Property Week’s James Whitmore analyses Multiplex’s fall from grace

The property development market is not for the faint-hearted. You need the patience of Job, the foresight of Nostradamus and the luck of the Irish.

Land Securities, the largest UK property company and one of the best managed and most experienced, is in the midst of what it would describe as an aggressive development programme, which will cost around £1bn.

So when the market reads about an unknown firm from overseas, which made its name in construction, embarking on a development programme with an estimated end value of £13bn, the alarm bells ring.

Last December Property Week, a sister magazine of Building, published the first UK interview with Multiplex chief executive Andrew Roberts. He explained that the company intended to enter the construction and development markets, invariably a bad mix, according to most experts. It had kicked off the construction part of the deal with the Wembley stadium and White City shopping centre contracts and was now ready for the development end.

The big step occurred at the end of November, when Multiplex joined up with two savvy investors, fellow Australian developer Westfield and the London-based Reuben brothers (David and Simon) to buy Elliott Bernerd’s property company Chelsfield for £2.1bn.

The three parties carved up the Chelsfield portfolio and Multiplex ended up with stakes in three big development projects as well as many other smaller properties: a 25% stake in the £4.1bn Stratford City scheme in east London, a 50% stake in a £1.8bn marina, retail, residential and office scheme in Gibraltar and a 12.5% stake in the £1.63bn west London White City development, for which it is also the contractor.

But that was not nearly enough for Multiplex. In the two weeks after the Chelsfield deal it bought a 50% stake in a £2.8bn mixed-use scheme opposite the Brent Cross shopping centre in Cricklewood, north London, and took control of a £180m scheme in Barnsley, South Yorkshire, which architect Will Alsop conceived of transforming into a Tuscan village.

Experienced developers all said that it could not keep a £13bn programme on track and in profit. They were right

After the Property Week interview I did not meet a single developer who did not believe that Multiplex had either paid too much for its developments or bought too many too quickly - or both. They all argued that Multiplex, a novice in the UK, could not possibly keep a £13bn development programme on track and in profit.

They were right. This year Multiplex has pulled out of the Barnsley project, backed away from talks to buy a half-share in an American real estate investment trust and sold its stake in the White City development. It has also lost the top two men in the UK property division, Ron Barrott and John Shaw, who came with Chelsfield.

These problems, and even the £45m construction loss at Wembley (fairly small beer for a company of Multiplex’s size) would not have caused such disquiet among investors, if they had been kept well informed. But Multiplex was until December 2003 a secretive private company. It has struggled to adapt to the openness required by analysts, investors and the media. The market has therefore lost confidence in the management and its shares have plunged.

Multiplex has shown neither patience nor foresight, nor has it enjoyed much luck. If it is to have a future in the UK development market, it must tread much more carefully, find good partners to work with and cross its fingers.

James Whitmore is deputy editor of Property Week