Chinese developer sells Nine Elms’ site at deep discount to cut debt

Author: Cyril Richert

Concept of R&F’s Vauxhall Square development in London – Credit: Photo: Allies & Morrison.

Chinese developer R&F Properties announced mid-March that its UK unit will sell Vauxall Square site at a 42% loss to raise capital and cut debt.

We raised attention to the Chinese property developers’ difficulties last September. R&F was trying to borrow £750m from its chairman and its CEO to be able to make payments over the next few months. Analysts were glancing at R&F’s balance sheet with worry, where £9bn are due by 2028, according to Bloomberg’s data.

R&F Properties is looking at selling its collection of assets in London’s Nine Elms regeneration area, and they have announced two weeks ago that they agreed to sell their Vauxhall Square mixed-use project (located in Lambeth, at the edge of Wandsworth Nine Elms area) to Hong Kong-based Far East Consortium (FEC) for for £95.7 million (US$124.8 million). R&F had bought the 1.4 hectare site from London-based property investment firm CLS Holdings for £157.7 million ($196 million) in 2017.

R&F will actually sell the site for only £1 and will transfer the £95.7m in debt to the buyer, with an option to repurchase the whole site within 6 months  at a cost of £ 106.6m (plus expenses – you can read more on the South China Morning Post).

More delays and potential new planning application

This deal means that this is now unlikely to see anything happening on site before 2023 or even later. Construction Enquirer reported that the new developer will now review the existing Vauxhall Square scheme, which means that this is likely to lead to a new planning application.

Construction has yet to begin on the site, as confirmed by a filing with the Hong Kong Stock exchange saying: “As at the date of this announcement, the construction of the Development has not commenced on the main site. According to a valuation report issued in October 2020 by Savills (UK) Limited, an independent valuer, the market value of the Development was appraised at £165,000,000.

FEC said they were looking for a large-scheme development to buy in London and they describe the Nine Elms’ site as exactly the scale and type of development it hoped to acquire.

Multiple sites at stake in Nine Elms

Vauxhall Square is one of the 3 sites owned by R&F within the area. Contractor Keltbray completed demolition in 2019 but now work on the site has been paused, said Construction News website. R&F paid £157.7m to buy the land from British property investment company CLS Holdings in April 2017, with plans to build seven main buildings. The scheme includes two 50-storey residential towers, 3,100 square metres of retail space, 22,700 square metres of offices and four separate hotels. There will also be a new homelessness hostel.

Architect’s view of the proposed scheme

The two other site are One Nine Elms, a mixed-use project of two residential towers of 56 and 42 storeys, alongside a 173-room luxury hotel, which are due for completion in early 2023 (but will never be finished at the time due to the current situation), and Nine Elms Square, which R&F and fellow Chinese property investment company CC Land acquired in 2017. This latest scheme consists of 1,417 new homes, shops and restaurants, and around 120,000 square feet of commercial space across 12 buildings.

Is One Nine Elms the next site to change hands?

It might be the first step of more pulled out as R&F is desperately trying to grab hundreds of millions to to make payments over the next few months.

A month ago, Construction News website reported that work at One Nine Elms was put on hold. Rumours say that this major site could follow the same patterns as the Vauxhall Square scheme and it might jeopardize the entire redevelopment of the area.

In 2017, Wanda, the previous Chinese owner of the main site in Nine Elms, pulled out, following pressure, by the Chinese government, to reduced foreign investment.

And trouble has not only affected the site owners, but also the construction contractors. As explained by CNInterserve was first awarded the contract for One Nine Elms by Wanda in April 2015 with its joint venture partner, China State Construction Engineering Corporation. Eventually, the project was retendered in March 2016 after they failed to agree a price for the job. Balfour Beatty took over in July 2016, but pulled out 4 months later after it too failed to agree terms. Multiplex finally was awarded the development contract in January 2017 and carried on later with R&F when Wanda sold the scheme. Work was already paused for a few months in 2019 as R&F had delays in payment. However they have now stopped work in the site since February and with the sell, no-one knows if they will work with a new owner.

Is Nine Elms doomed?

When we started to talk about Chinese property developers’ difficulties, R&F told its UK operations will be unaffected. However, as suspected by many, it was just a lie and they were preparing to pull out of their UK projects instead.

The Telegraph published an article in 2021, with a scary title (and no question mark!): Investors flee nightmare on Nine Elms street. According to the newspaper, a source on a neighbouring site said:

“There’s a massive centre of gravity on R&F within Nine Elms, success or failure may come down to how they handle the situation. Currently, I don’t think 100pc of the developments will be built and that could pose a huge issue.”

The Council has kept very quiet over the latest series of events and delays hitting several major development sites in London. The Labour is expected to gain control of the Council after May 5th and it would be interesting to hear how they plan to deal with those issues.

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