Louis Dreyfus takes US real estate skills to London

Copyright: David Lawson– Property Week July 1999

Home page

LOUIS DREYFUS is an international trading group with a 20bn dollar annual turnover headquartered in Paris. The real estate arm, based in New York, owns more than 241,500 sq metres (2.6m sq ft) of property with a similar amount under way. Most involves large offices in Montreal, Washington and New York. The portfolio is part of a joint venture with Apollo Real Estate Fund, one of the world's largest property investors.

Bob is recovering from a near nervous breakdown. It was a shock to see him so agitated earlier this year because he is  normally such a pleasant, easy-going sort of chap. It all started with the commission to model a landmark office development. That was not unusual: as a top-flight modelmaker, he has handled many big schemes. But this was no ordinary building.  The name - Times Square - offers a clue. It is American.

 But dealing with developers an ocean away was not the reason Bob almost went scatty. This Times Square is in London. The 300,000 sq ft development opposite Blackfriars Station takes its name from the newspaper once produced there.

 The consortium behind the scheme  has a strong UK input. Executive chairman is David Blackburn, who spent years with Rosehaugh, developing Broadgate. Also involved is Roger Harrison of Sableknight, a private company which owned the site after taking over residual assets of the Observer newspaper when it was sold 25 years ago.

 But the driving force is  Jeff Sussman, president of Louis Dreyfus Property Group, who is American. And his  approach should be carefully noted as investors beckon partners  across the Atlantic.

 Sussman is the antithesis of the throw-it-up, let-and-forget brigade he sees as a major fault in the UK industry. 'To say he is  hands-on would be a mild understatement,' says one City agent advising a potential tenant.

 'He doesn't say what you will get. He asks what you want, and you get the impression that after you leave, he gives the list to his team and tells them to get it done.'

 Bob would confirm that. The model for the building changed so many times, his design team regularly worked into the early hours. But Sussman is  unrepentant. 'We are constantly chiselling, tweaking and chasing. It is the only way to ensure you get the most efficient building,' he says.

   This conjures an  image of a brash, know-it-all Yank stomping through the sensitivities of little-old London. All the more surprising to find a polite, soft-spoken gentleman on the other side of the table, praising the joys of London life. But the charm hides a core of steel.

 Sussman admits that there may have been 'somewhere around' 15 possible schemes. But that was purely to get the best solution to the  multi-level site backing off Queen Victoria Street, a stone's throw from St Paul's.

 'You have to find out what tenants want rather than impose a plan then change it later,' he says. 'That is where the costs build up. If I put in  a gold-plated lobby  it would still cost less than  if I  had to change it to plywood later on.'

 Logic suggested a modernistic, glazed design to match the hot image of the big-name international banks he is courting. But a test run of various possible designs showed they would prefer a more traditional look, so that is how the final product is likely to look.

 Fashion implies a 'green' development, pandering to the prospects of carbon taxes. Sussman has no truck with natural ventilation, however. Occupiers working long hours on dealing floors want air-conditioning, and that's what they will get, he says.

 This goes to the heart of his scepticism about UK property. 'Too much development is done by consultants rather than owners,' he says. They move on from job to job, while the owner has to carry the can for any mistakes.

  'We expect to do most of the work ourselves rather than uses myriad advisers,' he says. Sussman almost chortles at the disquiet among professionals about large-scale mergers and takeovers by US groups, which could lead to individuals earning high commissions rather than traditional fees.

 'US brokers are much more aggressive and are paid individually to reflect their success. This is good for business,' he says, brushing off any fears about advisors chasing commission rather than offering independent advice.

 Consultants even get part of the blame for the perpetuation of long leases and regular rent reviews. 'If there were no rent reviews, think how unemployment would soar,' he says.

  Sussman  hankers for the kind of 10-year leases with fixed uplifts which are standard on more than 2.5m sq ft  Louis Dreyfus has built in  the US and France. This generates a more balanced relationship  between owner and  tenants, making for a better long-term partnership. Quick bucks are OK for for high-powered advisers but not for landlords.

 But this is London, and his hands are tied by the UK financial establishment. 'We are just not big enough to break away from the kind of leases imposed by UK institutions,' he says.

 So the building is being planned for a major tenant on a conventional lease.  But not completely. Sussman aims to transplant a little bit of US logic into this stultifying fog by multi-letting, with the  remaining space available on more flexible  terms.

  That is not just aimed at picking up international occupiers looking for less long-term commitment. Just as importantly, the main tenant would be provided with room to grow. This happens by default in big City buildings, where major tenants take more space than they need and sub-let the rest. They are still stuck with the headlease, however, and Sussman thinks they will jump at the chance of leaving the burden with the landlord..

 He accepts that  some listed UK developers would like to do the same and is bemused why they remain in hock to institutional demands. 'Why don't they just issue paper to pay for it? I've been told this is because this kind of flexible leasing cannot be valued. But working out value is simple: put a building on the market and see what comes in.'

  Whether such iconoclastic views will cut through UK attitudes remains debateable. Louis Dreyfus is not planning to be a major player in the City. It took on Times Square only because the firm had bought premises next door and saw the opportunity for a tie-in with Sableknight. QVS Developments was set up as a JV to merge both sites.

 Nor does Sussman believe the hype that real estate investment trusts will cross the Atlantic en masse and shake up the UK market. 'They are facing a watershed. Wall Street is in charge of their future.'

 They may stumble - not because of their ideas but because they fall out of favour with fashion and financiers. He sees many turning themselves into the equivalent of UK listed property companies, which are a rareity in the US.

 More likely influences are agency mergers - which could lead to US attitudes permeating UK consultancies - and the giant venture funds. Sussman works closely with Apollo, which owns 50% of the Dreyfus property portfolio in the US. 'We are not big enough to work with them over here but they are very active with their UK partner,' he says.

 Dreyfus is not writing off the possibility that it might spot other possibilities once Times Square is under way. 'We are very opportunistic,' he says.

 Bob took the news in good heart. At least he knows what to expect in future. Perhaps other consultants should take note, however, of the shape of things to come.