DIFC gets its Canary Wharf style insolvency moment

In the early 90s the developers of London’s Canary Wharf, built to rival The City as a financial zone went bankrupt and the tallest building in the UK was repossessed by their bankers.

What happened this week in the Dubai International Financial Centre to its tallest building the 80-storey Index and Limestone House was less dramatic but the same in practice. Emirates NBD assumed ownership of these two flagship developments, wiping $299 million off the debts of developer Union Properties.

Canary Wharf moment

Dubai has seen its Canary Wharf moment. Union Properties had previously sold the Ritz-Carlton hotel to an unnamed Abu Dhabi buyer for $300 million in November 2010.

Of course Emirates NBD is also the biggest shareholder in Union Properties so this restructuring of its balance sheet has not involved bankruptcy or administration. The bank will presumably now hold these assets on its balance sheet until such time as the local market improves and allows a sale.

In the case of Canary Wharf the rescue effort was led by none other than Prince Alwaleed, the legendary Saudi investor in partnership with the original developers who did manage to recoup a very small amount of their original investment.

It seems appropriate that the buildings of the DIFC should go through a similar development cycle to Canary Wharf as another new financial district. Dubai will also be doubtless hoping for a similar future.

Quick recovery

For after its nemesis and crash into administration 20 years ago Canary Wharf rose to become a pillar of the British financial services sector. By the end of the 90s HSBC and Citibank were adding their own towers almost as high as the original One Canada Square.

Canary Wharf became a brilliant real estate and financial success story, though admittedly not for the original developer. This writer can recall meeting Paul Reichmann when he arrived in London as the world’s fifth richest man as the new owner of Canary Wharf, and attended his declaration of insolvency when with debts of over $1 billion he was arguably the poorest.

If this parallel holds true then the developers of the DIFC are now at something of a bottom in their fortunes and the only way is up. In five years time they may be building more towers in the DIFC and the existing property will be worth ten times as much as it is today.