Battersea Power Station, the derelict London landmark that has been at the centre of a string of failed redevelopment schemes, should be knocked down to spur economic growth in the UK capital, developers told Reuters.
The protected status of the disused power station, which has been a feature of the London skyline for almost 80 years and featured on Pink Floyd's Animals 1977 album cover, has been a major stumbling block for redevelopment over the last three decades.
With Britain's economy on the brink of another recession, some argue enough is enough and efforts to save the much-loved brick building should be abandoned in favour of a more financially viable plan, which they say would help create 25,000 new jobs in the area.
It's an ugly site that developers would ideally want to knock down as it will crumble in 10 years anyway, the chief executive of one FTSE-listed developer told Reuters. I can't see the protection lobby allowing that to happen though.
Lloyds Banking Group and Ireland's National Asset Management Agency (NAMA) are seeking to have the site's owner, a vehicle controlled by Real Estate Opportunities, placed in administration after it was unable to meet repayments on 325 million pounds ($510 million) of debt against it.
The 10.1 million square-feet project would create 15,000 jobs, REO had previously said. Chancellor of the Exchequer George Osborne has said the plan, along with an extension of London's Underground rail network would help create about 25,000 new jobs in the wider area.
Under Britain's architectural heritage protection rules, the Grade II-listed brick building and its four chimneys -- a reference point for Battle of Britain pilots in 1940 -- must be preserved as part of any scheme, adding tens of millions of pounds to the cost.
These factors, combined with doubts over the delivery of the planned Northern Line extension, means developers buying into the project would want to mitigate their risk, two sources said.
They would likely want Lloyds and NAMA to defer payments as profit from a future scheme materialises or take an equity stake in a new vehicle, the two sources told Reuters.
Writing a big cheque up front is too much of a gamble, one of them said.
Knocking down the structure would bring the site into the realms of greater viability said a source at another FTSE-listed developer. Eight of 10 developers that have looked at the site would want to knock it down, said a source who is close to the project.
If the power station is knocked down it would make the site probably the biggest brownfield site in London, and there is significant development potential attached to that, said a property lawyer in the City of London financial district.
DEAL OR NO DEAL?
As Lloyds and NAMA tiptoe closer to having the 325 million pounds of debt linked to the crumbling red-brick pile placed in administration on December 12, questions linger over who may take on the project.
The bank has already rejected a 262 million pounds offer from Malaysian firm SP Setia for the loan because there were too many strings attached, another source said.
Neither the state-controlled bank nor NAMA have a short list of would-be buyers, and two sources familiar with the matter said on Friday that these creditors were probably now contacting various parties that had expressed interest in the past.
Firms named as possibly interested in the site include UK developers British Land, Capital and Counties and Development Securities as well as U.S. private equity giant Blackstone and sovereign wealth funds.
Few would be unaware of the site's chequered redevelopment history and the intense media scrutiny.
They would any deal to reflect the risks involved, as SP Setia's did, suggesting that severing all ties to Battersea Power Station will be a difficult task, several sources said.
Lloyds declined to comment.
A lot of these investors are intensely private, and the media interest alone would make some of them think twice (about Battersea), the property lawyer said.
Three other sources in the UK development sector said the appeal of investing in the power station was eroded by the costs, question marks over the underground extension going ahead, and the lacklustre economic climate.
Then there were other variable costs in redeveloping the site, including an estimated 50 million pounds-plus to knock down and replace the four chimneys, said the executive who described the site as ugly.
($1 = 0.6377 British pounds)
(Reporting by Tom Bill and Andrew Macdonald; Editing by Chris Wickham)