This 1.4M SF, $773M Spec Office Development Was Launched In The Downturn — And It's Built Entirely Of Wood
Economic downturns are usually a time of caution, especially in real estate. Debt markets become tight. Developers don’t build because they can’t predict demand.
A joint venture backed by Ivanhoé Cambridge has put together a €650M ($773M, £598M) funding package for a 1.4M SF office development that is being developed with no tenants lined up. And here’s the kicker — it is built entirely from wood.
“It would be a lie to say it was a sure success to raise the funding during the pandemic but we knew our project was one that would make a lot of sense after COVID,” BNP Paribas Real Estate Managing Director of Commercial Property Development Thomas Charvet told Bisnow.
The project is called Arboretum, and is of a scale and ambition rarely seen at any point in the market cycle.
Located on the edge of the La Défense district in western Paris, the scheme is on the site of a former paper mill on the banks of the Seine, adjoining a 60-acre public park. The site was bought in 2015 by BNP Paribas Real Estate and WO2, a French developer specialising in timber buildings.
Working in conjunction with Parisian city authorities and ecologists, the duo drew up a scheme aiming to reduce the carbon used in its construction to an absolute minimum, as well as maximise the health and wellbeing of the people that use it.
At 1.35M SF across seven buildings and built using cross-laminated timber rather than concrete, Arboretum will be the largest timber-frame scheme ever built in Europe. For context, while Arboretum is only nine storeys high, that is 10% more floorspace than the Chrysler Building in New York.
Replacing concrete with timber will save 23,000 tonnes of carbon dioxide, the equivalent of taking 5,000 cars off the road for a year. Decontaminated debris from the demolished paper mill will also be used to construct paths and other external areas at the development to further reduce the need for new raw materials. More than 1,000 new trees have been planted on the site.
On the wellbeing side, 34K SF will be given over to vegetable gardens that are expected to produce 25 tonnes of fruit and vegetables a year. They will be served in the seven organic restaurants and cafés that will be part of the scheme, and waste from those restaurants will be used in the gardens to grow the next season’s produce.
Arboretum is slated to include 150K SF of outdoor terraces, providing workers with outdoor workspace, and 50% of the windows can be opened, increasing the amount of fresh air in the scheme. This was planned pre-pandemic, Charvet said, but will be even more important in a post-coronavirus world. There will also be 22K SF of gym and fitness facilities.
Demolition of the former paper mill and site preparation began in 2018, but this year things really took off. In June, a deal was completed to put together the €650M of funding needed to develop the scheme. Ivanhoé Cambridge investment manager Icamap, FFP — a family office that owns a minority stake in French carmaker Peugot — and other institutions are putting up €220M of equity and will own the completed scheme.
German insurance company Allianz has provided €200M of debt, and a group of other debt providers including BNP Paribas and investors managed by AEW and Ostrum Asset Management has provided further debt, bringing the total debt package up to €432M.
Further demolition works began this month and the construction is scheduled to start by the end of the year, with the scheme due for completion in 2022.
It is the largest speculative office project to have been started in Paris in the past 25 years, and few schemes of such a size are started anywhere in the world in any given year, let alone during a pandemic. But the backers are confident that the events of 2020 have made it more, not less, likely to let successfully.
“When we started on this project, we had a huge focus on health at work, and we were convinced this was important,” Chavert said. “The way people connect with the office and what they want from it, that has only been amplified by COVID.”
On the question of whether a greener building provides better financial returns, another of the project’s backers points to the expected resilience of the scheme.
“It is hard to say that it will command a premium rent because there is no single reference point for rents in Paris,” Icamap Managing Director Alexandre Aquien said. “But we think this scheme is exactly what tenants today and in the future will want, so you reduce the risk of voids and mitigate your risk.”