THE TRIALS AND TRIBULATIONS OF CLOSING THAT PROPERTY DEAL
On a cold Friday night in early December 2005, I left the office, looking forward to the weekend, content in the knowledge that our £14.775 million sale of the Hemel One office building in Hemel Hempstead would exchange and complete on Monday.
Unfortunately, the sale never completed. It was not the fault of the buyer renegotiating, nor the emergence of a defect to the building but something far more dramatic. Just after 6am on the Sunday morning of that weekend, the morning after our Christmas party in a Hatfield Hotel, I awoke to a loud rumbling and the building shaking. Either my body was informing me of the hangover that was to ensue or there had been a massive explosion. A few minutes later I received a phone call informing me that the largest explosion in peacetime Europe had occurred at the Buncefield fuel storage facility, causing extreme damage to our office building which was only 150 metres away.
The question now was where we should go from here. Our priority was to try and salvage the deal with LaSalle. However, as anticipated, the amount of damage made that impossible, despite a rather entertaining call with my counterpart! My instinct was that the only viable option was to reinstate Hemel One, to get the tenants back into occupation, and then to try to sell it all over again. This strategy worked perfectly.
A few days later, a colleague and I managed to dodge security and road closures to gain access to Hemel One. We discovered that the damage to the 96,000 sq ft building was extensive. The majority of the windows had blown out of their apertures and in some instances the window frames and the glass had blown through the building and were embedded in the concrete walls in the middle of the floors. Strangely some areas of the building looked untouched, with books and pens laid out as left on Friday evening, while other sections of the office had been absolutely destroyed. Fortunately it was a Sunday and no one was in the building.
Our first job was to recover and rescue emergency items for our tenants and make the building safe. We could then remove tenants equipment and finally begin refurbishment/reinstatement, so that we could retain our tenants and get them back into the building as quickly as possible. It was vital that we got Kodak (our main tenant at the time) back in the building within 12 months, otherwise they would have taken a long term commitment elsewhere. Therefore we had the whole building surveyed to understand the extent of the damage and to quickly produce a specification for the refurbishment. Although the original programme stated 18 months, we got Kodak back in within 12 months, as promised, albeit with some elements of the building being finished later.
This meant that we successfully managed to retain all of our existing tenants. In addition we managed to lease the remainder of the now Grade-A space on both traditional and innovative, semi-serviced office agreements. Tenants included a number of very well-known companies, including Kodak, Ericsson, Kcom and BP.
Various asset management and development initiatives led to an increase in the headline rent from £12 per sq ft to £17 per sq ft and a net rental income of £1.46 million a year.
We also purchased an adjoining 1.5 acres of land from 3 Com in 2008 in order to rationalise parking, improve Hemel One’s frontage and release additional land for development. We set about reconfiguring the estate to provide four self-contained plots, including Hemel One with parking for 465 cars and three self-contained plots of 1.74 acres, 1.8 acres and 1.4 acres, which were sold for £3.45 million to owner occupiers.
At the end of last year, with a mixture of sadness and relief we finally exited our investment, when we completed the sale of Hemel One to Threadneedle Investments for £17.75 million, reflecting a net initial yield of 7.75%.
As I walked home that evening I thought of two phrases that perfectly summed up the Hemel One saga:
“Never count your chickens” and “Success through adversity”