UK property funds start selling flagship buildings
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Henderson Global Investors plans to sell 440 Strand, the headquarters of the private bank Coutts, by the end of 2016 as suspended property funds begin offloading prime assets to provide liquidity to investors.
The property, bought for £175m in 2014, was valued at £220m before the Brexit vote and will be formally brought on to the market in the autumn by the suspended Henderson UK Property fund, according to two people briefed on the plans.
The sale of 440 Strand is one of a number of disposals expected to follow the suspensions of seven property funds last week after investors rushed for the exit following the UK’s vote to leave the EU. Henderson, which manages the fund through TH Real Estate — its joint venture with the US retirement provider TIAA-CREF — declined to comment.
Funds holding more than £15bn of investors’ money are preventing redemptions, including the UK’s largest property fund, M&G’s £4.3bn Property Portfolio, and funds from Standard Life, Henderson, Aviva, Columbia Threadneedle and Canada Life.
Aberdeen Asset Management, which suspended its fund for a shorter period than the others — until July 13 — has begun marketing properties including an office building at 10 Hammersmith Grove, the UK headquarters of Fox International, a division of 21st Century Fox.
Early bids on the buildings Aberdeen is marketing indicated yields 50 basis points higher than before the Brexit vote, according to people briefed on the sales. This indicates there will be discounts, but not the steep drops in price seen during the 2008 financial crisis.
Property funds are expected to focus initially on disposing of “prime” assets, which will be easier to sell in uncertain markets, agents said.
Henderson’s building at 440 Strand has been occupied by Coutts since 1904 and is let to Royal Bank of Scotland, which owns the private bank, until 2037. The building offers secure income of a type that appeals to large institutional investors and also contains retail and restaurant units.
Aberdeen is also selling BT’s National Distribution Centre at Magna Park in Lutterworth, Leicestershire.
Gerry Ferguson, head of UK property pooled funds at Aberdeen, said: “Following a period of higher than normal redemptions from the fund after the EU referendum result and the suspension of other funds’ trading, the fund is now seeking to rebuild its liquidity position.
“A limited number of properties are being marketed and we will seek the highest prices achievable for our investors as is our normal practice.”
Private equity investors are eyeing buildings from the suspended funds, but early signs of relative health in the post-Brexit property market mean they may not be able to obtain large discounts, according to Keith Breslauer, managing director at private equity firm Patron Capital.
British Land, the £6bn listed property company, announced last week it had sold the Debenhams flagship store on London’s Oxford Street to a private investor at £400m, an estimated yield for the buyer of 2.75 per cent, indicating no weakening in price since the referendum.
Investors are more worried about properties in sectors thought to be vulnerable to Brexit, such as London offices. However, even in that sector they are showing continued appetite for properties with secure leases.
Brookfield Office Properties, an arm of New York-listed Brookfield Property Partners, last week agreed a development loan of more than £500m for its 100 Bishopsgate office tower development, which is partly pre-let to Royal Bank of Canada.
A consortium of international lenders including San Francisco-based Wells Fargo, Italy’s Banca IMI, France’s BNP Paribas, Germany’s Helaba Landesbank and Singapore’s United Overseas Bank signed the loan deal on July 6, according to people familiar with the deal.
Richard Divall, head of cross-border capital markets at the property advisers Colliers, said: “Brexit has caused short-term panic and stalling to most of the UK market, but we expect long secure income to become more attractive and the spread of yields between prime and secondary product to become more apparent.
“UK real estate needed re-pricing — the world looked at the UK as too expensive nine months ago.”
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