Battersea Power Station Defied Bankruptcy — But Its Nine Elms Home Draws Fire

Almost exactly 10 years ago, the bankers at Lloyds decided they had had enough.

The owners of Battersea Power Station owed them £325M and the loan was overdue. No matter that it was one of London’s most famous buildings and the centrepiece of a £9B development plan: With no immediate prospect of repayment and a government ramping up pressure to cut exposure to property and bring in debts owed in the wake of the financial crisis, the newly nationalised Lloyds concluded it was time to pull the plug.

Real Estate Opportunities, part of Irish property company Treasury Holdings and the company that owned the power station, was put into administration in December 2011. That marked the third time a developer buying the scheme failed to see through redevelopment plans — and nearly 20 years since the power station, built in two stages in the 1930s and 1950s, was decommissioned. Plans, including a theme park, came and went. For years, it appeared another proposal had met the same fate, this one for a massive mixed-use scheme of high-end apartments, offices, a concert venue and a shopping centre.

Fast forward a decade, and Battersea Power Station and its surrounding area, Nine Elms, have changed immeasurably. More than 1,300 flats have been built in and around the power station, with new international owners embracing the vision that seemed to have gone up in smoke. Next year, the power station will reopen with more than 100 shops in a refurbished building, more flats and a new UK HQ for tech giant Apple. 

It is a remarkable transformation for a building that, as of 2011, had no roof, was filled with piles of rubble and sat on a site that can only be described as a derelict wasteland. The power station development is still generating controversy, thanks to a decision to slash the affordable housing element of the scheme, though it has won overall praise as a good example of a mixed-use development.

But the wider Nine Elms district, which straddles the border of Wandsworth and Lambeth boroughs on the south bank of the Thames, with Vauxhall station at one end and Battersea Park at the other, has drawn immense criticism. It is cited as an example of everything that is wrong with new-build development in London. Critics point to too many high-rise buildings sold to overseas investors and a glaring lack of public space. 

This is the story of how Battersea Power Station defied the odds and how a scheme no one thought possible was built. It is also the story of how new areas of a city like London are created and the nuanced, difficult questions such areas raise about paying for public infrastructure and public space in a modern city. It also speaks to whether new-build development of the sort proliferating in Nine Elms has already been rendered obsolete by the coronavirus pandemic. 

Bankruptcy And Sale

When Lloyds, and its lending parter, Allied Irish Bank, decided to call time on REO’s ownership of Battersea Power Station, partners from EY were called in as administrators and Knight Frank was appointed sales broker. The mandate was simple: sell for as much as possible, preferably a number higher than the banks were owed. 

The scheme was high-profile and offered a rare opportunity for whoever bought it. It was a chance to buy a 42-acre slug of London right on the Thames and opposite posh Chelsea with one of the city’s most famous buildings at its centre.

It was also incredibly complex. The power station was listed so each chimney needed to be taken down and individually restored. A condition of the planning consent previous owners achieved was contributing to building a new tube line, a spur from the Northern Line and two new stations to service the area. To pay for the tube line, it was necessary to sell flats, but the tube line was required before building new flats was allowed. It had the potential to be hugely profitable, but the new owner would need to have £8B to £9B knocking around in order to build it. 

“We turned over a lot of stones,” EY Corporate Finance Leader Fraser Greenshields, who led the global sales process on behalf of the administrators alongside Knight Frank, said. “You meet a lot of characters, who often approach you unsolicited, who have very grand ideas and maybe don’t have the money to back it up.”

New Owners, Deep Pockets And Getting Started

Eventually a consortium of Malaysian investors were chosen as the preferred bidder and bought the scheme from the banks for about £400M. Developers SP Setia and Sime Darby were backed by state pension funds PNB and EPF, creating a new entity called Battersea Power Station Development Company.

In fact, the development was being backed by a nation-state. At an event held in the shell of the power station to mark the new ownership, Malaysian Prime Minister Najib Razak was the guest of honour as traditional Malaysian drummers put on a show for guests eating cuisine from the homeland of its new owners.

