Britain’s wealthiest landowner, the Duke of Westminster, is in advanced talks with his bankers to prevent his £2bn property fund business breaching bank covenants. Pressure on the multibillionaire duke has intensified with investors in his funds suggesting that his property managers failed to heed advice to reduce borrowings 18 months ago, ahead of the collapse in property values.
The developments mark a serious threat to the duke’s private investment company, Grosvenor, and underline how the property downturn is embroiling the country’s wealthiest aristocrats.
Grosvenor this weekend confirmed that it was in negotiations with its banks. But it denied that it had failed to heed warnings from its investors, and rejected suggestions that banks could step in to seize assets.
“We report quarterly to investors and at the end of the second quarter of 2007 we alerted them to the level of debt,” said Mervyn Howard, head of Grosvenor’s UK fund management business. “We said it was at the upper end of the scale. We reported to them that we were concerned at this level of debt and we needed to redress it … It was at our suggestion and we have been in dialogue about initiatives ever since then. We can understand investors’ frustration at the performance not just of our funds but of all property funds.”
But one shareholder said: “Other people have got themselves in more debt problems but Grosvenor has not been sharp. The issue is they have been lobbied and warned about this for 12 to 18 months. They ought to have done something and they haven’t. They didn’t see how bad it was getting because they didn’t have the experience.”
The duke inherited one of the most valuable portfolios of property holdings on Earth, centred on Mayfair in London. He has maintained the family tradition of never selling any buildings. But 10 years ago, Grosvenor started borrowing money and invited international institutions and wealthy families to co-invest in shopping centres, London offices and residential assets.
“Will the duke go bust? No,” said one property insider. “Is he in trouble? Yes. He has borrowed money and bought badly. Anyone running funds is having a terrible time.”
A measure of how Grosvenor is suffering through the downturn is that it was recently outbid in its own backyard, when Qatari money won the race to buy the United States Embassy building on Grosvenor Square.
Grosvenor, which has about £13bn of property under management, has been quietly undergoing a revolution, casting off its dusty aristocratic image. Figures released last year showed a 3% rise in profits to £524m. But the company was forced to take a £48.8m provision on a £1bn shopping centre development in Liverpool, which has sucked £140m from the balance sheet.
Grosvenor is exploring investing in property derivatives instead of using the debt markets simply to borrow money. It has considered buying commercial mortgage backed securities (CMBS) and, instead of relying on its own management expertise to create value, investing in its peers through the stock market.
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