Billionaire ploughed a fortune into London luxury property as market soured
Entrepreneur John Caudwell’s lofty ambitions are colliding with the worst slowdown in the city’s high-end property sector
[LONDON] In October 2011, as London’s luxury housing boom gathered steam, John Caudwell made what looked to be a sure-fire bet, splashing out US$192 million for a car park on a prime lot in ritzy Mayfair.
The Phones4u billionaire planned to use the site to build arguably the most opulent apartment block in the city – rivaling the likes of the Candy brothers’ One Hyde Park – with a spa, 25-metre swimming pool and entertaining halls. Dubbed 1 Mayfair, the luxury residences would start at £35 million (S$60.6 million). Despite the eye-watering price, he said that he expected them to be snapped up.
But almost 14 years since acquiring the site, the entrepreneur’s lofty ambitions are colliding with the worst slowdown in London’s luxury property market since the financial crisis. In a business where developers often pre-market new homes well before official sales start, demand has been muted, according to people with knowledge of the matter.
Meanwhile, spending on both acquiring and developing the site ballooned to £569 million as of Sept 2024, filings show.
The outlays make Caudwell among the highest-profile developers – if far from the only one – to have ploughed a fortune into the capital’s top end real estate at or near its peak, only to be launching sales in a slump. Even as a cocktail of rising taxes, slowing purchases and changes to the non-dom tax regime hit the market for prime properties, he’s stayed bullish.
In the meantime, the deficit in the project company’s balance sheet has continued to grow, reaching a net current liability of more than £42 million last year. The unit is only able to continue operating thanks to a £284 million interest-free loan from Caudwell that he’s promised not to call in.
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The company also owes Deutsche Bank’s UK private bank almost £90 million in a debt that has repeatedly been amended and comes due within the next financial year, according to loan filings. That’s personally guaranteed by Caudwell and uses other assets owned by the billionaire as collateral.
In the latest restructuring and extension, DB UK Bank Limited gained security over a luxury real estate project Caudwell’s companies are developing in France, in addition to the London project, according to accounts for his ultimate parent company.
This story is based on loan and company filings, as well as interviews with six people with knowledge of the project who asked not to be identified because they were not authorised to discuss it publicly.
A representative for Caudwell said that he plans to donate 70 per cent of his wealth during or after his lifetime to charity, including the proceeds from 1 Mayfair. “The construction, delivery and sales of 1 Mayfair go beyond the standard commercial objectives of a conventional developer,” the representative said.
London’s slowing luxury market is no secret: deals for properties valued at £5 million or more have fallen about 15 per cent in the past year, researcher LonRes said in June.
The result is a growing glut of homes that aren’t selling and the prospect of deeper cuts. Price reductions in the city’s most affluent postcodes rose 43 per cent year-on-year between January and June, LonRes data show.
One high-profile London broker, who asked not to be identified, argued prices for the 1 Mayfair apartments are detached from reality, adding one prospective buyer recently lost interest upon learning the asking price. Three other agents, all dealing in high-end real estate and who asked to remain anonymous, also told Bloomberg that pricing for the project was too high.
The 29 stately home-inspired residences of 1 Mayfair, priced at up to £200 million, were due to complete this year but work continues: construction workers on the site, who asked not to be identified, said it will take as much as two more years before the project is finished, meaning the spend is set to continue.
“In the quest for perfection and unparalleled world-leading specification not previously undertaken in a London development, Caudwell has allowed for the project delivery schedule to be amended where necessary,” the representative said.
Even without investing an additional penny, Caudwell would have to sell the homes for an average of almost £20 million each just to break even. To make a meaningful return on the £143 million he invested almost 14 years ago, the apartments will have to sell for much more than that.
London’s housing market has suffered a decade of misery and was recently dealt an additional blow by changes to the non-dom tax regime, which has further hit demand.
Early expectations for the glittering venture, featuring what the developers have said is the first rotunda built in Mayfair since 1772, were seen as ambitious by some, even by the standards of London luxury real estate in the last decade.
Overall, Caudwell predicts the project will eventually accumulate sales of about £2 billion, meaning the homes will need to fetch on average £70 million each, roughly double the cheapest unit on sale.
So far this year, there haven’t been any apartment sales in London over £30 million, according to LonRes, a researcher whose dataset covers second hand home transactions. That said, the priciest deals typically happen in new developments, meaning the data doesn’t capture some of the highest value transactions.
At the apex of the market, just two residential properties sold for more than £70 million in the UK capital last year. One, reportedly a nine-bedroom house in Chelsea with its own pool bought by fashion designer Tom Ford.
The other, a sprawling 40 room mansion in Regent’s Park that counts the US ambassador’s residence among its extremely short list of neighbours. Caudwell’s representatives point to the sales of a £110.9 million apartment in Grosvenor Square in Mayfair, a £100 million penthouse at the Peninsula at Hyde Park Corner and a £60 million apartment in Mayfair off Grosvenor Square in the past few years as evidence that there’s still demand at the top end.
Caudwell’s ambition was born in a different era for London’s housing market, a time when few had an inkling of what was around the corner and when demand for luxury residences seemed ever to be on the ascent. But a series of tax hikes, political upheavals, money laundering crack-downs, the pandemic and the end of the zero interest rate era have cost London’s trophy real-estate market its swagger.
“The current marketplace has become the new normal,” said Jeremy Gee, managing director of broker Beauchamp Estates. “The present tax regime and economic conditions are unlikely to change in the short to medium term.”
Brothers Nick and Christian Candy had just tested the market’s upper limits with the launch of One Hyde Park, a Richard Rogers-designed apartment block overlooking another of the city’s most prized green spaces.
By the time they launched in the spring of 2011, a few months before Caudwell bought his Mayfair site, about 60 per cent of the apartments had been sold, at prices in the region of £6,000 per square foot. In the intervening 14 years London’s sales market has undoubtedly changed.
While international buyers a decade ago were prepared to make huge outlays for yet to be built homes, today’s market is dominated by prospective purchasers who want to see a finished product that’s ready to move into.
1 Mayfair will have to significantly exceed the One Hyde Park levels if it is to meet Caudwell’s expectations.
To achieve £2 billion of sales, the homes will need to sell for an average price per square foot on the entire development of more than £6,750, with the most sought after townhouse and penthouse units needing to sell for significantly more to make up for the less desirable studio flats, one of which is entirely below what Westminster Council considers to be ground level.
UK Sotheby’s International Realty recently dropped the price of a Mayfair penthouse for a second time, down to £68 million from about £100 million originally. 60 Curzon – a luxury development close to 1 Mayfair – has sold only about half its residences about five years in. And it’s a similar story at The Bryanston, a luxury residential tower overlooking Hyde Park.
Besides the non-dom regime, other tax changes have taken the wind out of the market. Former Chancellor George Osborne significantly increased sales taxes for high-end homes a decade ago and then doubled down shortly after with a surcharge for those buying second homes.
For example, a prospective buyer of a £70 million apartment in Mayfair that wasn’t their first home faces a tax bill of more than £11.8 million. For non-UK residents, it would be even higher at £13.2 million. A UK purchaser making the £70 million flat their sole home pays a more modest but not insignificant £8.3 million.
Caudwell told Bloomberg in an interview last year that he was confident the apartments would “sell like hotcakes”, partly due to the development securing planning permission just before a rule limiting the size of new homes in Mayfair came into effect. He said that makes the project one of the last in a dying breed of mega-sized London apartment blocks.
But even with his business smarts, it’s a tough call to predict how the market will look when it finally comes to sales launch. BLOOMBERG
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