“Malaysia has gone from a British colony to a cornerstone investor in the country,” Razak said at the event.  

EY's Greenshields spoke of the relief that a backer with deep pockets had been found.

“Everyone was confident that they had the means to see this through, and would get on and do it,” he said. “If you had sold it to a company that was just doing this scheme, with a lot of leverage, you would have been wishing them the best of luck and hoping they didn't go the way of others before them."

Greenshields said the sales process, while complex, was made easier because the team assembled by Treasury Holdings to progress the scheme was kept intact and taken on by the new owners to run the project for them. In addition, the masterplan and vision for the project was well-conceived; it previously failed because of poor timing and lack of funds rather than poor planning, he said. 

The fact that new owners followed existing plans was something of a coup, Battersea Power Station’s current Chief Executive Simon Murphy said.

“The clever thing they did, rather than buy the scheme and spend the next two to three years revisiting the plans, they did the due diligence upfront and executed," he said. "They bought it in 2012, and in January 2013, we launched 1M SF of real estate and sold 75% of the flats in a week.”

What's Been Built, And Still To Come

Battersea Power Station is a 42-acre site with the former power station at its heart. The masterplan for the scheme calls for 53% residential and 47% commercial, making it truly mixed-use. 

On the residential side, 865 homes have been built in Phase 1's Circus West so far, all of them sold. A further 254 homes are completed or close to completion within the structure of the power station itself, with residents having taken possession in May, and more moving in soon. The third phase of homes will see 542 units handed over to residents next year. A fourth phase of 386 homes is set for completion next year. With 2,500 homes in future phases that have not yet started, the scheme will comprise 4,000 homes in total. About 90% of the homes put on the market have sold, Murphy said. 

On the commercial side, restaurants, cafés and a few shops on the ground floor of the existing residential blocks are already open for business, though the main event will be the former power station building. Completing in summer next year, it will feature a shopping centre of 100 stores split across the two former turbine halls of the station. Upper storeys will offer 540K SF of office space, 100% leased to major tenant Apple, which will open a new UK HQ housing about 1,400 workers; and IWG, which is also opening a flexible office in the power station. Overall the offices and retail and leisure at the scheme are more than 80% leased.

The power station will also feature a concert-and-events venue capable of holding 2,000 people and smaller events spaces in two well-preserved control rooms, which still contain original equipment such as dials and terminals once used to control electricity flow to various parts of London. Around the wider site, smaller theatres, music venues, education facilities and a 6-acre park are planned.

The power station is Grade II*-listed and cannot be significantly altered. To preserve the original aesthetic, BPSDC tracked down the same family-run Gloucestershire business that made bricks for the original building and put in an order for 1.3 million "golden brown pressed" bricks, as well as ordering another 440,000 from another manufacturer to restore a separate part of the power station. 

Demand for office space at the scheme has been so high that in Phase 3, BPSDC nearly chopped in half a Norman Foster-designed building intended to be solely residential, with part of it now becoming a 200K SF office. 

Complexity And Cooperation

At the start of 2011, Murphy was a banker at HSBC, hired by the previous owner to help it find funding. He was only meant to stay for three months, but is still there a decade later.

The complexity of the scheme that has been built can’t be understated, he said.

“These are not simple problems we’ve had to deal with,” Murphy said. “A lot of the issues we’ve faced haven’t been in our sole control; we’ve worked with the GLA, TfL, Wandsworth Council, other landowners, funders, everyone has had to join together. There are some times you think it might not happen. But I think that makes what we’ve achieved extraordinary.”

The new tube spur poses particular complexity. In order to get around the chicken-and-egg problem of how to finance it, BPSDC, TfL and the GLA used a rare-in-the-UK mechanism called tax increment financing, which employs a combination of future increases in business rates and Section 106 residential contributions from developers to pay for social infrastructure. In total, the power station owners would ultimately cough up £300M of the £1B cost.

“It meant we all had to move in lockstep and there were financial penalties if anyone didn’t meet their obligations,” Murphy said.

