Why social animals will preserve the City of London

I heard on the news today that officially today (17 January) is the most depressed day of the year.  Post-Xmas debt is at its maximum; the weather is invariably dark and dreary; the newness of the presents has worn off and, frankly, there is just nothing to look forward to.

View from Paramount in Centre Point

This evening, as a bit of a pick-me-up on such a depressing day, I went with a few colleagues to the Paramount Club which is based on the top floors of Centre Point above Tottenham Court Road Station.  Before you think "how pretentious" this is not some private members' club and this was my first visit (but will not be my last).  The views of London are truly stunning (see rather poor BB photo) and, probably, unbeatable although once completed The Shard might give it a run for its money.

Looking down across the West End and to the City and Canary Wharf I considered the following issue:

As businesses constantly consider ways to drive down costs and as technological advances continue to increase the ease with which work can be carried out in any geographical location how can expensive areas such as the City of London and Canary Wharf expect to be around in, say, 50 years time?

The truth is that I do not know the answer but I can posit one possible reason to remain optimistic - human beings are social animals.  Nothing proves this more than the growth in the use of social media over the last 2 to 3 years.

It might be thought that it is that same growth in social media which threatens the very bricks and mortar I believe it is likely to save.  But this all depends on how you view the various social media platforms (e.g. Facebook, Twitter, LinkedIn).  Are they intended to replace physical proximity or to facilitate it?
From personal experience I believe that they cannot replace it.  They can replicate some of the closeness originally only available by talking to someone face to face or, since the invention of the telephone, at the other end of the line.  With improved video conferencing face-to-face will be possible without leaving your desk.

However, no matter how much they improve and become part of our lives they cannot replicate one important element - the shared experience that comes in being in the same place at the same time.
Being a social animal is not about simply talking to and communicating with others.  It is about sharing experiences with them.  If this were not the case why do banks have huge trading floors?  It cannot be just about the communication but rather the need for physical proximity.

This human requirement is something which resonates particularly within the client-adviser relationship.  The uninitiated might have thought that with all the forms of communication available today there is no reason why an adviser should ever physically meet a client.  Yet, I am confident that if you ask most (if not all) clients which of their advisers they "trust" the most it will be the ones who they meet up with every now and then.  The others might e-mail them; might link with them on LinkedIn or follow their tweets on Twitter but none of that is a replacement for sitting together at a table just chatting.

So for as long as human beings remain social animals the City and Canary Wharf will be well populated.

Westfield and Stratford - JVs - the new form of financing?

Peter Bill, in his latest blog entry in the Estate Gazette (Westfield sells half of Stratford - more sales to come?) picks up on the announcement to the Sydney stock exchange that Westfield has agreed to sell a 50% interest in Stratford City, the part of the Olympic site which it is developing as its latest retail attraction in the UK.  The buyers are a Dutch fund and a Canadian pension fund.

This is yet another example of how developers have been turning to alternative sources of finance since the development finance market effectively dried up as a result of the credit crisis.  The truth is that joint ventures are not particularly new but they had gone out of fashion whilst developers were able to take out cheap development finance allowing them to keep significant profits to themselves rather than having to share them with partners.

What is clear now is that joint ventures are back with a vengeance and if you want to get in on the action you need to make sure you have a decent understanding of what you are getting into, what pitfalls to avoid and how to generally ensure that if the wheels come off you do not go over the edge of the cliff with your partners but can jump ship in an appropriate manner.

Some fundamental questions you need to consider when looking at entering into a joint venture include:

• how do I want to exercise control and be involved in the decision-making of the vehicle?  Depending on the type of vehicle decisions may be made at different levels and without the right controls in place you can lose control over important decisions; set the level of control too high and you risk paralysing the vehicle
• where should the vehicle be located? - there are likely to be significant tax implications depending on where a vehicle is located but beware of the effect decision-making can have on jurisdiction for tax purposes
• what are your long term intentions? - is it intended to hold the asset for a long time (i.e. as an investor) or is the intention to improve it and then dispose (i.e. as a trader)?  this can affect both the type of vehicle chosen and the jurisdiction
• Are there any deal specific issues? - some potential JV parties will have restrictions and/or preferences regarding the sorts of arrangement they can enter into.  REITs are a good example.
• Are there specific regulatory issues that make one type of vehicle more attractive? - bearing in mind the new Alternative Investment Fund Managers Directive this area needs special consideration and it will impact potentially on jurisdiction as well
• How will the vehicle be taxed and does this fit with your/partners' taxation? - some vehicles (e.g. partnerships) are generally tax transparent but this may not work for all investors

It is very difficult to change structure part way through agreeing a deal and so it is vital that you do your homework before jumping into bed.

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