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Lenders Still Like London Offices With Leasing Risk

St Katharine Docks, London

In spite of the heightened uncertainty over the results of Brexit negotiations and the effects on the London economy, big global institutions are still willing to lend against London offices with leasing risk.

Allianz Real Estate and Brookfield have refinanced St Katharine Docks, the 500K SF office-led mixed-use campus on the eastern edge of the City of London. The scheme includes central London’s only marina, with 200 berths, as well as office space with 80 tenants and 24 bars and restaurants.

Blackstone put the campus up for sale for £435M in 2017 but later decided to refinance it and try and lease more of the office space, as a better way of maximising the value.

Allianz has provided senior debt while Brookfield Real Estate Finance Fund V provided mezzanine debt in a combined five-year floating rate deal.

The debt provided by Allianz is split into a senior term loan and a capital expenditure line to redevelop Devon House, a 90K SF building on the estate, the rest of which is close to 100% occupancy.

It is Allianz’s second U.K. transaction in 2018 — in April, it lent £50M as part of the £100M development financing for 80 Fenchurch St., a prime office property in the City of London. Both deals are part of Allianz’s European value-add growth strategy.

“This deal, our second value-add transaction in the U.K. this year,  illustrates our increasing focus on London, which we believe will continue to be one of the world’s most influential and dynamic cities offering a compelling selection of prime assets for investors,” Allianz Head of European Debt Roland Fuchs said.

HFF’s debt placement team organised the loan for Blackstone.

After a slow period post-Brexit, with a big gap between the expectations of buyers and sellers, the value-add London office market is starting to see a bit of action.

Nick Weber’s Henderson Park opportunity fund has completed three office deals in the past 12 months for around £300M, Morgan Stanley’s North Haven IX fund bought the vacant 231K SF Premier Place office in the city for £145M in January and Goldman Sachs bought Procession House, a 106K SF building which it leases until 2024 but does not occupy, for £68M in July.