The white elephant makes its charge

IT WAS seen as the ultimate symbol of a decade gone awry, a monument to what happens when a property boom turns to bust. For many, Canary Wharf's ignominious collapse into administration three years ago was a fitting epitaph to a dream of Docklands regeneration that seemed to have died.

Now a remarkable comeback seems to be in the offing. Last week, the 11 banks that own the development considered and, for the time being, rejected four offers by outside parties to buy the project. It is a mark of the banks' confidence and the improved outlook that they feel able to sit back and wait.

Among the bidders was the US hotels-to-gaming group Loewes Corporation, headed by Lawrence Tisch, chief of the broadcasting network CBS. He has a long-held interest in Canary Wharf, having submitted what was dubbed a "derisory offer" three years ago.

It is a different picture from even a year ago, when Canary Wharf, the flagship development of the Docklands regeneration, was an apparently desolate expanse of high-rise office blocks. Office workers felt an embattled minority as they made the daily trek out to the Isle of Dogs.

Poor transport was a recurring complaint: an inefficient service by the Docklands Light Railway was further hampered by the absence of a weekend service. Another victim of the collapse was the Riverbus, a Thames ferry service, which failed to attract enough passengers. The future of the Limehouse link and the Jubilee Line extension were also in serious doubt. But since then, the DLR has opened a weekend service, and its week-day service has made great strides.

Canary Wharf itself is now 75 per cent let. Its chairman, Sir Peter Levene, says it will be two years at most before the project is fully let, and quite likely sooner. "People are putting in serious offers now, and it is a question for the banks of deciding whether they are good enough," he said.

One worker at Canary Wharf said it had come on in leaps and bounds. "A year ago, you could sit down by the fountain for lunch, and chances are you would be on your own. That is impossible now except in a howling gale."

Although the banks have presented an unified front, there are dissenting voices. Several are eager to find an out from the current situation. The most likely candidate for such a move is believed to be Credit Lyonnais, the French bank, which has been engaged in a wide-ranging asset disposal programme at home and abroad to offset ballooning debts.

The two Canadian banks, CIBC and Royal Bank of Montreal, are also keen to wash their hands of the project. A weaker domestic market has increased pressure on them to reduce their exposure to problematic overseas loans. By contrast, British and US banks, notably Citibank, Chemical, Barclays and Lloyds, are relaxed at the pace of current progress.

A source who has followed the negotiations believes the recent bids failed to produce anything in line with the banks' expectations. "There's been a lot of euphoria, but there are still plenty of problems to overcome," he warns. One grim scenario would be the banks with weaker resolve persuading the others to adopt a shorter-term approach, and sell out.

The crucial factor in any eventual outcome is the estimated value of Canary Wharf. Clearly there is a strong belief among the banks that this is already comfortably ahead of the money they have pumped into it. When it went under in 1992, an independent valuation by the surveyors Savills established a maximum of pounds 50m, with a lower end of zero, for a normal disposal, not a fire sale. Administrators Ernst & Young subsequently plumped for the mid-point of pounds 25m as a benchmark.

That figure has already been far surpassed; as much as pounds 1bn has been suggested. For one day, Canary Wharf should generate substantial profits for its landlords. In 1993, the accountants Touche Ross arrived at a much higher figure than the Savills valuation. But any valuation of the project is bedevilled by enormous complexities. There are the rent-free deals, initially entered into by the Reichmann brothers, Paul and Albert, at Olympia & York, and continued by the banks. These amounted to juicy inducements for new tenants to forsake their City and West End offices and move to Docklands.

Canary Wharf has scored a number of coups, not least its recent deal to persuade the investment bank Barclays de Zoete Wedd to take 500,000 sq ft of space - the biggest-ever single UK office letting. That reduces the amount of space to be let to less than 1 million sq ft, from 4.5million when the first phase was completed. However, Canary Wharf has planning permission for 12 million sq ft in total. Although the incumbent management has no intention to resurrect the original grandiose plans - an additional two towers to complement the landmark 1 Canada Square - future investors may be willing to realise some of these designs.

BZW's move also sparked a row between Canary Wharf and the City of London Corporation, which fears the east London site poses a real threat to the City's supremacy. As well as BZW, Docklands' high-profile City names include Morgan Stanley and CS First Boston.

It has also scooped a large chunk of London Underground's administration, the advertising agency Ogilvy & Mather, the Personal Investment Authority and accountants KPMG Peat Marwick. It is the de facto new Fleet Street, with Mirror Group Newspapers, The Telegraph,and Newspaper Publishing, publishers of the Independent and Independent on Sunday, all resident there.

Canary Wharf was the centrepiece of the Docklands regeneration project, as envisaged by Margaret Thatcher's government, with the private sector taking on the burden of planning and infrastructure. In the event, the strategy was not to work out quite as planned. Nevertheless, some observers would argue that Docklands, and its flagship development, have made a remarkable recovery.

Furthermore, the banks, having written off much of their initial debts, can see their existing investment is safe. From when the banks first stepped in, they have pumped close to pounds 300m into further building and infrastructure work. They also have outstanding debts of pounds 568m, with repayment deferred until 2007.