BORN AGAIN CITY: Bound to the failings and fortunes of London more than any other venture, Canary Wharf's creators have finally won through. Matthew Lynn reports on how the canary fell - and the phoenix rose

BORN AGAIN CITY: Bound to the failings and fortunes of London more than any other venture, Canary Wharf's creators have finally won through. Matthew Lynn reports on how the canary fell - and the phoenix rose - George Iacobescu presses the button on the si

by MATTHEW LYN
Last Updated: 31 Aug 2010

George Iacobescu presses the button on the side of a table. A light sweeps through an immaculately constructed model of London that dominates the entrance to Canary Wharf's headquarters. One button, a new Tube line, sparkles to life. Two buttons, a Tube and a railway. Three, a Tube, a railway, and a new road system. 'More than three million people now live within a 60-minute journey of Canary Wharf,' he says. His voice starts to swell with pride, then a cloud seems to pass across his eyes as his memory dips into some darker moments. 'I can remember first coming here one dark night in 1987, and I was in this taxi going through these tiny side-streets, and I was thinking to myself: We're going to build it here.'

Iacobescu is one of the few survivors of Canary Wharf's original team. The Hungarian-born structural engineer was brought over from Canada in 1987 by the Reichmann brothers, whose Olympia & York (O&Y) was a family business of mythic wealth and success. In Toronto, he had been O&Y's construction director. Twelve years later he is chief executive of the company that succeeded it and many say he will find it difficult to let this project go once it is completed.

Visitors to Canary Wharf always start with the tour. A fabulously intricate model of London sits in the foyer, every building, bridge and road from Heathrow in the west to Stratford in the east is reproduced in wood. From the centre of the model, the towers of the Wharf rise imperiously, gazing down on their surroundings like lords from a Spanish citadel. In another room are huge, detailed replicas of each estate, column, mall and office in the Canary Wharf complex.

Iacobescu delivers his lecture with the polish and authority of a schoolteacher who is conducting his favourite lesson. The story has been embellished and refined a thousand times but it is still impressed on each new pupil with vigour and enthusiasm.

It is an experience that teaches three lessons about Canary Wharf: this is a company addicted to detail, to planning. It is also a company that likes to impress, dazzle. But most of all, it wants to place itself within the broad sweep of things, to dominate the big picture. Other developers might have models of their own buildings, but Canary Wharf has a model of the whole of London. The message is clear: it is re-shaping the whole city, bending its history and geography to its own will. It is interested in maps in the same way an army general is: it wants to re-draw them.

Outside, the place teems with exuberant life. One hundred thousand people now work in Canary Wharf, pouring in from the Tube and railway stations, strutting into their offices, rushing through the shops, jabbering on their phones, dawdling in the sandwich bars. Because of the type of place it is, there is a certain type of person who works here: mostly young, mostly very ambitious, mostly fairly affluent. The atmosphere is a strange one, like a parallel universe where everyone works for an investment bank or for a newspaper.

'Five years ago, there was no-one here - the pubs were empty,' says Dan Bourke, deputy editor of The Wharf newspaper. 'Now on a Thursday night they're heaving.' His editor, Toby Granville, agrees, but adds that there is a weird futuristic atmosphere: 'It's like the film, The Matrix.'

Canary Wharf may be based in England, but it doesn't feel very British. It's got a bit of America and a bit of Europe, and its overall appearance is a sort of Esperanto-land. Its parks and walkways are a Babel of different languages and cultures.

Iacobescu himself sees Canary Wharf as a high-quality international property: 'Its look is actually quite conservative these days, but I think of it as a modern, very high-quality space for international companies. If you look at all the companies that are here, they are either global head offices or European head offices.'

The Wharf is already crowded and thriving, and it is about to become more so. Two huge new towers are soon to be opened, one for Citigroup and the other for HSBC's worldwide headquarters. Confidence is growing by the week. The company announced last month its intention to raise pounds 800 million in the bond markets, securing the income in Citigroup Tower, Credit Suisse First Boston's building, and property for Morgan Stanley - all of it pre-let but as yet unoccupied. The company hopes that this will allow it to pay back pounds 300 million to investors and put the re-mainder towards paying off a construction loan.

Work has already started on several more big new buildings for tenants such as Clifford Chance, McGraw-Hill and Lehman Brothers. Canary Wharf is also talking with the London Stock Exchange about a proposed move. Over the next five years, Canary Wharf, already 5.8 million square feet, will nearly double in size, with 4.4 million square feet now under construction. The Lebensraum has been taken care of - a big new site has just been acquired.

The place hums with the roar of cement mixers. Five thousand building workers are employed on the site, half the builders currently employed in London. From his office window, finance director Peter Anderson points to a new tower climbing gradually towards the clouds - two-and-a-half storeys a week are being added, he remarks with casual satisfaction.

