Tesco in, Sainsbury's out: is property hot - or not?
11 August 2003
Real estate partners at CMS Cameron McKenna, Denton Wilde Sapte and Lawrence Graham will be watching the sale of J Sainsbury Developments (JSD), the supermarket's property development arm, with eagle eyes. As JSD's regular advisers, they must be wondering what the sale will mean for them.
While all three firms have some role to play in the property aspects of the deal, Addleshaw Goddard, which fought off a host of Sains-bury's advisers, including the three regulars plus other heavyweights such as Link-laters, has won the lion's share of the work. But when the ink has dried on the last contract, the question to be answered is: where will the work go now?
Miller Development and the Royal Bank of Scotland have already put in a
£200m bid for JSD. Kier Group and Castlemore are also believed to be sniffing around the business, which has a book value of £141m.
Last year, the group made a £15m profit, it currently has around 20 sites under development and has been pretty active in the development arena. While it might not be the biggest of the big-ticket work around, it's still nice if you can get it.
Advisers to the eventual winner of JSD will no doubt be waiting in the wings to see if they can get a slice of the action. If Miller takes the cake, then Jones Day Gouldens, regular advisers to the group, would most likely score big, especially since the cooling of JSD's relationship with its other adviser, Eversheds.
However, if Castlemore is successful then Wragge & Co or Eversheds may well stand to gain some work. Wragges has traditionally been the longstanding adviser to the private property company, but since Eversheds took on former Wragges lawyer Sue Simpson, the national firm has muscled its way in on a chunk of the work. It is understood that Eversheds is currently advising on Castlemore's development of a 70-acre former gasworks in Southall (although lawyers at the firm have been surprisingly reticent on this matter).
Finally, should Kier be successful, then Travers Smith Braithwaite could be a lucky beneficiary.
That said, a source at one of the JSD firms said he wasn't shaking in his boots. And there's a valid reason for this
thinking. Although Sains-bury's has not commented on what will happen to the JSD staff, one source said it looked likely that the team would transfer with the business - in which case, the former advisers would have a much better shot at retaining the work.
But while JSD's lawyers nervously chew their nails in anticipation of where the work will ultimately fall, real estate lawyers at Berwin Leighton Paisner (BLP) will be raising a glass or two of champagne. One of the firm's key clients, Tesco, is doing the exact opposite of its supermarket rival. This
month it publicly confirmed that it is going back into non-food property development - and BLP has already started picking up the work.
Spen Hill Developments, as the new business is called, will be run separately to Tesco, with its own set of budgets and accounts. Similarly, it also has its own set of legal advisers. For those with a memory that hasn't been obliterated by too many Mipims, the Spen Hill name will, of course, be familiar. Spen Hill Properties, the predecessor of this latest venture, was wound down around five years ago, and in recent years Tesco had sold non-store land to third party developers.
It is BLP's connections with the former Spen Hill Properties that has seen the new development arm turn to the now merged City firm this time round. Two legacy Berwin Leighton partners, Simon Barnett and Veronica Metta, already have their teeth into the first deal - a 100,000sq ft development in Llantrisant, Wales, where it plans to develop land from a supermarket that no longer requires it into a retail park.
That said, the faces at Spen Hill are new ones, with the group being led by William Marsh, who joined Tesco last year from Asda Property Holdings (which, just to confuse matters, is unrelated to the supermarket).
Tesco has confirmed that BLP will indeed be the sole beneficiary of the Spen Hill work, but said that the budget and the financials for the group had yet to be decided.
The work will be something of a mixed bag. It will include the development of sites that have failed to get planning permission for supermarkets. The increasing difficulty to get planning permission for out-of-town sites has seen supermarket chains become increasingly lumbered with land that they are unable to use.
There is also a call for the redevelopment of existing sites in areas where the chain is planning to build on a new site, but obviously doesn't want to sell an existing site to a competitor.
The developments are likely to be retail or residential, and may well be sold on once they are completed.
But it is unlikely that Tesco will generate the kind of fee income that Asda Wal-Mart subsidiary Gazeley does for its advisers, SJ Berwin and, to a lesser extent, Osborne Clarke. The supermarket says that, at least for the time being, Tesco's development arm will not come anywhere close to Gazeley's in terms of size or scope.
That said, the work will be a nice little money-spinner for BLP - as JSD's lawyers know only too well.