Battersea developer cuts profit targets as costs rise
The developer who took over London's Battersea Power Station from Nama expects to make less than half of its original return target as rising costs and economic uncertainty hit demand for London homes.
The vast Battersea Power Station was bought before the crash as a development site by Richard Barrett and Johnny Ronan's Treasury Holdings.
Nama controversially took over loans linked to the property in 2011 and, along with other lenders, sold the debt tied to the site for the equivalent of €600m a year later. The agency has been heavily criticised with claims it could have netted even more if it had held on to the property and allowed it to be developed. However, the site which has been derelict for 30 years has been notoriously difficult to complete for a succession of owners.
Current developer Battersea Power Station Development Co (BPSDC) now says rising costs means it expects to generate an Initial Rate of Return (IRR), a measure of profit, of 8.2pc. The IRR target was 20pc at the start of the project, according to filings by the developer to Wandsworth borough council. BPSDC, backed by Sime Darby Bhd, SP Setia Bhd Group and the Employees Provident Fund, says construction costs have escalated after materials and labour increases across the UK. "The most significant driver in the IRR reduction is cost inflation," the firm said. "Nothing is changing on what is being delivered at Battersea Power Station." More than 4,360 homes are planned with the project due for completion by 2025.
Sales of London homes under construction have dropped 7pc this year, leaving developers with a record 27,000 unsold properties. (Additional reporting Bloomberg)