Yet the story of Canary Wharf has not always been such a happy one. Few companies in the world have been through such a dramatic 15 years, and few others have been so closely bound to the fortunes of one of the world's great cities. The Wharf today might be the glitziest piece of power architecture in Europe, symbolic of dynamic, resurgent, triumphalist capitalism. But there were moments in its history when it looked set to become a hopeless white elephant.

Construction work started in 1987, driven by Paul Reichmann. He was then the chairman of O&Y Investments, which had purchased an 81-acre site in the London Docklands. The original plan was for a 30-tower development that would, in effect, be a new city in the east; a mini-Hong Kong that would sweep away history and tradition, creating something entirely new in its place. Not since Sir Christopher Wren set to work after the Great Fire of London had such an ambitious scheme of urban renewal been attempted within the British capital.

A Canadian citizen, Reichmann has always been a property man who likes to think big. O&Y had put up buildings such as the World Financial Centre in New York and the First Canadian Place in Toronto. Creating plush monuments for the world's giant corporations had been the foundation on which Reichmann had built his empire. Few other developers understood so well the mix of grandeur, distinctiveness, functionality and convenience that would appeal to the corporate buyer of the late 20th century.

Reichmann came from a Hungarian-Jewish family who, during world war two, fled first to Paris, then to Morocco, before finally settling in Canada. Two things set him apart from the common herd of property developers. First, he saw earlier than most of his rivals that banks and companies would want to move into ever more prestigious buildings. Second, his timing was immaculate. In 1977, for example, he bought eight New York skyscrapers for just over dollars 300 million during the trough in the market. Within 10 years these buildings were worth more than dollars 3 billion.

The first of those skills was evident in the Docklands at the end of the 1980s; the second was strangely absent. 'This whole complex is a great compliment to Paul Reichmann's vision,' says Iacobescu. 'It was there for the taking in the 1980s. Anyone could have done it. The great vision that Paul had was to see how it could develop in the future. Most developers would have been content to do it building by building. Paul could see the whole thing.'

He paid a terrible price for that vision, though. The initial result was dismal failure. By the time the first buildings in Canary Wharf were completed in 1989 and 1990, the British economy was moving into a deep and prolonged recession. Visitors to the site recall the lonely figure of Reichmann trying to convince them that O&Y would weather the storm and London would shift to the east.

But the London office market collapsed. Worse, the British Government and British companies turned out to be poor allies. The transport links into Docklands were dire: it was to be another decade before its own Tube station opened. Not a single British tenant could be found for the first phase of the buildings. Worse still, retailers like Marks & Spencer were pulling out of the scheme: the British preferred the familiar surroundings of the City and West End, with their favourite clubs and restaurants to hand, rather than the new frontier of the Wharf. By the time the first phase was finished, Reichmann was peering into an abyss.

Property is an all-or-nothing business. Other companies can increase or cut back on production depending on the state of the economy. In property, once it's built, it's built. If you can't find any tenants, you have a problem. The size of the problem depends on the size of the building - at Canary Wharf it was a big problem. When Reichmann made a speech at the ground-breaking ceremony, he asked: 'The only question that enters our minds is: Will success happen immediately or later?'

The answer was later. In 1992, Canary Wharf went into administration, probably the most spectacular collapse of the recession of the early 1990s. Iacobescu believes it could have survived the downturn if it had had the transport links. Without them, it never stood a chance. Soon after, the whole of O&Y went down. Humiliatingly, the Reichmanns themselves were forced to step aside in their own company to allow outside managers to find ways to pay back money owed to the banks.

The fightback was long and painful. Initially, Canary Wharf managed to fill some of its acres of empty space by offering dirt-cheap rates: newspapers such as the Daily Telegraph and the Mirror moved there because of the great deals on offer. That was humbling. The scheme that had been planned for the top of the market had slipped into the bargain basement. Slowly, though, it began to improve. The Docklands Light Railway improved and the Jubilee Line inched its way eastwards. Most of all, the booming London economy created soaring demand for office space: the City and the West End couldn't expand any further and that pushed tenants eastwards.

Almost from the day O&Y collapsed, Reichmann plotted his return. Finally, in 1995 Canary Wharf Group was formed with Reichmann as its chairman. It bought the company out of adminis- tration for pounds 800 million. Investors included the Saudi billionaire Prince Alwaleed Bin Talal, Franklin Resources and CAN Financial Corporation. Then, six years later, in March 2001, the company announced its open-market value of pounds 4.25 billion and is now among the FTSE-100 index of Britain's leading companies.