Profit And Controversy

The new stations, which opened in September, certainly make reaching the power station easier. In 2011, visiting the site meant a 20-minute walk from Vauxhall station, past warehouses and building material processing plants. Once the site is fully opened next summer, it will be a three-minute walk to the new shopping centre from the station at Battersea Power Station. JLL predicts the new line will boost residential prices in Nine Elms by 25%.

Murphy said apartments being sold in the third phase are fetching £1,500 per SF, 50% more than the £1,000 per SF commanded by flats in the first phase. 

But the scheme has not been a pure moneymaker, and financial issues have led to a broader social question.

In 2020, the owners of the scheme put an impairment in their accounts of £156M to cover increased costs as a result of Covid-19.

More significantly, in 2017, BPSDC received new planning consent from Wandsworth Council, which allowed it to reduce the number of affordable homes it built as part of the scheme from 15% to just 9%, well below London's target of 35% on new schemes. Rising construction costs and falling sales values meant not cutting the proportion of affordable homes would lead to an inadequate return. 

Murphy bristled at the suggestion this kind of change is part of the reason the general public has a poor opinion of real estate developers: the idea that the profit on a scheme goes to the private developer, but the public bears the costs of potential losses. 

“I don’t think that’s right. The profits have been shared, and our shareholders have invested a lot,” he said. “We’re still delivering 400 affordable homes; we’ve built a tube line that everyone is welcome to get on; we’ve restored the power station, which was falling down; we’re building a new public park and high street; and we haven’t asked for a penny.”

He pointed out that if returns are higher than predicted in 2017, it will have to build more affordable homes.

“I still think 400 affordable homes is a pretty chunky commitment,” he added. 

Battersea Public Realm Wins Plaudits — Nine Elms Draws Criticism

Where Battersea wins plaudits is that it is a genuinely mixed-use scheme with a significant amount of public realm. Even though the power station building itself is not open, the streets around it are already lively, especially at weekends. When almost 2,000 office workers and tens of thousands of shoppers are there from 2022 on, the impact will only be heightened. 

“Once the retail and offices are opened up, it will be a new quarter for London,” Berkeley Homes Chief Executive Rob Perrins said.

Berkeley was one of the potential buyers of the scheme, but “the cost of capital of the buyers was lower than ours,” Perrins said, suggesting it was outbid. 

The quality of the public realm at Battersea throws into sharp relief what is going on around it in the wider Nine Elms area.

Nine Elms has been the brunt of fierce criticism of late. In the last year, the Financial Times’ architecture critic lambasted the quality of the buildings in the area, and the Guardian’s architecture writer penned an attack on both the architecture and the fact the area does not have enough affordable housing, noting the affordable stock that does exist is ghettoised and positioned near the area’s railway lines.

Nine Elms is something of a social experiment for what happens when a lot of new-build development happens very quickly in a very small area of a big city like London. A decade might seem like a long time, but it is the blink of an eye in the life of a city. In the period since Battersea Power Station went bankrupt, dozens of towers comprising tens of thousands of apartments have commenced. 

A Question Of Scale

Leaving aside the aesthetic value of Nine Elms' architecture for a moment, which is of course subjective, critics of the area say it has a problem of scale.

“It isn’t built to a human scale,” said Central founder Pat Brown, an urbanist who has advised the London city authorities on development and placemaking for more than two decades.

The phrase human scale comes up time and again when talking to urban experts about the area.

“A lot of very tall buildings, with a lot of space around them, it is not human,” Assael Architecture Director Félicie Krikler said.

Because the buildings are so big, they need a lot of space around them, she said, adding it is unwise to have very tall towers right up against each other. Such a configuration has a scale that is out of kilter with what people are used to. That is in contrast to areas like Marylebone, Kirkler said, where because the buildings are smaller, they can be closer together, creating a more intimate feel. 

“Successful schemes and areas have a good ground floor and a mix of uses, because that is where people experience them, on their ground floor,” Brown said. “Nine Elms feels more like a collection of developments rather than a neighbourhood.” 

A Cacophony Of Buildings With No Conductor

Brown, Kirkler and Perrins all point out that Nine Elms is still in the middle of its evolution. With a lot of development still to come and much of it a building site, it isn’t possible to truly judge the area.

