Queen Skirts U.K. Real Estate Slump as Farmland Gains in Value

By Simon Packard

Jan. 22 (Bloomberg) -- Queen Elizabeth II evaded Britain’s worst residential and commercial property slump in three decades last year thanks to the 480,000 acres (194,000 hectares) of farms, forests and parkland she owns across the country.

Investment returns from rural land averaged about 10 percent last year, according to Smiths Gore, which manages more than 2 million acres in the U.K.

The queen is Britain’s largest legal landowner when her private estates, Balmoral Castle and Sandringham, are added to the 7.7 billion pounds ($11 billion) of assets controlled by the state-run Crown Estate corporation and the Duchy of Lancaster. Her holdings also include Buckingham Palace, likely the most valuable asset, and royal residences, which as head of state she is prohibited from selling or profiting from by law.

“Returns from rural property have been spectacular over the past five years,” said Jason Beedell, head of research at Peterborough-based Smiths Gore. Annual returns averaged 18 percent, he said.

Aside from 360,000 acres of land, Crown Estate oversees debt-free assets that would make most property investors salivate. They include stucco-fronted townhouses overlooking Regent’s Park in central London, where apartments fetch more than 1,500 pounds a square foot.

Crown Estate “is the jewel in the crown and ultimately the queen is the absolute owner of it,” said Kevin Cahill, author of “Who Owns Britain.” The estate takes a conservative view on valuations, so it’s “protected from the bust,” he said.

That’s a good thing these days. U.K. house prices dropped 18.9 percent last year, the most in at least 25 years, HBOS Plc estimates. Commercial property investors fared worse, incurring the biggest losses since 1974 as values fell 27 percent, Investment Property Databank Ltd. said.

Crown Estate’s origins date to 1760, when George III surrendered his dwindling private holdings to Parliament in return for an annual payment, known as the civil list, to cover his expenses as head of state.

In its last financial year, which ended March 31, Crown Estate made a profit of 211 million pounds, a gain of 5.6 percent from the previous year. Property values, which aren’t included in earnings, rose 3.3 percent to 7.3 billion pounds.[/q[

Farmland Holdings

[q url="http://www.bloomberg.com/apps/news?pid=newsarchive&sid=aywFbc47MhdQ"]“Our strength is in our considerable diversity,” Chris Bourchier, Crown Estate’s director of rural estates, said by e- mail. The year “was an extremely successful year for our rural portfolio,” he said.

Crown Estate’s rural land appreciated to more than 900 million pounds, or 13 percent of the corporation’s assets, up from 11 percent in fiscal 2007.

U.K. agricultural land without buildings appreciated by 8 percent to 5,700 pounds an acre in 2008, Smiths Gore estimates, as rising crop prices revived investment.

The queen’s private wealth remains off limits. No Buckingham Palace official has commented on it since 1993, when the Lord Chamberlain dismissed estimates of the value of her assets at more than 100 million pounds as “grossly overstated.”

As Duke of Lancaster, the queen is the legal owner of 45,360 acres of additional farmland. The Duchy’s 400 million pounds of assets are run similarly to the Crown Estate. Its most valuable asset is land between London’s Strand and the Embankment.

Of the queen’s private assets, the 20,000 acres at Sandringham, Norfolk, was probably unaffected by the 1.6 percent drop in the value of estates in eastern England. Nor was Balmoral Castle, a 53,372-acre estate, hurt by the 14.2 percent decline in prime country houses in Scotland.

“Balmoral is a special case, so the market discount wouldn’t apply,” said John Coleman, head of the Edinburgh office of Knight Frank LLP, one of the U.K.’s largest property agents. “The ‘Royal factor’ has such an impact.”

Philip Beresford, who compiles the Sunday Times Rich List, estimated the queen’s private property investments at 120 million pounds last April. He declined to provide an update.

Harder still is putting a value on the palaces and residences owned “by right of the Crown.”

In London, “super prime” property values fell 17 percent in the past 15 months, according to Savills Plc. Such measures are of little use to value Buckingham Palace, with its 775 rooms and 39 acres of gardens.

Palaces are “part of the fabric of the nation and as such operate outside economic factors,” said Tim Powell, a spokesman for Historic Royal Palaces, the charity that runs the Tower of London, Hampton Court and three other palaces no longer in use by the Royal Court.

The queen’s real-estate assets extend well beyond Britain’s borders, said Cahill. As head of state to 31 other countries, including Canada and Australia, she is the world’s largest landowner with legal claim to a sixth of the earth’s land.

“If Australia wants to become a republic, there will have to be compensation,” he said. “The Crown has no history of letting go of land for free.”