Nothing helps explain more dramatically the Reichmann brothers’ troubling journey from being the world’s largest real estate developers to the gates of the bankruptcy courts than a visit to Canary Wharf, the megaproject at the edge of London that may sink their dream.
The concept was grand enough to allow them to convince the world’s largest banks to loan them $3.5 billion without allowing the usually circumspect moneymen a peek at their books. The reality is very different. Only a banker who got his training writing up loans for Robert Campeau would take a run at this one.
On a recent trip to London, I visited the agglomeration of luxury skyscrapers on the Isle of Dogs, a long seven kilometres from London’s financial district. On this swampy backwater, Paul Reichmann staked his family’s future.
Presumably because no one manning the lifeboats at the floundering Reichmann empire has taken the time to call off the luxury launch they have used to woo Canary tenants, their private vessel still runs from Charing Cross Dock on the Thames. I boarded the ship, which is equipped with soft blue sofas and turbocharged engines that allow it to cruise at 25 knots, and we swept by historic London—under Waterloo Bridge and past Royal Festival Hall, past St. Paul’s Cathedral and under London Bridge, and alongside HMS Belfast, the last of the Royal Navy’s cruisers, permanently moored in the river. Then the shoreview began to deteriorate—with moss-covered piers, derelict barges and rotting pilings that supported long-abandoned docks, a London tourists rarely see.
Suddenly, out of the river mist rises the Taj Mahal of the Thames, Canary Wharf. The day I arrive, only one crane is at work and a lonely gardener is planting purple pansies. The size of the project truly is awesome, especially since it sits there in splendid isolation, like an Eiffel Tower on Baffin Island.
The Reichmanns’ master plan called for construction of an eventual 14 million square
Canary Wharf is a monument to Paul Reichmann—a man who didn’t know bungee cords need to have leg holds
feet of office and retail space, with a million square feet being completed annually for the balance of the decade. So far, about 4.5 million square feet has been finished and less than 60 per cent of the space is rented, with fewer than half the tenants having actually moved in. A 55storey marble-clad tower dominates the site, but it’s the Reichmanns’ extravagant spending that strikes the visitor.
Everything is brass, stainless steel, oak or mahogany—if it isn’t marble (“Mr. Reichmann ordered marble from 30 different countries, each pattern and texture designed to suit the appropriate location,” a Reichmann official explains). The granite used on the floors of one building had to be “torched by hand” because it proved to be slippery in wet weather. The water flow of the fountain in the main square is governed by wind sensors to reduce its arc in high winds, so that bystanders don’t get splashed. Four 50-year-old English oak trees have been transplanted to one of the avenues to provide summer shade, and the Crimean linden trees that line Canary’s main entrance were nurtured in a German nursery for 35 years, their roots trimmed biannually, so they could more easily be transplanted to a premium site like this one.
The mind eventually stops absorbing details of the builders’ burnished vision, but it’s painfully evident that this was meant to be less an economic development than a grandiose monument. In one still-vacant structure, an eightstorey, plant-filled inner atrium of about 60,000 square feet was carved out just to give those with inside offices a pleasant view.
No wonder the Reichmanns had to slap mortgages on their profitable North American buildings to finance their British office palaces. No wonder they need $214 million in emergency funds just to finish the buildings at their luxury standards. (This is just for completion of space already leased, so tenants can’t invoke escape clauses.)
According to one insider, it costs $45 million a month just to maintain the half-empty project. In order to attract some of the harder-headed tenants, the Reichmanns bought back the leases or locations from which they are moving. The brothers probably own as much unused office space in the City, London’s financial heart, as they are trying to rent at Canary. Conrad Black, for one, sold his nearby buildings where his Daily Telegraph is printed to the Reichmanns for $80 million, before agreeing to move his corporate headquarters into Canary Tower. (The Telegraph property now is worth only $8 million.)
London’s real estate market is in a state of collapse. City rents have dropped by 40 per cent in the past two years, and property values are down by at least a third. At the moment, there are 33 million square feet of vacant office space in downtown London. Steven Mansell of the Midland Bank points out that “the market is so thin, it’s hard to ascertain what the market value of property really is.”
On top of that supply-demand calamity, the Reichmanns face the disappearance of the British government’s enterprise zone classification, which gave tenants incentives that are due to expire this month.
All these problems have been crucial in turning Canary from a potentially glowing corporate asset into a deadweight. But no single factor is killing the project less softly than the agony commuters experience getting there. The Docklands Light Railway, which was supposed to be one of the main links, remains a sick joke, though its equipment and rolling stock are being gradually upgraded. The government is spending $440 million on nearby roads, but that recipe won’t work either, except for executives in their chauffeur-driven turbo Bentleys.
The only practical mass-transportation link requires extension of the Jubilee subway line the 16 km from its current terminal at Charing Cross to Greenwich, with a stop at Canary. That will cost about $3.5 billion. The Reichmanns had pledged $800 million towards the transportation project, but missed their first instalment of $83 million, due earlier this month.
Canary Wharf was supposed to become the corporate headquarters of the New Europe. It’s much more likely to be a concrete-andmarble memorial to Paul Reichmann as the ultimate real estate gambler—a man who didn’t know bungee cords are supposed to have leg holds.
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