Commercial Real-Estate Fallout Even Douses the Queen of England

Office Workers Are Again Told to Work from Home, Retailers Don’t Pay Rents, UK Commercial Property Owners Sink Deeper into the Mire.

Crown Estates, which manages the Queen of England’s portfolio, recently wrote down the value of 17 shopping and leisure centers by 17%, cutting Her Majesty’s net worth by £552 million. As The Economist points out, this is “fairly small beer” set against the £13.4 billion valuation of the Queen’s property portfolio, which includes some of London’s toniest real estate.

But the Queen will not be left out of pocket, since her income — set at 25% of the profits generated by the Crown Estate — will be topped up with a taxpayer bailout. In fact, thanks to the Sovereign Grant Act of 2011, the overall amount given to the Queen each year in order to fund her official duties is never allowed to fall, regardless of what is happening in the broader economy.

“In the event of a reduction in the Crown Estate’s profits, the sovereign grant is set at the same level as the previous year,” a spokesperson told The Independent. “The revenue from the Crown Estate helps pay for our vital public services – over the last 10 years it has returned a total of £2.8 billion to the Exchequer.”

Any profits made by the Crown Estate are passed to the Treasury which, in turn, hands 25% of the profits back to the Queen through the sovereign grant. This year, things will be a little different. To cover the fall in value of the Crown’s Estate, the estate has struck an agreement with the Treasury that allows it to begin making “staggered” revenue payments to the government, thus keeping a larger share of the profits to itself.

It’s a nice deal if you can get it. Most other UK commercial landlords can’t, though many larger property owners have certainly been lobbying the government for support, which for the moment is not forthcoming.

Meanwhile, conditions in both the retail and office markets continue to deteriorate. The U.K.’s ongoing retail crisis and work-from-home (WFH) revolution have between them wiped out roughly half of the market cap of large REITs such as Land Securities Group Plc, British Land Company, and Shaftesbury so far this year.

Last week, the government extended its ban on evictions of commercial property tenants from September 30 to December 31, which angered some landlords who have seen the yields on their investments slide as businesses struggle to pay rent. First passed on March 26, the moratorium on evictions was an essential lifeline for many retail businesses or offices whose incomes had dropped dramatically during the lockdown.

But it also shifted financial stress from tenants to property owners and their lenders. And the longer it drags on — it has now been extended twice in six months — the more the stress grows.

Continue reading the article on Wolf Street

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