Space, the lucrative frontier

Clydes’ canny office lease deal funds large loan

The rapid consolidation of the profession has caused some headaches when it comes to the logistics of bringing firms under one roof. The 2011 merger between insurance giants Clyde & Co and Barlow Lyde & Gilbert (BLG) was swift and coincided with Clydes’ planned move into London’s St Botolph Building.

This was a forward-looking investment. Clydes took a 20-year lease on the building in December 2009, agreeing to let 145,000sq ft – the top four storeys.

A firm’s real estate represents one of its two biggest annual costs, so property can make or break it and such deals are not taken lightly. They also say a lot about a firm’s ambitions.

At a pre-let rate of £48 per square foot, Clydes paid around £6.9m to hold the space prior to its move in August 2011. This was when a three-year rent-free period kicked in – a handy saving, you might think.

The firm will be using that three-year rent break to repay a mammoth loan it took out in 2011-12 to fund the move. According to its most recent LLP accounts, Clydes agreed to up its borrowings by £27m in the same financial year, including a £23.5m loan, half of which was used to pay for the move.

With an average 363 lawyers in the office for that financial year, the firm is generating revenue per square foot of £1,077. Compare that with Sackers, which generated £960, or Macfarlanes’ £852.

Perhaps that is why it was able to negotiate such a large loan in straitened banking times.