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Weekend Interview: Orion Capital’s Aref Lahham On Bagging The Biggest Office Tenant In London

This series goes deep with some of the most compelling figures in commercial real estate: the deal-makers, the game-changers, the city-shapers and the larger-than-life personalities that keep CRE interesting.

Aref Lahham and his partners have done plenty of big deals in 25 years of running their own opportunity fund, but few as high-profile as landing HSBC in one of the biggest London office leasing deals since before the pandemic. 

London-based Orion Capital Managers — run by founding partners Lebanon-born Lahham, Van Stults and Bruce Bossom — is one of the most successful midsized opportunity fund managers in Europe, with its last fund raising €1.5B. 

In June, it agreed to lease the entirety of its 556K SF Panorama office development near St. Paul’s Cathedral in the City of London to HSBC, which decided to leave its 1M SF HQ in the Canary Wharf district. The deal marked the biggest office relocation in the capital for years and came in a moribund leasing market. HSBC is paying around £87 per SF, one of the highest rents ever paid in London for such a large amount of space.

Lahham told Bisnow how making the deal to buy the site involved providing a better view of the 300-year-old cathedral and talked through other innovative deals Orion is doing to find value in a market where rising rates are wiping out equity. 

This interview has been edited for length and clarity.

Orion Capital's Aref Lahham

Bisnow: How did you get into real estate?

Lahham: I studied to be a structural engineer, and I have a master's in engineering, in high-rise design. My professional world was designing high-rise buildings in New York and making them stand up with a very famous guy called Les Robertson, who designed the World Trade Center. So I was one of these geeks that worked on the Bank of China building in Hong Kong, Puerta de Europa in Madrid, any structure that was difficult to make stand up, lean, etc.

When I graduated from school, I had a job offer from Les, so I worked with him for almost five years in New York City. And then in 1989, the crash happened. Nobody wanted to build my nice high-rise buildings. I went from designing very tall buildings to reinforcing the New Jersey State Library in Trenton for high-density bookshelving, which is like going from Formula One to driving a milk delivery car. 

I took a sabbatical and went to get an MBA at the [Institut Européen d'Administration des Affaires] in France, and then after that, I tried to go back into engineering. But then the (1991) Gulf War started, so nobody was building skyscrapers again.

I ended up staying in France, working for a shopping centre development company, which eventually became Klépierre. And from that, LaSalle Partners was starting its European business, and they had sent Van Stults and Bob Underhill as Americans, and they hired me. Then Bob went back and Bruce Bossom joined. And that's how I got into the real estate. 

If it hadn’t been for the ’89 crash, I would have been designing high-rise buildings, not earning a lot of money, I have to tell you. But super rewarding that somebody is going out and building your 100-storey building.

Bisnow: Out of those you worked on, what was your favourite building?

Lahham: It must be the Bank of China building in Hong Kong. The I.M. Pei-designed building, the structure was a beautiful structure. It's one of the most economical that was built. The way that the loads fall to the ground, it's just fantastic. And also, it's in an area where you have to design for strong winds. It's very cool.

It ended up getting in a lot of trouble because of all the X-bracing, because of the feng shui. It has very sharp corners, and the fact that it had sharp corners, people felt it was very bad omens to the neighbours. But it was topped on the eighth of August, 1988, which was a very auspicious date.

Bisnow: You’ve agreed a deal to bring one of London's largest tenants to the Panorama building in St. Paul’s. What drew you to the site, and how did you make a complex development work? 

Lahham: It was 2019, and British Telecom was moving out but was willing to stay and pay two years' rent, which gave you time to reposition the asset. Everybody that was looking to buy that asset knew it was a fantastic location, a freehold island site right in the heart of London. It’s not often you get an asset in a place like that which needs to be repositioned. 

The existing building was about 300K SF, but we thought maybe you could get 500K SF. We put a team together and hired a lot of knowledgeable people, and, notably, we had a specialist in the sight lines around St. Paul’s, where you have to be able to see Sir Christopher Wren’s dome from all angles. We looked at that because, of course, if you were going up in height, then how did that interact with the dome? In one of the sight lines, we found that actually the existing building covered part of the dome. So we saw the opportunity of actually shaving part of the building in the lower ground floor to give better views of the dome and, in return, increasing the massing on top without hurting any of the sight lines of St. Paul’s. That was a very cool thing.

Based on that very thorough due diligence and analysis and reflection and running the numbers, we felt that we could actually renovate this building and make money on it in a great place. We got KPF involved and John Bushell, and we thought we could design something quite remarkable.

From a green credential perspective, we were a little bit ahead in saying we don't have to destroy the whole building, maybe we can use a large part, three-quarters of it. How do we take the stones and redo it and put it into the new facade?

