Grosvenor – preparing for the worst

It was revealed last month that Grosvenor, one of Britain’s largest property corporations, owned by the Duke of Westminster and his family, are putting in place contingency plans for another financial crash. This would mean Grosvenor could allow for a 40% drop in property values and the freezing of debt and transaction markets for 2 years, whilst still being able to pay out dividends to shareholders as usual. It was made clear by Grosvenor’s finance director, Nick Scarles that this was purely a safety net and not in response to evidence a crash in imminent. Grosvenor owns £6 billion of property and runs a £11.4 billion global fund management operation.

Fraser Williams, Director at Morgan Pryce, said: “In 2008, Grosvenor lost £364 million in value on one project called Liverpool One, a shopping centre for which the company had taken on most of the development risk. I am sure this is still fresh in Grosvenor’s mind, and they are wary not to let history repeat itself, hence why this contingency plan is being put in place.”

It is thought Grosvenor’s economic gearing will allow their holding company debt covenants to withstand a decline of over 60%; looking at past data this approach has worked. In the aftermath of the 2008 crash, the sectors equity as a whole fell by 55%, yet Grosvenor’s equity dropped by only 16%.

As crashes are unpredictable and occur without clear warnings, Grosvenor has shown the importance of preparation and planning for these arguably circular downturns, and similar plans should be put in place to ensure the longevity of a companies in the UK.

This news was brought to you by Morgan Pryce, a specialist tenant acquisition agent with offices in Oxford Circus and the City. Morgan Pryce specialises in search, negotiation and project management and works exclusively for tenants.