“The mix that you have in Nine Elms is not the mix that we have chosen to have at Battersea,” Murphy said diplomatically. “But it’s not finished yet; judge it in five years’ time. A lot of people knocked us, said it would never happen, but we proved them wrong.”

But the scale and nature of the buildings that have been designed and built means some of the problems identified are baked in. In many ways, the difference between Battersea Power Station and Nine Elms highlights the difference between what can be done once a large area is under the control of a single owner, compared with what happens when development happens under multiple ownership.

“When you have a lot of disparate owners in an area, that makes it very hard to put the public realm in first, and that makes it hard to get that sense of a place,” UCL Bartlett Real Estate Institute Chair Professor Yolanda Barnes said. “It is a place that is dominated by the car; it is not friendly if you want to walk or cycle.”  

“A lot of the criticism is actually criticism about the public realm,” Berkeley’s Perrins said. “And that will come.”

The general perception, at least for now, appears to be that beyond Battersea Power Station, the area has a Waitrose, and that’s about it in terms of public realm and ground-floor experience. 

An example of what is to come, a 4.5-hectare "linear park" will be built through the middle of Nine Elms, creating more green, open space in the area. Construction on the park started in 2021 and will continue as different developments are built out, completing in 2025. 

Nine Elms was theoretically built to a plan, the Vauxhall Nine Elms Battersea Opportunity Area Planning Framework, but it sometimes doesn’t feel like it.

“I’d be intrigued to know how you got from a very good plan to what you see today,” Brown said. “You can have successful areas with disparate owners, but you need strong leadership, and that comes from the local authority. To get a symphony, you need a conductor, and what you have now is just a cacophony.”

What Does Nine Elms Tell Us About London?

The development of Nine Elms raises questions about how London will evolve, build the homes it needs and pay for the infrastructure required to keep it running.

On infrastructure, Brown flagged a paradox created in the manner the tube spur in Nine Elms was paid for. 

“You needed that density of housing in order to pay for the tube, otherwise the numbers don't add up,” she said. “London needed that tube line, but in order to pay for it, you had to create a suboptimal place. It’s a perverse outcome, and it raises the question of how London pays for the social infrastructure it needs.”

There are similar paradoxes and perverse incentives at play when it comes to Nine Elms and housing. 

“What has happened there is a microcosm of what is happening across London,” UCL’s Barnes said. “London actually has a not bad amount of social and affordable housing, but it has a big shortage of mid-market housing, the stuff around £450 per SF that average Londoners might buy. But all new-build has to be luxury, because land prices are so high and because developers need to pay for the affordable housing element of a scheme.”

It is a difficult conundrum to solve, Barnes said, pointing out that what is happening in Nine Elms is absolutely not the answer: Tall buildings are inherently more expensive to build, so if developers go big to maximise returns, they inherently have to build luxury units. 

Big buildings also necessitate high service charges, which means tall towers will always be the preserve of the wealthy. It is highly unlikely that Nine Elms will become more affordable over time or evolve into an area that welcomes people from a wide range of economic backgrounds. 

Barnes made another point: The kind of high-rise living being supercharged in Nine Elms may already be obsolete before the district reaches that sense of completion that Murphy and others point to. 

The pandemic has changed what we want from our homes and the areas in which we live. Newly aware of the fragility of being inside in dense urban areas, demand is high for as much outside space as possible. 

“Covid-19 has shown us that the quality of your neighbourhood matters,” Barnes said. “Your home doesn’t stop at your front door; it is the experience of being part of a neighbourhood as much as what goes on in your four walls.” 

A survey undertaken by her UCL colleague Matthew Carmona of 7,200 people across the UK during Covid-19 highlighted that what people want from a home changed very rapidly during the pandemic. These needs could recede, of course, but Barnes thinks they are here to stay. 

“People are focused on balconies, open space, public realm, how long it takes you to walk to the shops. We’ve been through a grand-scale experiment. It has changed our collective experience, our behaviour and our perception of what’s important.”