Canary Wharf Group Plc
Canary Wharf Group Plc
Incorporated: 1987 as Olympia & York Canary Wharf Ltd.
Sales: UKE79.6 million (1999)
Stock Exchanges: London
Ticker Symbol: CWG.L
NAIC: 233320 Office Building Construction; 813990 Condominium Corporations
London landmark Canary Wharf has seen its share of ups and downs. The vast development project—which comprises more than 80 acres of London’s Docklands, with more than 13 million square feet of office and commercial space, and also includes One Canada Square, England’s tallest building—has not only caused the fall of creator Paul Reichmann, but has also enabled his rise again. The project, approximately 60 percent completed in 1999, is governed by Reichmann-led Canary Wharf Group Plc, which went public in 1998. The IPO valued Canary Wharf at US$3.6 billion—by 1999 the development was valued at US$4 billion, with analysts suggesting that, upon completion, the development may be worth as much as US$12 billion. Linked by subway, light rail, and ferry to London’s financial district (the City), Canary Wharf provides office accommodations for more than 25,000 (a number expected to triple upon project completion) and alternative office space for many of the country’s national newspapers and financial institutions, among others. In 1999, Citibank announced its intention to move all of its London offices—previously scattered among some 30 downtown locations—to a Canary Wharf tower to be custom-built for the financial giant. A similar arrangement will provide a home for HSBC Holdings, in a third Canary Wharf skyscraper. In 1999, the company was able to announce a 99.5 percent lease occupancy rate. The company has also begun development of a residential complex next door, in a joint venture with Hotel Properties Ltd. The project, called Canary Riverside, will add approximately 10,000 square feet of residential and hotel accommodations.
Early Docklands Developments
The land on which Canary Wharf rose in the 1990s had seen one form of commercial use or another for more than 800 years. In the 1200s, the area, which became known as the Isle of Dogs because of its use as a royal kennel, was drained to provide pasture and crop land. As the city of London grew in prominence, this Thames-side land was transformed into dockyards. By the 1500s, the Isle of Dogs site had become a prominent merchant harbor: it was from here that many of England’s earliest merchant and other ventures set sail. Among these was the sailing of the Mayflower in 1620.
The first of the great docks was completed in 1802. Called the West India Docks, it was one of the world’s great civil engineering feats. The entire dock complex reached from the nearby Tower of London to stretch several miles along the Thames, forming the world’s largest and busiest port. Dock activity stepped up in the 19th century, as England led the world into the Industrial Revolution and also achieved its highest glory as ruler of the world’s oceans. Among the many docks was the site that came to be called Canary Wharf, because it received shipments of bananas and other cargo from the British-controlled Canary Islands. Canary Wharf continued its role as a warehousing area into the mid-1960s.
By the 1930s, the London Docklands was the site of some 55,000 ship movements per year, employing more than 100,000 workers and other employees, while also serving as a vast residential area. Despite heavy bombing during World War II, the Docklands continued to play an important role in the U.K. economy. By the early 1960s, the Docklands handled some 60 million tons of cargo. This proved to be the area’s peak, how ever. By the 1970s, the Docklands had fallen behind in new cargo and container technologies, finding itself bypassed by its competitors. The crushing recession that followed upon the Oil Crisis of 1973 cut deeply into further activity. The Docklands died a slow death, as its facilities were closed. More than 150,000 jobs disappeared over a ten-year period. By 1980, when the last of the docks were shut down, the area—some eight miles long—had become synonymous with urban blight.
Yet the Docklands quickly found new hope. The arrival of the Conservative government, led by Margaret Thatcher, brought a free market approach to the problem. In 1982, the Thatcher government granted the Docklands area Enterprise Zone status. This designation sought to attract investment and development through tax breaks and other allocations. The government also indicated that it would extend the city’s public transportation network—and especially the Underground train system—to the largely underserved area.
The first attempt at redeveloping Canary Wharf was announced in 1985, when G. Ware Travelstead was granted control of the Canary Wharf area. Travelstead proposed to build a ten million-square-foot office complex. That project, however, was unable to find funding and quickly collapsed. The Canary Wharf concession was instead bought up by Olympia & York, led by Paul Reichmann and his two brothers.