So you can create a green building, a better building with more square footage in the heart of London. Then we looked at the market and we said, “OK, how much space is coming on the market? And can we deliver it at a time when there's very little competition?” When you have a lot of tick, tick, tick, like this, we were convinced, so we invested.

The Panorama office scheme in St. Paul's has been leased by HSBC.

Bisnow: What kind of questions are tenants asking when it comes to leasing a new HQ?

Lahham: I think location comes No 1, but there's not much to discuss about that. Either they like the location or they don’t. Then they question the green credentials of your building. That's very important because for corporates today, it's really important for them to basically put their green credentials up for the whole world to see. And then it's really about the architecture: Could they build a cool home in it where their employees would be happy and whether they are able to work with you to make that happen? So if the location is good, if the building has the good credentials, and if you can make it into a really cool home for your employees and help your brand and your image and put you in a nice place in the heart of the city, then that's what it's all about.

Bisnow: This was a scheme that was bought before the pandemic, designed when no one knew how offices would be used and leased in the world of work-from-home. Were there any moments when you were unsure if the plan would work out?

Lahham: We knew that this thing will not be delivered till 2025 at least. So I was saying if Covid is still there to 2025, the whole world has a bigger problem. Yes, I did believe that people would maybe use offices less. But when we looked at our building, we had lots of terraces and green spaces, and you always feel like whenever a crisis happens, whether it be in retail or in office or residential, people give up the bad space to go to the good space.

I always felt like even if there was a recession, people will move to the better space — they might get it cheaper, but they moved to the better space. We always felt like we could multi-let, we could have three tenants per floor. We had a 25-metre swimming pool, we had a beautiful terrace that people could enjoy, it was right at the foot of St. Paul’s tube station. There's always a comfort that somebody's going to say, “OK, I'll take it,” that it's just a question of price. 

Bisnow: You’ve been through two major downturns before. How is this one going to play out? 

Lahham: After 2008, interest rates crashed. We went through a plateau for a long time, and now [rates have] come back vertically up. Whenever it comes vertically down, you have a boom in real estate, which we had. And when it goes vertically up, you have a depression because it creates huge issues.

The 2008 crash created a lot of losses in the banks. This time, it's creating losses in the equity first. A lot of the borrowers are having issues because what's happening is, obviously, the values are decreased, but also the ability to pay interest becomes more difficult because interest payments are higher. Borrowers are having a lot of problems either finding refinancing or refinancing become more expensive. So they need to write bigger checks on an asset which they've lost money on already, and that’s a tough thing. 

People were hoping at the beginning that this would be a spike, interest rates will go up and then they will come down again, everything will be OK. But I think everybody now agrees and understands that it's going to be more like a Table Mountain. It's going to be a longer period of time and come down over time, and therefore, the pain is much higher. A lot of equity is going to be lost, even some banks may lose some money. That's the main issue, which is also an opportunity, because if you have equity to bring into the capital stack at more attractive returns, you may be able to restructure these business plans as they come up.

Lahham started his career as a skyscraper engineer, but the 1989 crash put an end to that.

Bisnow: Given that the way we are using offices, homes and stores is changing so fast, what are the key skills an opportunistic investor needs today?

Lahham: The comfort or ability to convince people that you can reposition assets becomes a lot more important. In today's world, it's a lot more important to be a real craftsman of real estate and be able to deploy capital rather than just be a beta wave investor: For a lot of people, the market was doing well. If you put out the money, eventually the market will carry you, and you will make money.

Now it's a lot more difficult. You have to be a lot more careful. You have to have the abilities to reposition, the knowledge to find the assets, etc. So it's a really good, fun time because it requires a lot more finesse, a lot more thinking through, using the skills that you've acquired over time.

Bisnow: Since the market turned, what else have you been buying? 

Lahham: We recently helped a fund come in with a liquidity line or a credit line, which allows them to solve a few problems within their fund. But we've got quite a lot of security because we're at 55% to 65% LTV, so there's a lot of equity behind us. They needed somebody nimble enough to understand all their business plans and allow them to restructure their business. For us, that's really good because we get nice, decent returns with a lot of security behind us. So it's providing a credit line, but you're also providing a lot of the expertise and knowledge that you have. 

Bisnow: What’s your bold prediction for next year?

Lahham: My bold prediction for 2024 is that there is going to be a lot more liquidity in the marketplace, especially from private equity groups. Refinancings are going to come up, and I think the banks are going to demand either capital for reimbursements or the sale of certain assets. I think that the core market, the core institutional market, will still be on the sidelines, but the private equity groups who have dry powder are the ones that will be trying to solve that.

Bisnow: Lastly, what’s your perfect weekend?

Lahham: At the moment, it's going with [youngest daughter] Hana to her hockey matches on Sundays. And maybe playing golf with my wife on a Saturday.