GIC buys into 2m sq ft of City redevelopment opportunities

The sovereign wealth fund will need to put hundreds of millions into repositioning much of the 4.7m sq ft estate over the next decade, on top of stumping up as much as £1.7bn for 50% of the existing real estate.

Its investment includes “trophy” properties such as UBS’s 700,000 sq ft new headquarters at 5 Broadgate. But the biggest opportunities, which will hold “downside” risks too, stem from the banking giant’s planned emptying of up to 827,166 sq ft of office space when it relocates during 2016-18.

This represents an endorsement by GIC of new joint venture partner British Land’s future strategy, because under the terms of its 50% purchase, GIC would take a relatively passive role.

It lets the UK’s second-biggest REIT negotiate a higher development and asset management agreement in return for extra legwork that it is putting into maximising Broadgate’s future value.

It is thought such exposure to City of London letting risks was one factor that discouraged Norway’s sovereign wealth fund. Several other bidders that considered buying Blackstone’s stake, such as Oxford Properties and Brookfield Office Properties, would have sought a more hands-on role.

One source said: “There are so many ways to get it right and so many ways to get it wrong: it is full of value-add opportunities. With this deal, you’re really having to back British Land.”

The existing deal comprises £2.65bn of real estate that is in a long-dated securitisation called Broadgate Financing, as well as a £750m forward-purchase of UBS’s headquarters.

If UBS’s new office, which sits outside the securitisation, were swapped into the securitised structure for the long term, that would extend the average lease lengths in the securitisation. In turn, properties that are set to become vacant would be removed from the securitisation, and this would reduce the loan-to-value ratio of the whole estate from 70% to 50%-60%, giving the assets a more secure covenant.

UBS is believed to have a “first look” opportunity to buy its new building should the joint venture partners decide to sell it. The bank would also get a profit share on any sale.

Across the whole estate, there is guaranteed income for fewer than six years on 1.29m sq ft of property. Another 700,000 sq ft is classified as a redevelopment opportunity.


Source: Nick Johnstone and David Hatcher, Property Week