.K. construction for more than two and a half years and believe we are now well-equipped for the task.”
Indeed, in the past, the Reichmanns have frequently forged ahead on their own in the face of stiff odds and won huge victories. But with at least five more years of construction ahead of him, and the turbulence in European economies and politics far from over, Reichmann will likely find that his biggest major project is also his most difficult. The fate of much of his family’s fortune, as well as one of the world’s leading financial capitals, could hinge on the outcome.
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