Surveyors say Treasury sale does not add up

THE Chancellor of the Exchequer, who announced last week that the Treasury building in Whitehall was to be sold to a private company for refurbishment, could have difficulty giving it away, let alone selling it, say chartered surveyors.

According to a recent announcement in the European Journal, where public-sector contracts are advertised, the "historical building in a sensitive location in the Whitehall area" has an internal area of about 750,000 square feet.

But back-of-the-envelope calculations by surveyors suggest that the numbers may not add up. Assuming that there is no substantial growth in rentals during the decade, a realistic annual rental for the renovated building will be £30 per sq ft. In a modernbuilding, 80 per cent of the gross area can be rented. In HM Treasury, with its elaborate staircase and other period features, this figure is unlikely to be more than 70 per cent. That would give a annual income of £15.75m, which, assuming a yield of 7

per cent, suggests a value of £225m.

Fees and incidental expenses could bring the figure down to £200m. Kenneth Clarke, the Chancellor, has said it would cost between £100m and £200m to do up the building. If so, it would be unwise for a developer to hand over a penny. "At current levels ofrent, if it costs £200m to refurbish, we could question its viability," said Christopher Back, partner with West End surveyor Matthews & Goodman. Another senior surveyor agrees: "It is certainly possible that the refurbishment will cost more than the building is worth."

There are signs, however, that the Treasury wants to construct a complex financing arrangement, of the sort beloved of slick property developers, that will ensure that it is not left with egg on its face. "There are ways and ways of structuring transactions," one surveyor said.

Michael Soames, partner with Knight Frank & Rutley, said there will be a lot of interest in the building, which sits on Whitehall between Downing Street and Parliament Square: "It is a prime bit of real estate."

The deal is designed to give a high-profile boost to the Private Finance Initiative, the plan to persuade companies to fund projects in the public sector. Companies will be invited to tender in March, the winner will be selected around October, and therewill be two years' planning before work starts in 1998.

The Treasury, whose staff has been trimmed to 1,000, will move back into half the renovated building around the turn of the century, while the rest will be let for commercial use.

There will be space for a large company looking for a headquarters, or even for a hotel. The 1898 building is listed, and the refurbishment will be carefully monitored by English Heritage.

The grand staircase will not be touched, nor will the Chancellor's office. But the warren of corridors, said to be 15 miles long, will be ripped out. This should help to prevent incidents such as the time a security guard died on the toilet and was not discovered for several days.