London may still get gleaming new financial center
A Canadian may rescue the huge development project started by an American to build London's new financial center. Canary Wharf was touted as the world's largest urban development scheme. Close to 71 acres of the derelict Docklands area of East London were to be turned into a glittering world financial center for the throng of international banks and securities firms. Many of those firms were bursting at the seams in antiquated buildings in the ``City,'' the cramped square mile where London has transacted its financial business since medieval times.
But when Canary Wharf's American developer G.Ware Travelstead started missing deadlines for signing a building commitment with government authorities, whispers were heard that the project might be doomed.
In the three years since the development was announced, no new tenants had been named and there were rumors that the partners in the 12.5 million-square-foot project were getting edgy. With looming costs that included construction of a rail line connecting the two-mile stretch between Canary Wharf and the City, reports circulated that two of the partners, Morgan Stanley International and Credit Suisse First Boston, wanted out.
Out of this confusion stepped Paul Reichmann, one of three brothers who control the big Canadian development firm of Olympia & York. Mr. Reichmann, dubbed Canary Wharf's ``knight in shining armor'' by the London Times, announced in July that Olympia & York would bankroll the 3 billion ($4.8 billion) development.
He promptly bought out the interests of Morgan Stanley and Credit Suisse, reimbursing them for planning costs, and pushed Mr. Travelstead and a third partner, First Boston International, into minor roles.
Construction will start at the end of this year even if no new tenants are signed on, he said. It is the same tactic the firm took when it built the World Financial Center in Manhattan and later brought in such firms as Merrill Lynch and American Express as tenants.
The next test for Canary Wharf will come in mid-September, when Reichmann plans to unveil 11-foot high scale models of what Olympia & York expects to build. Reichmann's designs will be measured against Travelstead's original, which, according to the promotional literature, was supposed to ``look like Venice but work like New York.'' Drawings mounted in a West End art gallery in March depicted romantically-inspired piazzas, Romanesque architecture, and cobbled streets.
It's far from certain whether Reichmann will keep the design and the size of the project as originally envisioned. That plan called for 8.8 million square feet of office space, where each of the three partners would use about 500,000 square feet. Another 500,000 square feet was to be used for retail space, including 75 restaurants, 8,000 parking spaces, and two 400-room hotels. Three towers, at least 850 feet high, were to be the highest skyscrapers in Europe.
Some observers are predicting that the project will be downsized. ``I told him banks no longer require tall, thin buildings,'' said Michael Cassidy, planning chairman for the City of London Corporation, describing a recent conversation with Michael Dennis, the Reichmann officer in charge of Canary Wharf here. ``He said he might have a [second] look at it.''
Mr. Cassidy said that with 22 million square feet of office space projected to be built in the City in the next five years on top of the 55 million square feet currently available, Reichmann and Olympia & York are likely to adopt a pragmatic approach to Canary Wharf.
Cassidy had publicly chided Travelstead when the developer announced in July 1986 that Canary Wharf would be the new global financial center interested only in front-office operations. Reichmann, he added, ``is prepared to take all comers.''
Experts agree that Reichmann does not have unlimited time to make the project work. While Canary Wharf was stalled, many potential tenants in desperate need of modern office space made other arrangements in or close to the City. Last October, Salomon Brothers moved into its new 13,000 square foot trading room located over Victoria Station, a 5,000 square foot increase over its previous location, while its staff grew from 300 in 1985 to 800 this year.
Goldman Sachs has moved its main operations to Fleet Street, for many years the center of London's daily press, and increased its space to accommodate a staff that burgeoned to about 650. Likewise Citicorp Investment Bank, which in 1986 increased from about 500 employees to 1,400, will consolidate its operations with two buildings, totaling 144,000 square feet, facing each other across the Thames River.
With City rents going from 30 to 55 ($48 to $88) a square foot and climbing, Canary Wharf developers had hoped to lure people with promises that rents would be half as high in the Docklands, largely due to tax incentives lasting until 1992. But one real estate expert said he doubts that the rents will be that cheap once construction takes place.
City veterans are also wondering if Morgan Stanley and Credit Suisse will remain loyal to the project they once intended to build themselves or if they plan to opt out altogether. Both firms have grown and say they will eventually need larger quarters.
There is also the prestige of being located nearer or in the financial district, even if technology has allowed for more far-flung communication. ``I don't believe you'll see the mainstream banking groups moving there,'' one real estate source said.
Archibald Cox Jr., Morgan Stanley's managing director in London, said, however, that his firm was committed to Canary Wharf. ``We have leased a site and have agreed to build a sizeable building.'' Canary Wharf ``offers suitable space at an attractive site,'' he said.
Insiders have made similar comments before, however. Travelstead, for instance, once said he was ``going to teach the Brits a lot'' with Canary Wharf.