31 January 2019, Financial Times
By Hugo Cox
When news broke that US hedge fund manager Ken Griffin paid £95m for a London mansion, it made headlines on both sides of the Atlantic. It was not the amount the billionaire founder of Citadel paid for the home that caught the attention of property pundits — he went on to make an even pricier purchase in New York several days later — but the price he did not pay. The 20,000 sq ft home near Buckingham Palace, remodelled by property developer Mike Spink and backed by private equity group Evans Randall, had an initial asking price of £145m and had languished on the market for two years priced at £125m. According to London buying agents, Griffin’s cut-price purchase last week may be just the start, as fears grow over the health of the city’s prime property market, spooking lenders and sparking an increase in heavily-discounted sales.
Falling prices and slowing sales of homes valued above £5m — transactions of such properties in 2018 were 36 per cent lower than in 2014, according to Savills — have led to banks and other lenders routinely revaluing homes downwards, agents say, and requesting more cash from developers who are already strapped. Many must now slash prices, accept low offers or face collapse.
I have seen more repossessions of super-prime homes in central London in the last year than in the 10 years prior,” says Roarie Scarisbrick of Property Vision, a buying agent focused on prime central London. Smaller, niche developers have been hit hardest, says Henry Pryor, another buying agent based in London. “A lot of the funders of these developments are offloading their positions, turning the screw on developers,” he adds. “The hedge funders who thought that property was a doddle are getting out.” “It’s worse for the single house developers, especially those who bought sites in 2013 and 2014 at the high point in the market,” says Scarisbrick.
Jonathan Harris of Anderson Harris, which arranges mortgages for luxury homes, estimates that more than half of London properties bought by private individuals for more than £5m include some type of mortgage. With banks’ appetites waning, these buyers are feeling the pressure. “It’s no secret that the bank valuers are extremely cautious at the moment: when they come to revalue something there is a loan on they will mark it down 10 or 20 per cent,” says Scarisbrick. A quarter of loans taken out at the market peak in 2014 have since faced a margin call thanks to the drop in prime home values, says Harris. “It depends on the asset: if the property is worth below £10m there is less urgency, but if you’re lending on a £15m or £30m property, things will be different.”
What do you get for £95m? 3 Carlton Gardens, St James’s London Behind the Grade II-listed, John Nash-designed exterior, 3 Carlton Gardens has many of the features you might expect in any super-prime home: the pool, the staff quarters, the gym and the subterranean extension, all sprawled across nearly 20,000 square feet. For that money, though, Ken Griffin does not get his own driveway, and must share one with the foreign secretary, whose official residence is next door. In 2013, the home was bought by Mike Spink, developer and designer to the ultra-wealthy, for £65.5m, who completely remodelled it. George Hammond The typical loan duration is five years, he says, meaning many loans taken out at the peak will fall due this year. Lenders are not high street banks. Even traditional private banks like Weatherbys or C Hoare & Co tend to prefer British landed wealth over the newly affluent from abroad, who have become the major acquirers in London’s super-prime market, says Harris. Typically they will use large firms with a global presence, such as Kleinwort Hambros (part of Société Générale), UBS and Credit Suisse. These firms’ international banking networks allow foreign buyers to use assets at home as collateral for a mortgage on a London purchase, saving them UK tax. “The larger the loan they can raise this way, the smaller the remittance tax bill associated with transferring money into the UK to make the purchase,” says Harris. In March, Savills sold a home on Cresswell Place in Kensington for £25m. An agent, who wished to remain anonymous, says the home was first marketed at £42.5m in 2015 and the developer turned down an offer “in the thirties” soon after. After the receivers were appointed last February, they slashed to price to £20.95m. Recommended UK property London property transactions drop to decade low Camilla Dell of prime London buying agent Black Brick recently acted for the buyer of Red Lion House, a six-bedroom converted pub in Mayfair, another repossession sale. When the bank made a further margin call to reflect the lower value in the falling market, the owner ran out of cash and defaulted, leaving the bank racing to sell the house, she says. First marketed at £25m last year, the home was sold in November for £15m: at £1,748 per sq ft this was a 20 per cent discount on the average Mayfair sale in 2018, according to LonRes. While the total number of repossessions is still small, there is growing pressure on developers to reduce prices to avoid joining the pile, meaning further sharp price cuts are likely. “Repossession is the nuclear option,” says Scarisbrick, so lenders will typically go to great lengths to avoid it. As soon as the receiver is appointed, he says, it affects the perception of value in the whole market. Bargian buys This 11-bedroom townhouse in Belgravia had its price reduced by £6m in November to £30m So where might bargain hunters with a spare £30m start their search? The day after the FT reported the story about Ken Griffin’s purchase of 3 Carlton Gardens, £6.05m was cut from the price of a seven-bedroom townhouse on Cowley Street, less than a mile away, by developer Saigol DDC. The new price of £29.95m, through the agent Rokstone, represents a drop of 17 per cent. The super-rich looking for something further out of town might consider the six-bedroom house on Canons Close, a cul-de-sac off Bishop’s Avenue near Hampstead Heath, listed for sale at £11.95m with Glentree Estates. The price represents a cut of more than £4m, or 26 per cent, of the home’s original listing price last January. The developer, Friroka Group, knocked down the old home on the site and rebuilt the current one from scratch. “The new price cuts out the negotiating room, not the value,” says Trevor Abrahmsohn of Glentree Estates, sounding, perhaps, the desperate side of optimistic. In Belgravia, an 11-bedroom townhouse in Wilton Crescent is for sale for £30m with Rokstone. This price follows a £6m cut made in November, just over a year after the home was put on the market.