Today, the people working there enjoy some of the best facilities, clubs and restaurants in the capital - not to mention the views. 'I was reluctant to move here,' says one Canary Wharf worker. 'But I have to admit, it is the nicest work environment I have been in, and my journey from West Hampstead is good too.'

Tony Travers, who runs a unit studying the London economy at the London School of Economics (LSE), believes Canary Wharf has changed London, not just physically but economically as well. 'It has added a third business district,' he says. 'There used to be the West End and the City, but now there is Canary Wharf as well. It is hard to imagine what would have happened during the boom of the last 10 years if Canary Wharf hadn't been there. The West End is just about full, and so is the City. Offices would either have had to move to other cities or to other countries, or rents would have become impossibly expensive.'

It was Reichmann's peculiar genius to see the potential for a third business district at a time when it was visible to few others, including most of the global banks that would later become its most enthusiastic tenants.

The Wharf was where bananas from the Canary Islands used to be unloaded (hence the Canary name - luckily, it never got called Banana Wharf). At no point in its history had it ever been a salubrious part of town. Charles Dickens described the Docklands in the 1860s as a place where 'the accumulated scum of humanity seem to be washed from higher grounds, like so much moral sewage.'

The Docks had been where the food and raw materials that fed the British economy had been unloaded, but after the war the arrival of super-tankers (which couldn't get that far up the Thames) and containerised shipping (which unloaded straight onto the motorways) pushed the area into decline. By the late 1970s, Docklands had become one of the most run-down areas in the country: an emblem of industrial and economic decline.

In the mid-1980s, the Conservative government looked to revive the area through the London Docklands Development Corporation. It created a raft of tax incentives and planning exemptions to tempt companies and developers in. That was partly practical - the area needed something to bring it back to life - but it was also ideological.

Docklands was conceived as a Thatcherite laboratory where the free market could produce more spectacular results than any government planner. Many took the bait, but none on such a grand scale as Canary Wharf.

The Wharf has now become part of the London landscape, along with familiar landmarks such as Big Ben, St Paul's Cathedral and Nelson's Column. 'All major cities are in part about image, and mainly self-image,' says the LSE's Travers. 'The image of Canary Wharf as a planned, modern, forward-looking part of London has added something different to the city. You could always get quaint old streets in Kensington, and grand old buildings in Belgravia. But until Canary Wharf, London didn't have an American-style district, and that has changed the way people perceive it.'

Canary Wharf has undoubtedly benefited from the boom in the London economy. In the past decade, London has become the financial, business and cultural capital of a single continental economy. This is borne out by the statistics: the European Union now ranks London as the richest place in Europe, with a GDP per capita 2.25 times the average, and 50% ahead of its closest rival, Hamburg. That is reflected in the prices of its properties as well - the American Corcoran Group now ranks London as the most expensive place in the world to buy a home, surpassing previous title-holders New York, San Francisco and Tokyo. The Wharf has benefited from that process, but it has also contributed to it. Without the Wharf and its vast expansion of high-quality space, companies might have been forced to move abroad - nobody wants to put a European headquarters in Leeds or Manchester. If the space had not been available in the Wharf, they would have gone to Paris, Berlin or Milan instead. Indeed, the new Potsdamer Platz development in Berlin may in time be its greatest rival.

'Canary Wharf has not developed at the expense of the City or the West End,' says Iacobescu. 'It has helped London to become the capital of Europe. In 1945, the population of London was 8.4 million, but by 1982 it went all the way down to 6.4 million. Now it is 7.4 million, and it is forecast to grow to 8.2 million. It is growing again, because there are offices for people to work in.'

There is a view - and it is one that English commentators are particularly fond of - that London is successful precisely because it has no plans, no structure: its chaotic atmosphere is what enables it to thrive. The alternative view - one to which Iacobescu subscribes - is that it thrives in spite of those things.

There must be a suspicion now, as there was a decade ago, that timing is against Canary Wharf. It is planning a big expansion of its available space, and is doing so against the backdrop of a downturn in the market and amid talk of redundancies in its core investment banking market. Martin Allen, a property analyst at Morgan Stanley, argues: 'As an office location, Canary Wharf has a high reliance on investment banking and related industries.

In investment banking there are significant signs of a retrenchment. It is not yet clear how deep or long that might be, but at the very least its impact could be to put back the group's future development programme, given its commitment to having only one speculative development at a time.'

The team at Canary Wharf are aware of that point but do not believe they should be deflected from their plans by a wobble in the market. 'The financial cycle is a lot shorter than the property cycle,' says finance director Peter Anderson. 'These kinds of decisions on taking new properties don't get made in the short term.'

