How do you value an iconic property that’s instantly recognisable to hundreds of millions of people around the world but has been unoccupied for years? That’s exactly what the advisers to US company MCR Hotels and BT Group had to work out before the former purchased the 177m tall BT Tower from the telecoms company last month for £275m.
MCR has partnered with Camden-based Heatherwick Studio to reimagine the Grade II-listed tower as a hotel, which they will have plenty of time to do as BT won’t vacate the premises for “a number of years” (in the meantime, architecture practice Able Partners, WSP and SOMEWHERE Agency have come up with some stunning visuals of what it could look like – see above).
When the tower reopens as a hotel, people will finally get to see inside a building that has been closed to the public for decades. For the built environment industry, the curiosity stretches beyond how the building has been creatively reused to whether MCR Hotels under or over paid for the asset.
BE News asked some of the UK’s leading valuations experts how they would approach valuing an iconic asset such as the BT Tower.
According to Alistair Johnstone, co-head of London valuations at Colliers, it doesn’t matter how complex or unusual an asset is, the principle of valuation remains the same and involves building a cash flow and capitalising at an appropriate rate.
“In the example of the BT Tower, the buyer is a hotelier who has previously converted existing iconic buildings into a hotel,” says Johnstone. “If the valuer is satisfied that a hotel repositioning is the highest and best use, the nuts and bolts of the cash flow will be like other hotel repositioning valuations.
“We have seen multiple examples of hoteliers buying London offices to reposition as hotels. The challenge is determining what premium – if any – should apply. With such a unique asset a valuer needs to be an experienced specialist and have a network across multiple disciplines to draw upon. Their role and skillset is to harness that collective knowledge and experience into their valuation.”
Scott Young, partner and valuation specialist at Montagu Evans, takes a slightly different view. “You can’t look at undertaking a valuation of such an iconic building through the lens of a traditional ‘rent x yield’ approach,” he says, adding that his starting point would be to explore what could be achievable with the space, whether that be residential, leisure or mixed use.
“In essence, a valuer would undertake a residual valuation, looking at the GDV of the potential use – in this instance a luxury hotel – and then deducting the associated costs of conversion, including planning, to arrive at an opinion of value,” he says.
“The intended use of the asset could also bring DCF [discounted cash flow] into focus for a valuer, as an investor may look towards determining a value by assessing more explicit assumptions around generated cash flows, potential rental growth, conversion costs and ESG credentials against their investment metrics (eg. hold period, IRR).
“For an asset like the BT Tower, which is completely unique to London and its skyline, a view of market price, however challenging it may be to establish, is not the full picture. The argument of ‘value vs worth’ must also be considered.
“‘Value’ is driven by the highest ‘worth’ in the market but the issue here is the volatility in the range of possible ‘worths’ in the market for an unusual trophy asset. Scarcity is further driven by the fact this is a whole ‘block’, which is rare in London and difficult to achieve piecemeal. This requires thought about who is in the market, and what kind of premium, if any, these types of assets can command.”
The task of establishing the premium is made all the more difficult with an asset like the BT Tower, which is not only iconic but unique.
Completed in 1964, the 177m (581 ft) grade II-listed tower, which reached 189 m with its aerial rigging, was the tallest building in London until 1980, when it was overtaken by the NatWest Tower. Until 1971, the top floor housed a revolving restaurant with panoramic views across London – it was closed after a bombing.
However, use of the once important telecommunications hub has diminished over time and the microwave aerials were removed more than a decade ago. As Brent Mathews, property director, BT Group, said when announcing the news: “It’s played a vital role in carrying the nation’s calls, messages and TV signals, but increasingly we’re delivering content and communication via other means. This deal with MCR will enable BT Tower to take on a new purpose, preserving this iconic building for decades to come.”
MCR Hotels hopes its new purpose as an upmarket hotel will preserve the icon for future generations to enjoy. Time will tell whether the end result justifies the £275m valuation or not.
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