IT is one of the best-known landmarks on the London skyline, a masterpiece of
Gilbert Scott architecture, the largest, brick-built structure in Europe.
For years it has lain derelict, gently crumbling while numerous plans for
its redevelopment have been hatched, argued over and abandoned.
Now, Battersea power station is in the hands of a company with a controversial
history — domiciled in Jersey, quoted in London and controlled from Dublin.
A quarter of a century after the power station closed, plans for its future
are again up in the air.
But the deal under which it was bought offers the prospect of huge winnings
for the men who masterminded the purchase.
The site — six acres within the building itself surrounded by a further 32
acres of land — was bought at the turn of the year by Real Estate
Opportunities (REO), a company that is quoted on the London Stock Exchange,
but which is majority owned by Dublin-based Treasury Holdings, the vehicle
of Irish property developers Johnny Ronan and Richard Barrett.
The £400m deal was approved by a meeting of REO shareholders held in Jersey on
the Friday between Christmas and
New Year. REO took on £250m of debts linked to the power station and issued
£150m of loan notes to the seller, the Hong-Kong based Hwang family who had
owned it since 1993.
Documents issued ahead of the meeting that approved the purchase show that
Ronan and Barrett stand to make millions of pounds via their Treasury
Holdings — whether or not any development of Battersea is a success.
Other shareholders are scarcely in a position to resist: Treasury Holdings has
58% of REO. The terms of the deal between Treasury and REO are striking.
Even before the purchase, Treasury was entitled to fees under “management
agreements” for overseeing REO’s properties in Ireland. But with the
Battersea deal, Treasury also became responsible for “the provision of
advisory and property management services for the company’s global property
assets” outside Ireland.
Treasury is now entitled to receive: n A basic annual fee equivalent to 0.5%
of the value of REO’s assets, which now include the Battersea site; nA
“development management fee” of 1.5% of the cost of any construction that
REO asks it to oversee; nA further 1.5% of construction costs which is
labelled a “project management fee” — if Treasury is chosen
by REO for a job.
On top of that, Treasury will be entitled to huge bonuses — a
“performance fee” — if REO increases net assets per share.
If the net assets rise by 7.5%, then Treasury receives 3% of the increase.
If net assets rise by more than 15%, then Treasury receives 7.5% of the gain.
And Treasury will be able to reclaim all its expenses.
Add it all up, and the sums of money flowing from REO to Ronan and Barrett
promise to be mammoth.
At the end of 2005, the last year for which accounts are available, Treasury’s
share of accrued performance fees from REO was more than £6m. In addition,
REO paid “investment management fees” and “project management and
development fees” of nearly €5m (£3.4m) to Treasury. Furthermore, Treasury
received an extra €3m from a firm jointly owned by it and REO.
Results for 2006 have yet to be published. But given REO’s undoubted successes —
particularly in making the most of the boom in the Irish property market —
it appears that Ronan and Barrett could see their takings through Treasury
leap again. In the first half of last year, net assets per share rose 29%.
And in 2007 they should see a further boost in their takings as a result of
the Battersea deal.
It is quite conceivable that Ronan and Barrett, through Treasury, will receive
more than £30m from REO this year.
REO has not yet said publicly what plans it has for the Battersea site. But
Ronan and Barrett have told investors that Hwang’s plans for offices and
hotels are being abandoned. Instead, they want to build blocks of flats on
the south side of the power station. Part of the structure itself will be
turned over to retail space. That would leave the rest of the building free
for sports facilities, theatres, cinemas and other public facilities.
A figure of £2 billion — including the £400m already paid for the
site — has been suggested for the development.
A further option under consideration is to make the old power station the home
of the Department of Trade and Industry’s proposed £500m Energy Technologies
Institute, being set up to carry out research in new energy sources and
energy efficiency. It is thought it is being backed by London mayor Ken
Livingstone and the community group that has been pushing for the power
station to be preserved.
Ronan and Barrett are big players on the Irish property scene. Ronan is the
son of a Tipperary pig farmer who turned to property development. Happy to
flaunt his wealth, he has bought himself a Mercedes Maybach limousine. He is
also reckoned to have spent more than £300,000 last year on a 21st birthday
party for his daughter Zoe at which guests were treated to montra-chet wines
costing £100 a bottle.
Barrett, a lawyer by training, is seen as the more cerebral of the two. On
more than one occasion he has made it clear that he and Ronan are quite
happy to use the law to get their way. In a letter to a developer some years
ago, Barrett said: “Certain opponents of ours have underestimated our
ability to cause legal chaos to their detriment.” A leading figure in the
Irish National Trust described the two men as “gratuitously truculent”.
And it is not just their relationships with conservation groups, local
authorities, government and rivals that have been fiery. The nature of the
ties between Treasury and REO has caused friction between the two men and
independent REO shareholders.
The Irish duo would not comment directly, but their supporters insist that the
money Treasury receives is no more than any manager would be entitled to for
looking after a property portfolio.
However, the fees paid by REO to Treasury led to a spectacular showdown in
2004. At that stage, Treasury owned 35% of REO. The London-based investment
group Dawnay Day built up a 30% stake and threatened to push for Barrett and
Ronan to be ousted from the board. Dawnay Day was backed by Irish property
developer Noel Smith, who held 10% of REO.
In the end, Ronan and Barrett did a deal with both their tormentors, spending
€67m to buy out Dawnay Day and Smith. The effect of the agreement was to
consolidate the duo’s control over REO.
The row with Dawnay Day was prompted by the disclosure that Ronan and Barrett,
through Treasury, had received €11m in 2003. But subsequent payouts to
Treasury have made the 2003 fees seem modest; and with Battersea power
station now within the REO portfolio, they are likely to be bigger still in
the coming year.
Ronan and Barrett are no strangers to controversy. They were backers of an
abortive £125m attempt in 2001, headed by Robert Bourne, to buy the
Millennium Dome. The government branded their plans to develop the site as
“undeliverable”.
They have also been the subject of attacks in the Irish parliament. Ireland’s
public enterprise minister described Treasury as “purveyors of untruths”
duringa dispute over a dockside development in Dublin.
And REO itself suffered a devastating blow in 2002 with the collapse of the
split-capital trusts that were originally one of the pillars of the REO
business. Shares in REO, floated at 100p in 2001, touched a low of 13½p.
REO sued UBS and Aberdeen Asset Management over the split-capital debacle, and
two weeks ago came news that Aberdeen had settled the claim against it. The
effect of the deal was to boost REO’s 2006 asset value by nearly £50m. The
claim against UBS is still outstanding.
It is 21 years since Battersea power station was sold to John Broome, the man
who developed Alton Towers as a tourist attraction.
He persuaded Margaret Thatcher to unveil personally plans for the Battersea
site’s redevelopment as a mammoth theme park and made the confident
prediction that it would open at 2.30pm precisely on May 21, 1990.
The prediction turned out to be ludicrous. The project started to run out of
money and work stopped after contractors complained they had not been paid.
In 1989, Broome’s original plan was amended to allow for office blocks, hotels
and a conference centre as well as a theme park.
Then in 1993 the shell of the power station was sold to the Hwang family. They
came up with a number of proposals but last autumn, only three weeks after
receiving permission for a development scheme, they sold out to REO.
Immediately, REO indicated that it planned to change tack on the development
yet again. The company dumped the consultant Arup, which had overseen the
plans, saying the proposals did “not fully respond to today’s market
conditions, nor optimise the potential of the site”.
Battersea power station continues to crumble. Johnny Ronan and Richard Barrett
continue to amass a fortune.
