Inside The £158M Legal Battle Over London’s Enormous China-Built Ghost Town

U.S. hedge fund Baupost is claiming £158M in damages in a legal battle over the sale of a 4.7M SF development scheme that is partly built yet almost entirely empty, Bisnow can reveal.

A particulars of claim form filed earlier this month in the King’s Bench division of the UK High Court outlines the details of Baupost’s allegations against DPK, a UK property company run by investor David Maxwell.

Baupost claims it had an exclusivity agreement to buy existing offices, land and energy infrastructure at the Royal Albert Dock site in east London, part of a joint venture with DPK, and that it would possibly develop the rest of the scheme’s first phase, as well as subsequent phases, on land owned by the Greater London Authority.

But at the last minute, per the claim, DPK said it would pursue the deal with alternative funding.

Baupost is claiming damages that would equate to the profit it would have made from buying the scheme with DPK. The fund said it would lose out on £2M of profit from buying the six existing buildings on the site; at least £56M from the assets yet to be developed as part of the site’s first phase; and more than £100M from the assets that would be developed on the GLA land.

Alternatively, should the claim not be decided in its favor, it is asking for about £354K ($441K) in wasted fees incurred while pursuing the deal.

DPK has not yet filed a defence to the claim, court records showed. DPK’s law firm, Paul Hastings, did not respond to a request for comment and Baupost declined to comment. 

The Royal Albert Docks scheme has a long, rollercoaster history. In 2013, the GLA picked Chinese developer ABP as the developer for a project to be built on a 35-acre site in London’s former docklands in the east of the city. 

A 4.7M SF office-led scheme with a projected end value of £1.7B was conceived. The aim was to target Chinese occupiers and strengthen the then-strong ties between the UK and the growing economic superpower. In 2017, a ceremony to sign the development agreement for the site was attended by Chinese President Xi Jinping and then-British Prime Minister David Cameron.

The first six buildings in the 21-building, 700K first phase were completed in 2019. But by then, relations between China and the UK had cooled, and the tenants didn’t come. As of 2020, just one building had been leased. Then the pandemic hit, hindering further leasing efforts. 

A £62M slice of a £188M loan against the development was due to mature that same year. While ABP secured a refinancing, the first phase of the scheme went into administration, the UK equivalent of Chapter 11 bankruptcy, in February 2022, with partners from Deloitte appointed to manage the process. In July, partners from PwC were appointed liquidators to other parts of the scheme’s corporate structure. 

February 2022 is when Baupost and DPK first conceived of buying the site, Baupost claimed. 

After seeing a report of Deloitte’s appointment, Baupost Managing Director Scott Dunn allegedly emailed DPK’s Maxwell asking, “Anything to be done here?”

The two companies had worked together twice before to buy property businesses: the property portfolio of UK car dealership Pendragon, which they bought in 2013, and the serviced office company Argyll Club, which they bought in 2021.

In the process of buying Pendragon’s assets, the two parties signed an exclusivity letter, Baupost’s claim said: Neither party had to complete the deal, but neither could they pursue it with another party. The Argyll acquisition was pursued in the same manner, the claim said. 

Later in February, Dunn sent Maxwell another article about the Royal Albert Docks scheme’s financial woes to which Maxwell allegedly replied, “This is the most exciting opportunity I’ve seen since Argyll. Let’s jump on it.”

The two companies and their lawyers worked on the structure of the deal as well as the structure of the joint venture between May and December 2022, per the claim.

In addition to buying the existing first phase from Deloitte, the key element of securing the entire site was buying a company that owned subterranean pipework infrastructure needed to heat and cool all the buildings in the scheme’s first three of a possible six phases.

Baupost alleges the two sides went back and forth over a joint venture structure: Baupost would provide either 90% or 95% of the capital and would receive all of the profit up to a certain hurdle, after which it would be split with DPK. That hurdle would be a 20% internal rate of return and an equity multiple of either 1.5 or two times Baupost’s investment.

DPK met with the GLA, which said it would be “natural” for whoever owned the first phase to develop subsequent phases of the scheme as well, according to the claim.

An exclusivity agreement was entered into between the two companies, Baupost’s claim said, based on emails between the two sides, the fact that they had such an agreement in the past and a September 2022 meeting between Baupost’s Dunn and DPK’s Maxwell.

That meeting took place in Lisbon, Portugal, where Dunn had travelled for other business, according to the action.

“The two walked together for about an hour to O Frade, a restaurant in Belém, where they had lunch,” the claim said, adding the two talked about their families and their holidays before getting down to business, including the Royal Albert Dock scheme and the potential use of the properties. 

“They also reached a ‘handshake agreement’ (as Mr Dunn later described it in an email to Mr Maxwell on 9 January 2023) confirming the key economic terms of the joint venture,” the claim said, agreeing on an equity multiple of 1.5 times invested capital.

Both sides pursued the deal, working out which special purpose vehicle would buy which parts of the ABP corporate structure, and then transfer them to holding companies in Luxembourg, the claim said.

But in January this year, it continued, Dunn was contacted by an adviser to DPK, who “said that alternative and cheaper sources of funding for the RAD investment were available to DPK”. 

Baupost’s Dunn contacted Maxwell, and offered to change the structure of the deal. But “on 4 February 2023, Mr Dunn and Mr Maxwell had a further conversation, in which Mr Maxwell indicated that DPK had sought or secured financing for the acquisition of the phase 1 assets”, the claim said. 

Bloomberg reported the deal was completed by DPK on 10 March. While PwC did not confirm the buyer, it said a deal had been done and it would now be paying a dividend to creditors. 

A report from PwC to creditors of the company that owned the underground heating system confirmed that DPK had bought the assets in the first phase of the scheme, but did not mention any joint venture partners.