The focus is now on new expansion. After the current construction is completed, there is another huge site to develop. 'They are clever developers,' says Adrian Barrick, editor of Building magazine. 'Their problem is that they're building so much that they will run into infrastructure problems again. There is no way the Jubilee Line can cope with all the extra people.'

The rebirth of the Wharf could even restore the Reichmann fortunes, destroyed in the crash of 1992. By the end of the decade his stake could well make the chairman a billionaire again. In truth, the Reichmann family probably got off lightly. London has traditionally been a disaster area for property developers of vision and substance. 'There is quite a history of this in London,' says Travers. 'A lot of ambitious developers have always lost a lot of money. If you think about Notting Hill, for example - that was built in the 1820s and 1830s, but it didn't really become a success until the 1980s and 1990s. That was 150 years. So in those historical terms, the rise, fall and re-birth of Canary Wharf has really been an amazingly quick success story.'

THE FALL AND RISE OF CANARY WHARF

1981

July The vision of redevelopment at Canary Wharf begins with the formation of the London Docklands Development Corporation.

1982

April The Government sets up a Docklands Enterprise Zone, offering tax allowances to investors and developers.

1984

Boston businessman Michael von Clemm, chairman of Roux Restaurants and Credit Suisse, suggests Canary Wharf as the location for the future business centre of London.

1985

Docklands Light Railway (DLR) opens, Britain's first automated light rail transit system.

1986

American property adviser G Ware Travelstead has a vision of transforming Canary Wharf into a one million sq ft development. But his backers pull out, allowing Olympia & York (O&Y), owned by the Canadian Reichmann brothers, to step in.

1987

O&Y buys out Travelstead for pounds 3 billion, with plans for a more ambitious 12.2 million sq ft development. Paul Reichmann promises completion of Canary Wharf within five to seven years. London City Airport opens.

1988-1989

Building starts on phase one: 4.5 million sq ft of Canary Wharf. Supervised by O&Y chief executive Michael Dennis, it is due to be completed by 1993. Jubilee Line Extension Bill dedicates pounds 3.5 billion to improve roads, the Tube and the DLR.

1990

January: First tenants sign up at pounds 30 per sq ft.

July: Saatchi & Saatchi pulls out of proposed move to Canary Wharf.

November: Completion of One Canada Square, Britain's tallest building at 800m. Total space now let is 2.2 million sq ft. The Daily Telegraph, owned by fellow-Canadian Conrad Black, announces move to the Wharf. O&Y offers pounds 40 million subsidy. Rival developer questions its generosity: 'They can't go on giving away goodies for ever. It is just not possible.' O&Y has pounds 500 million of long-term debt.

1991

'Canary Wharf's shadow over Docklands' (Observer, February 24). A collapse in the US property market means slow uptake of office space, despite rent of pounds 20 per sq ft. In trying to raise pounds 600 million, Reichmann, uses investments in quoted companies and loses dollars 5 billion. O&Y share price tumbles. He admits: 'I was the guilty party. I should have stayed with what I understood.' First tenants, State Street Bank, move into Canary Wharf in August. US bank Bear Stearns follows.

1992

Construction of Jubilee Line extension postponed. Only 40% of the Wharf is occupied. O&Y spends pounds 68 million enticing new tenants. Credit Lyonnaise and O&Y's PR firm Lowe Bell, run by Lord Bell, refuse to commit to moving in. O&Y goes into receivership with pounds 8 billion debt. Says Michael Dennis: 'If we hadn't lost two years on the DLR and Limehouse Link we would be 90% let today.' Says Paul Reichmann: 'If I had known that world markets were going to collapse I would have done things differently.'

June: Texaco and American Express cancel moves to Wharf.

July: Only 20 shops occupied.

October: Administrator Ernst & Young makes 34 top O&Y staff redundant, including Dennis.

1998

Financial Services Authority moves in. The proportion of the complex now let is 98%. Canary Wharf launches its own newspaper, The Wharf. There are now more than 70 shops and restaurants. The working population stands at 23,000.

1999

January: Work begins on the HSBC tower.

March: Canary Wharf Group (CWG) floated on the London Stock Exchange for pounds 2 billion. Scenes for Bond film The World Is Not Enough are shot at Canary Wharf.

December: Jubilee Line extension completed.

2000

September: CWG reports first profit since the project began.

October: CWG enters FTSE 100 index. Shares hit 574.5p all-time high. McGraw-Hill agrees to move in.

November: The Independent moves out because of rising rents.

2001

March: CWG's stock market value reaches pounds 4.25 billion.

April: The London Stock Exchange talks about the possibility of moving to Canary Wharf. There are now more than 150 shops, bars and restaurants located in two malls.

May: CWG announces plans to raise pounds 800 million in the bond market, securing the income on three of its largest buildings.

June: The working population of Canary Wharf reaches 35,000.

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