Feb 16 2011

The City’s Cash – an update

Posted by: Nick Shaxson in: Thoughts

Update: Dec 1, 2011 – on the City Corporation owning 20% of the City – a lot of that will be in freehold, so they get ground rent. The ‘playing around with numbers’ below wouldn’t work. But the numbers given by the City Corporation exclude the potentially much bigger sums held by the City Corporation’s 108 Livery Companies – and the ownership patterns here remain extremely murky. See the Mercer’s Company, for example:

“The Mercers’ Company is fortunate to have accumulated over the centuries a large property portfolio, located mainly in the City of London, and in Covent Garden in the West End of London. Income derived from the Company’s investments, particularly from property, funds the Company’s other activities.”

Recently I blogged about the City of London Corporation and the last chapter in the UK edition of my book. I went to see the City Corporation upon publication of Treasure Islands, to ask them what they thought. As I mentioned, they were rather annoyed with me, but I think they masked it very well and were extremely cordial. As I also mentioned, there were also some items in the last chapter of my book which weren’t accurate, as the blog outlines. They will be corrected in subsequent versions of Treasure Islands.

I also mentioned in that blog that I would update some material on the City’s Cash. I now have authorisation to publish this. Here is what I’m authorised to quote:

1. “The total holdings of City’s Cash are around £1bn, nearly all, if not entirely, within the UK.”

That is very interesting. It’s significantly smaller than I’d presumed when I wrote the chapter, and it’s important information. The City’s cash does not, however – as I mention in Treasure Islands – break down its assets, so we don’t know what’s actually in it. You will find some details of its income and expenditure – here – though a further breakdown would be welcome (has it ever funded free market think tanks, for example?)

There is a bit of additional information.

2. “Given that the published assets of the other two funds total approx. £2bn, that gives an overall total of approx £3bn. These are the total assets of the City Corporation: there are no others.”

I also mentioned in the chapter the two other funds (that are subject to scrutiny) – and you can see details of them here.

And there is a third piece of information that I can now reveal. They had told me that the City Corporation owns about 20% of the property in the Square Mile, and they said

3. “The reference to the City Corporation owing approximately 20% of the property in the Square Mile covers all three funds.”

Again, new information.

I did some playing around with numbers, and wasn’t immediately able to square part 3 with parts 1 and 2. I came up with figures of 70-80 million square feet of rental property in the square mile (see here), with a current going rate of about 50 pounds per square foot – this figure would produce property income adding up to something like 3.5 billion annually overall in the City. 20 percent of that would be 700 million, a 25ish percent rate of return on 3 billion. That’s a lot.

So I would question the City’s basis for valuing its property. Let’s be generous and round that income figure down to 500 million, and assume a five percent rate of return on property, which is reasonable. That puts City assets at 10 billion pounds inside the Square Mile.  What is more, the City owns quite a lot of property outside the Square Mile, which is presumably worth quite a bit too – so that widens the question.

Of course I’ve rather plucked these numbers out of thin air, and there is a large margin of error possible: the figure of 50 pounds per square foot won’t be the same across the City (and much of the City Corporation’s property is older, less prime property.)  But I think these numbers do cast some doubt on the City Corporation’s methods of valuing its property.

I will see if they want to comment further on this, and let you know.

I should also add, for anyone wanting to do their own research, and approaching the City Corporation, that they are very good at the “we are just a little old municipal authority with a couple of other functions, don’t worry about us too much” spiel.

And they are also very good at the “look at how much money we dish out to worthy causes” spiel. They do indeed dish out quite a bit of cash – take a look at this, for example, which says:

“The City Bridge Trust makes grants of £15 million a year to charitable projects benefiting the inhabitants of Greater London.”

I am reminded, here, of the days when I used to cover oil and politics in West Africa. Before they got to know me, oil company spokespeople would spend a lot of effort trying to impress me with their social projects – look how much we’re spending on water wells in Angola! – and all that kind of stuff.

I think it didn’t take them too long to realise that I was quite clear about where the real story lay – that these were corporations whose main business was not to drill water wells, but to drill oil wells, and to produce vast gushers of cash, to be hosed at the Angolan government and their own shareholders, with all sorts of consequences. That was where the real story lay.  Great to have water wells and all that – but in the scheme of things, that was a minor detail.

Likewise with the City Corporation and all its money showered on the Barbican and the like. Nice work – but that ain’t the big story. This is an ancient, offshore-ish island in the middle of London, whose job is — officially — to lobby for financial deregulation, freedom for the City, and to fight these battles not only inside the UK, but around the word. Stack that up against £15 million a year in the City Bridge Trust, and it becomes clear where the action is.

When you visit the City press offices – don’t forget it.

11 comments so far

[...] Nick Shaxson has done more digging on the City of London. [...]

[...] Either that or he simply doesn’t understand what he’s talking about. Nick Shaxson has done more digging on the City of London. [...]

On Nick Shaxson’s numeracy 2th February, 2011 11.42 am

[...] This is an interesting thought: [...]

[...] Nick Shaxson has done more digging on the City of London. [...]

[...] were a couple of glitches in the City chapter of Treasure Islands in the UK edition, which I note here and here, with [...]

jonfrate 5th May, 2011 6.02 pm

So in short, the boogyman isn’t as big as you painted. Also, your real estate value estimation is wrong as it’s missing out on ‘vacancy rates’. Walk around the city and have a look at what’s available these days.
Finally it’s not clear if they own retail or commercial office space. The rate per square foot would be dramatically different.

Nick Shaxson 5th May, 2011 7.50 am

Yes – in this particular narrow example of the City’s power, the “boogyman” isn’t quite as big as painted. But let’s not forget – this, the City’s holdings – are a really minor part of the much bigger issues.

Matthew Bailey 10th October, 2011 3.37 pm

It is clearly true that the value of the Corporation’s funds would hugely exceed £1bn if it really owned 20% of all the offices and retail buildings in the City. The British Property Federation* estimates total UK commercial property value at about £500bn, and believes City of London offices represent 6% of this, i.e., £30bn. 20% of this amount is £6bn, and this doesn’t take non-office properties into account.

It is likely that the Corporation owns only the freehold title in most of these properties, and has granted long-dated leases to third parties (e.g., mostly property companies or institutional investors). The Corporation will receive ground rents from the long leaseholders, but not rents paid by the tenants who actually use the property. The value of the freehold interest in the property is a fraction of the value of the long-term leasehold interest (or the combined value in the case of properties not subject to long leases).

*See their “Property Data Report 2010″: http://www.bpf.org.uk/en/files/reita/reita_org_documents/BPF_PIA_property_data_web.pdf

[...] unsurprisingly, rather secretive about it. Shaxson has been digging around here, too. He reckons that they own around £3 billion, but is convinced that possession of 20% of the property in the [...]

[...] of the City of London, such as Nicholas Shaxson, have noted that the total holdings [...]

[...] property, shared with the City Corporation. I believe that these assets are not counted as the three billion pounds in assets that the Corporation told me it owned. I have just asked them. Also, I can’t find a [...]

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