Top London Properties Owned By Russian Oligarchs Are Frozen in Time

A thick layer of dust coats the windows of Jardine House in the City of London’s eastern reaches, punctuated by lewd graffiti. The handwritten sign taped to the door says security’s on patrol around the empty building.

This once-buzzing office block is owned by Libyan Investment Authority, but its dilapidated state is a warning to wealthy Russians. As Britain freezes the assets of hundreds of Vladimir Putin’s compatriots, their own prime London real estate might be headed for a similar fate — and possibly falling values.

Jardine House is one of several Libyan properties “frozen” since 2011, when Britain sanctioned Moammar Qaddafi’s regime. Its owner still has to get UK approval for even simple upkeep, and that’s been hard to come by. Today the building lies vacant because agents can’t attract tenants to the dingy site.

What happened to the Libyans back in 2011 is happening to Russians in 2022, though on a much bigger scale. Putin’s bloody invasion of Ukraine has turned once-welcome oligarchs into sanctioned pariahs, and the number of frozen properties in and around the UK capital has exploded: Their combined value is more than £2 billion ($2.1 billion), according to a Bloomberg News analysis.

The true figure’s almost certainly far higher.

A swath of London’s finest residential and commercial addresses is now trapped in suspended animation, just as Jardine House and other Libyan-owned properties were during Qaddafi’s last days. Buildings that can no longer be sold or maintained without HM Treasury licenses include everything from the city’s second-largest private home to a small flat in posh Holland Park.

This curious phenomenon of buildings frozen in time is the upshot of London’s decades-old status as the destination of choice for plutocrats to stash their cash in bricks and mortar — especially Russians during the 2000s and early 2010s — a legacy that policymakers are belatedly rushing to expunge. More broadly it’s a reminder to foreign owners of what can happen when the geopolitical wind changes, diminishing the appeal of a prime UK property market that’s a long way from its 2014 glory days. “Londongrad,”as the city came to be known, is no more. Dubai seems a safer bet for this class of buyer.

In London, freshly sanctioned owners have been struggling to get approvals to keep paying for basic upkeep from a government overwhelmed by the scale of the asset blocks. The body responsible, the Office of Financial Sanctions Implementation, is “overworked and under-resourced,” said Michael O’Kane, a sanctions expert and partner at law firm Peters & Peters, though licenses are starting to trickle through as the OFSI goes on a hiring spree.

Russian owners could try legal action against the government if their property values fall because of license delays, O’Kane adds. Libya has lost more than £200 million on its increasingly antiquated London portfolio, according to Jeremy Grey, a managing director at James Andrew International who looks after a handful of frozen London buildings owned by the wealth fund.

Any Russian hoping this will be a brief inconvenience should look again at the previous waves of sanctions that followed events like the Arab Spring. “The lesson is it’s going to go on for a long time,” said Grey. “There’s no light at the end of the tunnel — when I spoke to the government about sanctions back in 2011 they said most of the funds they’ve frozen never get unfrozen.”

Assessing the overall scale of London’s frozen real estate is an imperfect art as even the government doesn’t keep centralized records of all the buildings concerned. The OFSI, part of the Treasury, “isn’t responsible for the tracing and recording” of sanctioned people’s assets, the department said in response to a Freedom of Information request from Bloomberg. As such, it doesn’t have a complete picture, and states that it’s the obligation of accountants, lawyers and notaries of such clients to declare any owned buildings.

To calculate the £2 billion figure, Bloomberg relied on property and corporate-ownership filings, along with media interviews and investigations by non-profit organizations that track assets. Where sales prices weren’t recorded by the UK’s Land Registry or where properties were acquired several years earlier, brokers and real-estate websites were used to estimate current prices.

One reason the true figure is probably much higher is that homes have been moved into trusts or gifted to children as owners scramble to keep them out of the state’s clutches. The UK is, at least, finally trying to do more to find out what really belongs to whom after years of foot dragging. This includes a register of foreign owners for once-opaque property assets and imposing stricter “know your client” checks on the financial and law firm enablers who made fortunes from the Londongrad boom. More buildings will be frozen.