The Rise and Fall and Rise Again of Paul Reichmann: 1980s to Mid-1990s
In the mid-1980s, Toronto-based Olympia & York was the world’s largest real estate agency and the force behind such groundbreaking projects as New York City’s World Trade Center and First Canadian Place in Toronto. Originally from central Europe, where father Samuel Reichmann had operated a successful egg business, the Reichmann family had escaped to Tangiers in the years leading up to World War II. From Tangiers, Renee Reichmann, together with her children, helped organize and finance food shipments (via the Red Cross) to the prisoners in the Nazi death camps; the family was also able to rescue more than 1,200 European Jews by providing visas. Following the war, the Reichmanns sent son Paul to study at a northern England Yeshiva and to begin training as an Orthodox rabbi. Paul Reichmann had other plans, however; in the 1950s he joined brothers Ralph and Albert in Toronto and helped establish a successful ceramic tile importing business.
The brothers Reichmann soon parlayed their growing fortune into other ventures, especially real estate. In the mid-1960s, the Reichmanns set up Olympia & York Developments Ltd. for their real estate holdings. Placed under Paul Reichmann’s direction, Olympia & York quickly showed its ambitions, building larger and larger real estate developments. In 1974, the company graduated to the big time, when it won the contract to build the 72-story First Canadian Place tower development in Toronto, the largest skyscraper in Canada. Three years later, the Reichmanns moved into the United States, buying up eight midtown Manhattan skyscrapers for US$340 million. These purchases set the stage for Olympia & York’s greatest coup. In 1980, the company was granted the contract to build the three-building, US$1.2 billion World Trade Center.
Paul Reichmann led the company from real estate into other investments. In 1981, the company paid nearly US$540 million for Canadian paper leader Abitibi-Price. This purchase was followed by a US$2.8 billion purchase of control of Gulf Canada. From oil, Olympia & York turned to other liquids, winning a hostile takeover bid for Hiram Walker Resources. That purchase cost the family some US$3 billion. By the mid-1980s, Olympia & York had achieved status as the world’s largest real estate developer, as well as a diversified holding group. At that time, the Reichmann family’s holdings were estimated at some US$15 billion.
After the collapse of the G. Ware Travelstead project for Canary Wharf, Paul Reichmann led Olympia & York’s bid for developing the area. The project was awarded to Olympia & York in 1987, which committed itself to a proposed US$8 billion investment in the development—and included the government’s promise to build a strong transportation infrastructure, which would be financed in part by Olympia & York itself. The new company formed to oversee the development was named Olympia & York Canary Wharf Ltd. Original plans called for a single-tower complex. At the last minute, however, Paul Reichmann changed his mind, and decided upon a three-tower design. Construction on the first tower—One Canada Square—began in 1988 and was completed in 1991. By August of that year, the complex of ten buildings, already at four million square feet, welcomed its first tenants, State Street Bank.
The strategy of the Group is to create shareholder value by controlling and actively managing all aspects of the development and operation of the estate, including property development and construction, marketing and leasing and management of its property portfolio. The Directors believe that the Group can, as an active manager, maximise the value and increase the cash flow of its existing properties, creating growth through the development and leasing of its significant property portfolio, and enabling it to return capital to shareholders.
Yet, things were already falling apart for Canary Wharf, and for Reichmann. The collapse of the real estate market in the late 1980s and the recession of the early 1990s was not the only factor behind Canary Wharf’s huge vacancy burden. The extension of the public transportation system to the complex had seen successive delays, making it difficult for potential tenants to reach the site. Financing further investment in the development had also become difficult for Olympia & York, which had already sunk US$1.6 billion into Canary Wharf. The London development added to Olympia & York’s massive US$8 billion debt, and the real estate empire toppled into bankruptcy in 1992. The Reichmann family’s US$15 billion fortune was wiped out. Canary Wharf’s creditor banks moved in and took possession of the development from Paul Reichmann in that same year. His misfortunes were not over: another high-profile development, a US$1.4 billion, 30-building development in Mexico City, to be built in partnership with George Soros, was placed on hold in 1994 after the collapse of the Mexican peso.
Canary Wharf’s future hung in doubt. Instead of simply selling off the development, however, the creditors decided to continue investing in the project, pumping in an additional US$1.8 billion and bringing the project out of administration (the British term for bankruptcy) in 1993. The operating company was renamed Canary Wharf Group at this time. While construction continued, the complex attempted to lure new tenants with lower lease rates and even free rent periods. Occupancy rates began to rise, aided by the belated opening of the new Docklands Light Railway extension to Canary Wharf, which at last made the project accessible from the London city center. Canary Wharf began to attract new high-profile tenants, including Credit Suisse—which later leased a new, custom-built office building at the site in 1999—and the national newspaper the Independent. The working population at the complex swelled to nearly 13,000 as occupancy rates reached 75 percent by 1995.
