A British skyscraper is becoming a must-have for international tycoons, and London has quite a few to sustain their appetite. But with long-term income and a global brand giving towers widespread appeal, how do you get your hands on one?
Pay a lot of money
This is the simple answer. Already this year, two City trophies with typically English nicknames – the Cheesegrater, EC3, and the Walkie Talkie, EC3 – have been sold at prices well above their most recent valuations.The first, at 122 Leadenhall Street, was bought by CC Land, a Hong Kong-listed company controlled by billionaire Cheung Chung-kiu for £1.15bn – a net initial yield of 3.45%. The price agreed for the British Land and Oxford Properties asset in May was 26% above the building’s £915m valuation last September.
Last week, Lee Kum Kee, a family-owned Hong Kong condiments giant, acquired the Walkie Talkie at 20 Fenchurch Street for £1.3bn – the highest amount ever paid for a UK office building. With a yield of 3.4%, the price paid represented a 13% uplift on joint owner Landsec’s book valuation on 31 March.James Beckham, head of London capital markets at Cushman & Wakefield, which advised on both the Walkie Talkie and Cheesegrater deals, says the buildings are trophies because “they stand out on the London skyline”.He adds: “They are well-known buildings on a global basis. So it’s not as though you’re buying a low-profile building in a back street. You’re affiliating your brand to the building effectively – so everyone will know who owns the building from now on.”Speaking to EG in June about its future London investment plans, CC Land’s vice chairman Dickie Wong summed up: “If it’s not trophy, not high-quality, it’s definitely not suitable for CC Land.”
Hire a good agent
This is another essential when it comes to getting the deal done. The fall in sterling since the EU referendum vote in June has attracted a wave of international investors backed by foreign currencies that are on the hunt for a bargain.However, none of the London trophies has been marketed as full assets up for sale. It takes some persuading to prise the long-term income-producing assets from the hands of their owners.Both Oxford Properties, which owned a 50% stake in the Cheesegrater, and Landsec, which owned half of the Walkie Talkie, did not initially plan to sell their interests. It was the agents behind those deals who got all the parties on board and made them happen.Landsec, the UK’s largest real estate investment trust, whose shares were trading at a 26% discount as the deal was announced last week, says it plans to return about £475m to shareholders from the £641.3m it expects to raise from the unconditional sale.“We are seeing capital travelling in search of value,” says Toscafund chief economist Savvas Savouri. “For those in Hong Kong and China the pound’s decline has opened up considerable value in sterling assets.“For the propcos, considerable value has been opened up by their shares trading below NAVs. The result is the arrival of investors using their valuable currencies and UK investors’ departure from physical assets. The latter are using, or should use, the proceeds to de-equitise – exchange highly valued property assets for the deep value that has opened in their shares.”
Take your pick
“Anything is for sale at the right price,” is the mantra in the City this summer. Commercial property investment in the City reached just under £5bn in the first six months of 2017 – 17% up on H1 2016, according to research from Savills.The total investment volume accounted for 64 deals with an average lot size of £77.8m as demand for trophy assets remained strong. Investment in West End commercial property reached a record £3.9bn in the first six months of 2017. However the number of deals, 55, was the lowest on record following a record six transactions of more than £200m, making up 42% of total volume.All eyes are now on the Gherkin, EC3. Owner Safra Group, controlled by Brazilian banking billionaire Joseph Safra, has instructed GM Real Estate to field enquiries for a potential sale that could value the icon at £1bn. The price would reflect a yield of sub 3% and would match the circa £1,900 per sq ft capital value achieved on the Cheesegrater deal.However, the building is not being actively marketed. “The Gherkin is a unique real estate asset and is not for sale,” says a spokesman for J Safra Real Estate. Salesforce Tower, EC2, is also on everyone’s radar, with its joint owners currently debating a potential sale. However, with the demand from Hong Kong apparently strongest for 100% asset control, it could be some time before all the parties get on board.A good investment? It remains to be seen whether the record prices achieved on the recent trophy buys will represent a good investment in the long term. The City investment and leasing markets are operating at different speeds. While investment volumes in H1 2017 hit a new record, rents fell by 2.2% in Q2 year-on-year and there is a degree of hesitancy among occupiers around the outcome of Brexit.Despite strong H1 take-up figures and expansions by companies such as Amazon, some deals such as Deutsche Bank’s agreement to go to Landsec’s 500,000 sq ft 21 Moorfields, EC2, represents an overall reduction in London take-up. For Deutsche Bank, the move will result in an overall occupational take-up reduction in the capital from around 1.3m sq ft to 900,000 sq ft.However, the capital markets side is being driven by different factors – the depreciation of sterling since the EU referendum vote in June 2016 and push factors encouraging investors to take money out of Asia.Andy Bruce, Linklaters’ global head of real estate, thinks deals such as the Walkie Talkie sale demonstrate that Asian and Hong Kong investors are “here to stay”. He says: “They perhaps see what we see as big uncertainties around Brexit or around a hung parliament as not big waves on the ocean but just little drops in the ocean and London remains a really important and significant investment place.”