Still, there are glaring gaps. Homes held transparently by sanctioned individuals have yet to be recorded as subject to OFSI restrictions. These include an apartment in St James’s — a district near Buckingham Palace loved by hedge funds — owned by Mikhail Fridman’s personal assistant Nigina Zairova. She was added to the UK sanctions list after being handed three entities previously belonging to the oligarch, including Athlone House Ltd., named after the vast Highgate mansion he bought for £65 million in 2016.

Transparency International has identified £700 million of oligarch-linked luxury properties in London and Surrey that haven’t been marked as restricted on the UK property register.

And none of this includes potentially thousands more properties owned by non-sanctioned Russians, which may be effectively frozen because real-estate brokers and lawyers are too nervous to work with them. “We’ve been retained by a client who had a deal to buy a home from a Russian vendor fall through,” said Jo Eccles, founder of Eccord, which buys luxury homes for rich people. The £30 million deal was aborted after the buyer’s advisers refused to sign it off.

The freezing of real estate poses unusual problems for owners. Unlike blocked bank accounts or stock portfolios, property needs maintenance to hold its value. But UK sanctions demand every expense be licensed, right down to paying a gardener.

The UK’s National Crime Agency investigated money transfers relating to Russian billionaire Petr Aven, Bloomberg News has reported. Some of the cash was transferred to a company managing his sprawling house on the exclusive Wentworth Estate in Surrey, which wraps around the eponymous golf club that once hosted the Ryder Cup. A court case relating to whether the funds should be frozen is ongoing. Aven declined to comment.

License holdups could leave the UK exposed to legal challenges by owners. “The failure to grant a license to, at a minimum, maintain the value of an asset is challengeable,” said O’Kane at Peters & Peters. As is “anything that leads to the deterioration of the value of the property to the adverse interest of the person sanctioned.”

A provision in UK sanction rules says the government has no liability for losses arising from individuals being sanctioned. But it hasn’t been tested in court whether that covers a failure to allow reasonable maintenance work.

Again, the experience of Libya’s wealth fund over the past decade is instructive, especially for commercial real estate. For Grey at James Andrew International, who manages its portfolio, problems are mounting the longer freezing orders go on. “How do you freeze a property that’s getting older?” he asked. “You can’t freeze it forever, at some point the thing starts falling apart and you’ve got to fix it. We’re reaching that point because things are starting to fall off buildings.”

Even after 11 years of battling for the right to change a light bulb or put a Christmas tree in the lobby, Grey is encountering new complications. The wealth fund owns 14 Cornhill, opposite the Bank of England, whose main tenant is sanctioned Russian bank VTB. Rent payments must now take a tortuous path from VTB’s frozen accounts into those of the Libyan Foreign Investment Company, with each step needing its own license.

Another building managed for the Libyan wealth fund has an environmental rating of F, a notch below current regulations that require a minimum E rating to be rented out. With leases starting to expire, the building needs upgrading.

Officials have given licenses “for covering expenses like business rates, accountants, lawyers and subcontractors, but they haven’t yet granted licenses to develop and lease out real-estate assets, which would be essential in protecting the value of these assets,” said Mohamed Shaban of MS-Legal, who’s advised the Libyan state on trying to recover assets.

Outright property seizures or removing sanctions would break the logjam, though neither’s likely. While Western lawmakers have taken steps to increase the ease with which they can confiscate frozen assets, this wouldn’t be straightforward. It raises questions about the rule of law, particularly where there have been no accusations of crime.

“In the case of Fridman and others, there’s no immediate grounds to confiscate property,” said George Voloshin, a corporate intelligence specialist.

Getting taken off a sanctions list wouldn’t be any simpler. “Each case is different but if you’re a leading businessperson in a sector that provides significant revenue to the Russian government, then the chances of getting off the UK list are very slim,” O’Kane concluded.