Thursday 7th August ,2008


RBTT’s new HQ

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The key commercial

question is how the risks and rewards were allocated between the parties to the deal.

On March 9, 2005, the Prime Minister turned the sod to initiate construction of RBTT’s new headquarters at St Clair Avenue, opposite to the QRC.

Three years have passed and the new complex is nearing completion. The impending move of RBTT headquarters from “Bankers’ Row” in Park Street to an uptown location is the second such since First Citizens moved its headquarters out to Queen’s Park East in January 2002. As such, it will add impetus to the “hollowing-out” of our capital which we have been lamenting for some time. It seems that our capital is getting like a donut, with all the good bits on the edge and nothing in the centre.

Several critical readers have pointed out to me that this column has been too focussed on the State-sponsored office projects in our capital when discussing the viability gap. They have gone further to say that if those issues are of consequence in the state-sponsored offices they are surely present in the privately built office projects, such as RBTT’s new headquarters.

The break-even rent is the amount which has to be earned by the landlord to meet the cost of borrowing for a project. Please note that that figure does not include any allowance for maintenance or developer’s profit, it is a bare minimum to meet the cost of capital.

The viability gap we are referring to is the difference between the break-even rent—which is very high in these times of sharply increasing land and construction costs—and the market rent which can be static or declining in these times of significantly increasing supply.

Quite apart from the viability issue facing all these A class office projects, there are other aspects of the RBTT deal which warrant our attention. The initial report in this newspaper the day after the PM’s sod-turning was so remarkable that I clipped it out for reference. That report can be found at and it specified the identity and roles of the players in this project.

Those details are contained in the sidebar and one has to consider the implications of the published arrangements. What are the motivations of the players in this project?

The landlord would naturally seek the highest and best rent for their property as well as the most favourable terms on which to finance the project.

The tenant would naturally seek the most favourable and lowest rent for their new headquarters.

The lenders would seek to get the most favourable terms for the huge loan indicated in the sidebar.

On the face of it, this would seem to be a situation with potential for conflicts of interest to arise. When one considers that the tenants are significant shareholders in the landlord company (virtually at the level of associated company), it can give one pause.

Despite the chairman’s reluctance to provide details, it is fairly well known that the principals of Park Court Ltd—the Azar family, also owners of Ellerslie Plaza—were significant shareholders in RBTT. Many companies rent their premises from Associated Companies, but the question is the terms of the lease and the extent to which the interests of the stakeholders are safeguarded.

But, as established in earlier issues of Property Matters, there is a potent viability gap to contend with here. The key commercial question is how the risks and rewards were allocated between the parties to the deal. That is the issue which must be confronted if we are to develop a healthy commercial culture in which risktakers can earn just rewards and those who make more sound investments can secure better terms of finance.

Did the agreement to lease specify that RBTT would pay a rent which covers the loan repayments?

Was there a cap at the market rent?

Who decides what is the market rent?

If the lease secured the landlord’s position by removing the risks of a shortfall in rental, was there a second level of reward in terms of favourable terms of finance for a risk-free deal?

Is the landlord a risk-taker who will absorb the consequences of a high break-even rent in a market which is about to become awash in new, high-quality offices?

At this point in time, rents in St Clair are 50 to 60 per cent of the estimated break-even rents, so the answers to these questions are intriguing, to say the least. Can the returns from the loan compensate for compromises which may have been made in the lease negotiations? These questions have been put to RBTT and they have cited the confidentiality of the agreements in reply.

To put it plainly, the typical rents for these high-end offices are in the $16 to18 psf range; for this volume of space one would expect an astute tenant to negotiate a significant discount. The rent for this building on an arms length basis would be of the order of $15 to16 psf ie $1.8 million/month. If the rent had to be set to cover the loan payments, we would be looking at a figure in the region of $28 psf, at the most optimistic ie $3.36 million/month.

In the case of a 15-year financing period on terms which safeguarded the developer’s position, we are talking about an estimated payment of over $280 million in excess of market rent.

Either the deal did or did not transfer risk to the developer. If it did, how was this ensured? If not, why make such a deal in the first place?

Where is the shareholder in all of this? With the new owners of RBTT being a single, powerful entity in the shape of RBC, one wonders at the durability of this deal. At some point, the terms of that deal will become known and at that stage we can better form judgments.

We can conclude by noting that when we first set out the break-even analysis in September 2007, it became immediately clear that the poor understanding of this key issue was not restricted to the public sector.

Afra Raymond is a chartered surveyor and a director of Raymond & Pierre Ltd. Feedback can be sent to [email protected]


Players and their roles

Landlord: Park Court Ltd, who purchased the sites and are erecting the building to rent to RBTT. The press report stated that RBTT is also a 20 per cent shareholder of Park Court Ltd, who are also the owners of RBTT’s present headquarters at Park Street.

Tenant: RBTT is to lease the entire building from Park Court Ltd.

Lenders: The press report indicated that RBTT would be lending the landlord the cost of the land and the building.


We were informed by RBTT in August 2007 that their new headquarters building had been expanded to 168,000 sf (gross) from the 100,000 sf cited at the sod-turning exercise.

When one makes allowances for the significant carparking included in the project, it seems reasonable to assume that about 70 to75 per cent would be net office area, hence our figure of 120,000 sf.


Land $ 25.0M


168,000 sf

@$1,200 psf $201.6M

On-costs @9% $ 18.14M



Financing Costs TOTAL Assuming a lettable over a 15-year term SCHEME COSTS area of 120,000 sf the Break-even rent per sf is

10% $367.11M $611.85M $28.33

11% $403.83M $648.57M $30.03

12% $440.54M $685.28M $31.73

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