In December 1995, Paul Reichmann returned to the scene with the surprise offer to buy back the Canary Wharf development. Leading a group of investors, including CBS television’s Lawrence Tisch and Saudi prince al-Waleed bin Talal, Reichmann proposed to purchase Canary Wharf for £800 million (approximately US$1.25 billion). Reichmann’s former creditors agreed—and Reichmann was given a chance to rebuild his own lost fortune and prestige. As Reichmann told the Toronto Star. “I have to prove I can rebuild and recreate what has been lost by my mistakes.”
Moving Confidently into the Next Century
This is exactly what Reichmann did. Aided by the strong economic recovery of the mid-1990s, and by completion of still more of the project’s vital public transportation links—including the expansion of the London City airport, Canary Wharf soon became one of the most sought-after addresses in London. Another factor in the development’s revitalized image was the rising importance of networking and other communications technologies, particularly among the financial industry. The old, cramped, and expensive quarters in the city of London were difficult, if not impossible, to adapt to the new technological needs of the country’s financial institutions and newspapers, and buildings were often too small to house all of a business’s offices. Citibank, as an example, was said to have been operating from some 30 separate buildings. At the same time, Canary Wharf continued to offer lower lease rates, up to 30 percent off the square-foot price in the city. More and more companies began to look at the growing Canary Wharf—and the possibility of moving into custom-designed offices and buildings.
Occupancy rates rose steadily in the second half of the 1990s, as construction continued. By 1998, the complex boasted more than 4.5 million square feet, primarily office facilities, but also growing numbers of amenities such as restaurants, shops, health clubs, entertainment, and other facilities. While some tenants decried the complex as soulless, businesses continued to flock to its offices, raising occupancy rates past 90 percent. In April 1998, Reichmann announced the company’s intention to list its shares on the London stock exchange. The company’s value at the initial public offering was to be £1.4 billion—high enough to allow the initial investors to recoup their investments, but low enough to encourage the entry of other investors into the company’s capital. Nevertheless, the £1.4 billion valuation was considered to be extremely conservative.
Canary Wharf Group went public in April 1999 as Reichmann sold off part of his shares, worth 25 percent of the company. The IPO price of 330 pence (approximately US$5.41) valued the company at £2 billion or US$3.6 billion. Yet even that figure was considered low. By mid-1999, Forbes described the complex as having a value of over US$4 billion—and expected that value to rise to as high as US$12 billion by the time of the project’s completion early in the next century.
By September 1999, Reichmann had been vindicated. Occupancy rates had soared to 99.5 percent as Canary Wharf became one of the most elite business addresses in London. Meanwhile, more and more residential complexes had begun to rise in the area, making the Docklands not merely a business center, but an increasingly vital part of London itself. Canary Wharf Group had its own plans for residential development: in 1999, the company began construction on the joint-venture Canary Riverside residential condominium and hotel complex with Hotel Properties Ltd.
Canary Wharf Holdings Limited; Canary Wharf Contractors Limited; Canary Wharf Finance plc; Canary Wharf Limited; Canary Wharf Investments Limited; Canary Wharf Management Limited; Heron Quays Properties Limited; Heron Quays Developments Limited.
Dalglish, Brenda, “A Towering Deal: Paul Reichmann Bids for Redemption at Canary Wharf,” Maclean’s, September 11, 1995, p. 44.
Grose, Thomas, “Singing a Different Tune: Paul Reichmann’s Canary Wharf Development Has Risen Phoenix-Like from the Ashes of Bankruptcy,” Time International, April 5, 1999, p. 56.
Lenzner, Robert, “Try, Try Again,” Forbes, June 14, 1999, p. 94.
Lynn, Matthew, “Will Canary Wharf Fly for Reichmann?,” Toronto Star, March 7, 1999.
Willcock, John, and Garner, Clare, “Pounds 2bn Float Will Crown the Fall and Rise of Canary Wharf,” Independent, March 2, 1999, p. 10.
—M. L. Cohen