GIC Makes Another Huge Bet On A London Office Campus
It is the duo’s second joint venture on a major London office campus: In 2013, GIC bought a 50% stake in Broadgate, the 4M SF office-led scheme in the City of London, from British Land’s prior joint venture Blackstone. It paid about £1.5B for the stake, and the value has risen significantly since then.
The play with Broadgate was to invest in building a new HQ for UBS, and redeveloping tired 1980s and 1990s offices. Paddington offers potential to develop one new office building, but the play is more about the existing income.
Paddington Central was acquired by British Land in 2013 for £470M. At the time, it included three buildings, a retail and leisure cluster and two development sites. It completed the acquisition of 1 Sheldon Square for £210M in 2015, and, in 2017, it completed the development of 4 Kingdom Street, which achieved rents 40% ahead of the best rents at the campus on acquisition.
Overall, the campus has delivered an average total property return of 9% per annum since acquisition, British Land said.
The joint venture will initially comprise the following assets: 2 and 4 Kingdom Street, 1 and 3 Sheldon Square (including the retail and leisure element), the gateway development site and surrounding moorings.
The Novotel at 3 Kingdom Street and the development site at 5 Kingdom Street currently remain outside the joint venture. On completion, GIC will be granted an unconditional option for a period of six months to acquire 50% of 5 Kingdom Street, a 438K SF development opportunity, for around £68.5M plus a share of capital expenditures. It also has an option to buy the hotel.
The gross asset value of the assets acquired by the joint venture was £936M as of 30 September 2021 on a 100% basis, and the net rental income attributable to those assets was £39M in 2021. The price being paid by GIC is 1% below the September 2021 book value. British Land will stay on as asset and development manager, for which it will be paid a fee.
British Land said it will reinvest the proceeds of the sale in new development, including expanding its last-mile logistics and life sciences businesses.
“Our earlier investment in Broadgate has demonstrated the high value of acquiring central London campuses and we are confident that this asset will generate resilient long-term returns,” GIC Real Estate Chief Investment Officer Lee Kok Sun said in a statement.
“We are seeing returning demand in the take-up of new office spaces that are of high-quality and in prime locations,” GIC Region Head of Europe Real Estate Tracy Stroh said.