Investment appraisal looks unappetising for the cheesegrater
Thursday, August 14, 2008
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Here’s a great example to use if you want to explain how the credit crunch is affecting investment decisions by firms…
For some time now, British Land have been demolishing the existing office block at 122 Leadenhall Street in the City of London. In its place, they plan to build a stunning new office complex that has been nicknamed the “Cheesegrater”.
However, the development now seems to be on hold as a result of the credit crunch. Why?
- Slowing economy
- Shrinking demand for office space in London
- Prices of steel starting to come down - but they might go further (which would reduce the construction cost)
- The Cheesegrater doesn’t already have a main tenant lined up - so no guarantee (yet) of rental income once the building is complete.
I’d love to see the discounted cash flow calculations for a building of this scale and complexity!
Here is what the Cheesegrater is expected to look like when finished:
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