Monday, March 27, 2006

Future Reminiscences of a Real Estate Operator

So the Tories are going to sell Smith Square in order to pay off their chunk of those dodgy loans. That's funny - didn't they sell it before? Back in 2004, after Michael Howard won an election of one to become Tory leader, one of the first things he announced was that the Tories would move out of the building to get rid of the "culture of betrayal" supposed to haunt the genius loci.

Now, they certainly did sell the place, because before they can sell it now, they've had to buy it back. For no less than £15 million, which is no surprise for a stonking great Victorian office block a stone's throw from the House. Apparently, they hope to raise some £30 million from the eventual sale. Now, that's funny - a 100% overnight return on investment. Damn, looks like they really are the natural party of business.

To put it another way, whoever it is they bought it back from could presumably have made £30 million by selling it on the open market. If something's worth £30 million when the Tories' estate agent places it, it's worth £30 million when Mr. X's agent does it. But they chose to take half as much money. Either they have considerably less confidence in the property market than the Conservative Party's treasurer, Jonathan Marsland, or they aren't terribly clever.

Alternatively, they support the Conservative Party so much they want to literally give them fifteen million quid - but not, of course, just give them the cash. That would, I think, be illegal unless the sum was broken up among multiple donors. And the Tories would have to say who gave them all that money.

Another point. Back when the Tories sold the place in the first place, they were running a risk - what if the counterparty to the deal decided to flog it openly instead? So this character who is happily eating a £15 million loss for the cause must also be very trustworthy indeed. Although - I wonder what they could do with a £15 million loss for tax purposes.

Update, 29/03/2006, 1330BST: Thanks to commenters. Apparently the Tories only sold the freehold and hung on to the lease. Why anyone would want to buy the freehold of a building with sitting tenants may be explained by the fact they were offered a return of 6.42%. This gets weirder - so the Tories have booked a £2.2 million loss on the deal? They must have been desperate for cash. And who is the "private overseas buyer"?

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