Earls Court saga enters next chapter with Delancey

Capital & Counties’ sale of its interest in the £12bn Earls Court redevelopment project has gripped the property industry, and interest reached fever pitch over the past week as Delancey and APG emerged as the chosen buyers. The £425m deal will see Capco exit the scheme and, in an unexpected development, Hammersmith & Fulham Council retain the two council estates at West Kensington and Gibbs Green. Minutes after Capco and Delancey signed and exchanged contracts last Friday, Delancey and the council signed and agreed the second deal, and, as champagne corks popped, Capco was delivered the news. The back-to-back deals mean that plans for the demolition of the estates have been axed, after 12 years of campaigning and conflict between Capco, local residents and the council. Council leader Stephen Cowan says: “That saga has come to an end; we have the estates back. They are safe now – we are not going to do anything to them, other than protect them. We don’t believe in estates regeneration. “However, we will be working with [Delancey chief executive] Jamie Ritblat on bringing forward an exciting new scheme on non-estates land,” he adds. A consented masterplan worked up almost a decade ago envisaged a £12bn scheme of 7,500 homes. Four urban villages included 20% affordable homes, with the remainder destined for the luxury for-sale market. In a very different London, with a very different developer, this masterplan seems set for a complete overhaul. And with a potential PRS pipeline and just 22 acres to play with on the main site, the drama may not be over. PRS play Capco’s sale of Earls Court saw a motley crew of investors show interest, including Hong Kong billionaire Li Ka-shing’s CK Asset Holdings, Berkeley Homes, Canary Wharf Group and One Hyde Park tycoon Nick Candy. None met Capco’s demands and reported price tag of £500m. One property developer previously told EG: “It is a nice site and we would look at it but it’s too much money.” Others were put off by political wrangling at the site. But as time dragged on and the value of Earls Court tumbled from a 2015 high of £803m, the price declined, attracting a new type of developer. Delancey’s bid of £425m is a 16% discount to book value of £508m at 30 June, although analysts at Peel Hunt noted the price was “well ahead of our circa 30% [discount] assumption”, which would put the assets at around £355.6m. Peel Hunt analyst James Carswell says this discount was based on a prolonged sales process, the backdrop of a weakened London sales market and tighter budgets on PRS. “For-sale schemes come with two hurdles,” says Carswell. “One is the local residents and the council. The other is the political landscape and the residential market, which is slow with uncertainties around Brexit and more recently the election.” Carswell expects APG and Delancey to launch a PRS scheme on the site, adding that such a strategy chimes with recent statements from Capco that “certain stakeholders” (likely to be the council) had deemed counterparties to be acceptable. “Rightly or wrongly, there is a perception of luxury for-sale schemes being sold to overseas investors,” says Carswell. “A PRS scheme is always going to be more popular.” While Delancey may have assuaged any fears the council may have had over luxury resi, there will be fresh challenges of masterplanning the development, working with the residents and two local authorities. “Realistically, you would want to go back in for a new planning consent to increase the density and reconfigure it, and target a less luxury scheme,” says Carswell. Earls Court masterplan New collaborations When Capco acquired Earls Court and agreed Hammersmith & Fulham’s conditional land sale agreement for the estates, it was under a Conservative council, with Stephen Cowan leading the opposition. But Delancey starts with a seemingly harmonious relationship with the Labour council, calling into question previous plans for a £650m compulsory purchase order. “Throughout our dealings with Jamie Ritblat, he has demonstrated huge levels of integrity, and that is a solid foundation for a good working relationship,” Cowan says. “We see Delancey as a partner, and we will be looking forward to working with them very positively to bring forward an exciting scheme on non-estates land.” The council leader says the development will “put something in place that is going to get that dead scheme breathing a huge amount of life into the local economy and delivering all sorts of interesting things”. He sees Earls Court as a linchpin of the local industrial strategy, built on digital media, science, technology, engineering and mathematics, as well as creative arts, with Imperial College London, the BBC, ITV and others in the area. “Old Oak is essentially shifting London west, and what we are trying to do is capture that and make it a fairer type of economic growth,” says Cowan. “That means faculty housing, genuinely affordable housing and corporate housing for businesses. There is a lot of potential, and we will discuss that with Delancey.” Mayor of London Sadiq Khan has also previously called for an uplift in housing, with more social-rented and other genuinely affordable homes. A statement from jv partner Transport for London welcomed the new partners and added: “We look forward to working with them in the Earls Court Partnership to deliver a scheme that is compliant with the draft London Plan, with much higher levels of affordable homes.” Residents and community ownership Linda Wade, Liberal Democrat councillor for Earls Court and founder of the Earls Court Area Action Group representing businesses and residents across the 77 acres, says the group has requested to meet with Delancey to discuss proposals. “ECAAG would like to see a range of housing options,” she says. “We need to see social-rented housing, London affordable rents, market homes, market rent – something that actually replicates the socio-economic demographics of Earls Court.” Wade adds that the group was “delighted” at the council taking back the West Kensington and Gibbs Green estates. But she notes: “It does have some drawbacks because of the connectivity.” Closing off the estates to any redevelopment threatens creating a 20-acre barricade as development proceeds on the site of the former exhibition centre. “That is a problem because as soon as you introduce an uplift in the population you have to think about traffic movement, on the road and on the Tube,” says Wade. “Everybody wants the people to be secured now; the conditional land sale agreement was supposedly the reason why we couldn’t,” says Jonathan Rosenberg, community organiser for the estates. “There is now no barrier to getting on with the community ownership process.” In July, then housing minister Kit Malthouse backed Hammersmith & Fulham Council’s rejection of West Kensington and Gibbs Green Community Homes’ bid to take control of the housing stock. The Ministry of Housing, Communities and Local Government said the transfer would have a “significant detrimental impact on the regeneration” and noted that the group did not meet the criteria for a tenant group. Cowan says: “We would work with a tenants’ association and directly with the residents, but we will not be working with anybody else.” Jackie Sadek, chief operating officer at UK Regeneration, says: “That is just the wrong position really. They should put the two estates into community ownership and take a leaf out of Kensington & Chelsea’s book.” The Royal Borough of Kensington & Chelsea has embarked on a programme of community ownership in the wake of the tragedy at Grenfell Tower. “It would be a far more progressive, sustainable solution and would allow the residents to have skin in the game and take pride and ownership in their homes,” Sadek says. “That way I think you would get far more buy-in from the residents for whatever Delancey wants to do with the wider site.” As Capco finally sheds Earls Court and moves on to its “trophy asset”, the Covent Garden REIT, a takeover bid from institutional funds is seen by some analysts as likely. For Delancey, the future may be less predictable as it takes the helm at Earls Court, juggling the demands of investors, councils and residents against the backdrop of an evolving residential market. 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