Shop tactics reap rewards
13 December 1999
Property expert David Cobb reports on a booming year for the law firms who advise on shopping centre schemes
The year 1999 has, without doubt, been the year of the shopping centre. The last year of the millennium has seen deal after deal as developers, property companies and lawyers cash in on the UK's shopping trend.
March saw the opening of the mother of all shopping centres, Bluewater in Dartford, Kent. This behemoth, at 1.625 million sq ft, is Europe's largest retail and leisure development and according to Going Shopping 2000, surveyor Weatherall Green & Smith's latest retail report, is considered to be the most attractive shopping centre in the UK.
To prove the point, it recently won the British Council of Shopping Centres' new centre award for 1999.
Unsurprisingly for such a major UK property project, the participants opted for legal property heavyweights Linklaters & Alliance and Berwin Leighton.
Australian property company Lend Lease made extensive use of Linklaters' all-round property expertise, not only on the acquisition, financing, construction and letting of Bluewater, but on a number of subsequent disposals such as various stakes to the Prudential and to BriTel.
Linklaters did not handle all the work, though - Travers Smith Braithwaite snagged the letting work for anchor tenants John Lewis, M&S, House of Fraser and WH Smith, among others.
Although Linklaters did most of the rest of the lettings, Travers Smith has profited from its relationship with Lend Lease. It has been acting for the Australian company on the development of its 60,000 sq ft shopping centre scheme, for example.
Meanwhile, Berwin Leighton - true to form as the top planning practice in the country - was also heavily active on Bluewater. It advised Blue Circle, the original owner of the site, an old quarry, on planning issues. Planning issues were particularly thorny, since the centre was being built on green belt land, therefore involving numerous permissions and negotiations.
However, with the support of Kent County Council and Dartford Borough Council, as well as local MPs, the eight-week public inquiry allowed the project through.
Tim Pugh, co-head of planning at Berwin Leighton, is unsurprisingly something of a Bluewater acolyte, waxing lyrical about "the use of space, the creation of an identity, the use of architecture internally and externally".
He says: "It has learned lessons from other shopping centres, which, combined with Lend Lease's own ideas from the southern hemisphere, has made it successful and innovative."
Linklaters and Berwin Leighton recently found themselves on opposite sides of the table on another major shopping centre deal, namely the £93m acquisition of the Brunel centre in Swindon, where Linklaters advised the vendor MEPC and Berwin Leighton advised Swindon Borough Council.
But such was the heat in the sector this year that most law firms with property departments found themselves active in shopping centre deals. In November, in the UK's largest single purchaser property transaction, British Land formally acquired the Meadowhall shopping centre in Sheffield for £1.17bn.
The property company, supported by its longtime adviser Jonathan Metliss at SJ Berwin, exercised a call option - granted on 8 July and costing £100m - which has allowed it to acquire the companies owning the shopping centre.
The remaining balance was divided into another cash payment of £600m and £470m worth of leases, borrowings and derivatives.
As northern shopping centres go, Meadowhall is one of the biggest. Consisting of 1.25 million sq ft of retail, leisure and ancillary space on a 125-acre site, it is almost fully let to 300 tenants and attracts an estimated 30 million visitors a year.
The vendors, Eddie Healy and Paul Sykes and their company the Stadium Group, called on longstanding legal adviser Michael Revie at Addleshaw Booth & Co. Revie has advised Stadium Group for over 15 years, and was active on a related deal this year when he advised Stadium on the sale of Sheffield's Meadowhall retail park to Standard Life for £33m.
The deal was completed in 10 days, and was one of the largest property transactions of the year.
What is of particular note in this sector is the incursion of trendier financing and corporate techniques. Shopping centres are now beginning to be funded by the popular limited partnership.
Festival Place in Basingstoke is one of the first. In this case, Equitable Life (represented by Denton Hall), Hermes (represented by Herbert Smith), Grosvenor Estate (Boodle Hatfield) and NPI (Druces & Attlee) all clubbed together and put in £300m to refurbish the existing centre and develop a whole new retail and leisure complex. Limited partnerships have advantages when it comes to funding big developments such as shopping centres.
"The underlying investment is not important," says Boodle Hatfield's Nigel Stone. "These deals are driven by tax and finance. What happens if it all goes belly-up, what if it is successful, how is it funded, how are the profits shared? Limited partnerships are good for that."
However, Bluewater and its cousins will probably be the last of their kind in the UK. It is certainly clear that the Government would prefer to regenerate town centres in an attempt to reduce use of the car and save green fields.
Surveyor CB Hillier Parker paints a gloomy picture for developers. "With only a handful of exceptions, tougher planning policies have effectively brought new out-of-town shopping centre development activity to an end in Britain," says CB Hillier Parker's retail planning director Chris Goddard.
The future for shopping in the UK is thus set for new battles.
David Cobb is assistant editor of the Insiders Guide to Legal Services and Commercial Property 2000, New City Media.
Shopping centre law firms
Addleshaw Booth & Co: national practice with strength in depth which acted for the vendors on the sale of Meadowhall shopping centre to British Land.
Berwin Leighton: its focus on UK property is matchless. Acted for Blue Circle throughout the Bluewater project.
Denton Hall: a strong practice, which, although it has a question mark over its commitment to property as a whole, acts for Equitable Life, which has been active in this sector.
Herbert Smith: a strong pure property firm which acts for fund Standard Life and property company Hammerson.
Linklaters & Alliance: top practice with distinguished client base highlighted by acting for Lend Lease on Bluewater.
Nabarro Nathanson: broad-based property practice with Capital Shopping Centres, Land Securities and British Land.
Olswang: small but strong new entrant to the property scene. Attracted Berwin Leighton partner Philip Olmer, but then lost its retail specialist David Wyatt. Clients include Capital & Regional Properties, Helical Bar and Green Property, and recent deals include advising Charterhouse Shopping Centre Fund on the sale of the Quadrant Centre, Dunstable, and Phillips & Drew on the sale of the Kingsland Shopping Centre, Dalston.
Rowe & Maw: medium-size practice with clients such as St Modwen Properties, Frogmore Estates and BG Pension Fund. Recently completed its fourth transaction in three months, on Phillips & Drew's £8.5m sale of Market Place shopping centre in South Wales to Sydney & London Properties.
SJ Berwin: the property department's largest client is British Land, and the firm is often jovially dubbed BL's in-house lawyers. SJ Berwin also acted on the creation of Croydon's Whitgift Shopping Centre's limited partnership.
Research based on The Insider's Guide to Legal Services in Commercial Property 2000, published by New City Media.
Top 10 shopping centres
Bluewater, Dartford; MetroCentre, Gateshead; Lakeside, Thurrock; Meadowhall, Sheffield; Merry Hill, Brierley Hill; The Trafford Centre, Manchester; The Shopping Centre, Milton Keynes, Milton Keynes; Eldon Square, Newcastle upon Tyne; Arndale Centre, Prudential; The Harlequin, Watford
Source: Going Shopping 2000 published by TW Research Associates.