Lehman collapse 'hard to quantify' for Canary Wharf owner

Songbird Estates, whose main investment is Canary Wharf Group which owns the London-based European headquarters of Lehman Brothers, says the full impact of Lehman’s demise is hard to quantify. Lehman’s leases more than 1 million square feet in a building in Canary Wharf.

Songbird Estates, the majority owner of London’s Canary Wharf Group, has said it is too early to assess the entire impact of the failure of Lehman Brothers.

The company, which owns 60 percent of Canary Wharf Group and whose equity owners include Morgan Stanley and New York’s Glick family, said Lehman Brothers leases more than 1 million square feet at 25 Bank Street, 875,000 square feet of which is occupied by the bank.

Updating shareholders on its first six months of the year, Songbird acknowledged that Japanese bank Nomura has announced it was taking over the European and Middle Eastern equities and investment banking operations of the failed Wall Street titan. It also said that it had 4-year insurance policy in place should rent not be paid. AIG, ironically itself mired in financial difficulty until it received an $80 billion (€54 billion) government bail out earlier this month, is underwriting the insurance.

However, despite the insurance and Nomura’s takeover of Lehman’s European operations, Songbird said: “Until the intentions of the administrator and Nomura become clear, the full impact of the situation concerning Lehman’s lease is difficult to quantify.”

It added: “It remains unclear whether the group's December 2008 property valuations will be negatively impacted by the failure of Lehman and the broader market turmoil. The board is aware of the current air of uncertainty in the financial and real estate markets and keeps the business and financing outlook of the group under close review.”

Reflecting weak external real estate markets, the market value of the group's property portfolio at 30 June 2008 has fallen 10 percent to £6 billion in the last six months. The fall in market values at Canary Wharf is in line with the market and has been mitigated by the benefit of new lettings, the expiry of rent free periods and upcoming fixed rent increases, it added.

The company continued that it was too early to say what the full impact of the current financial markets turmoil will be on property and rental values across London or on the property sector in general.