Canary Wharf hit by Lehman bankruptcy

Canary Wharf Group, the company that runs the major financial estate in London is facing significant fall-out from the bankruptcy of US investment bank Lehman Brothers. Songbird Estates, the majority owner of Canary Wharf Group, confirmed on Wednesday that Lehman leases over one million square feet (95,000 m2) on a lease that runs to 2033 in a 30-floor glass tower in Canary Wharf, with another 49,000 square feet (4,500 m2) sub-let for two years. Songbird said Lehman pays a rent of £41 per square foot and this is to rise to £53 in November this year.

Some 15% of Songbird's revenue last year came from Lehman.

The bank sent the majority of its staff at Canary Wharf home after announcing it was filing for Chapter 11 bankruptcy protection. Songbird issued the information about the tenancy after The Wall Street Journal reported that if Lehman vacates the building, it would be the second large empty tower on the estate. The fate of a 12-storey tower being build for Bear Stearns has been hanging in the balance since that bank became the first high-profile victim of the global financial turmoil and had to be bailed out. Additionally, the one-year-old credit crunch has already impacted negatively on rent growth in general and made financial institutions more cautious about leasing additional space.

Compounding the difficulty with Lehman, Songbird said the rent on the building is secured via a securitised structure backed by AIG, the giant US insurance company which is scrambling to raise billions of dollars to stay solvent. Songbird said AIG would have to pay Lehman's rent at Canary Wharf for up to four years if Lehman isn't in a position to meet the lease agreement.

Songbird is controlled by a group that includes British Land and Morgan Stanley. CNBC reported that Morgan Stanley is also considering whether it should remain independent or seek a merger with another financial institution.