DEALWATCH: Sovereign money is king

Sovereign wealth funds showed their overwhelming firepower by clinching four of the five largest European real estate investment transactions during November and December.

Their main target was Central London’s office market which features in the top three deals by volume as recorded by PropertyEU Research during the last two months of 2013.

The largest London transaction of the review period - and of the year as a whole - saw St Martins, the UK property arm of Kuwait's sovereign wealth fund, acquiring the ‘More London’ estate on the south bank of the River Thames for a reported £1.7 bn, or just over €2 bn. The estate's 280,000 m2 of usable space is divided between City Hall, occupied by the Greater London Authority, another 10 buildings and a cafe kiosk.

Kuwait is very partial to big-ticket London office real estate. The investor kicked off its 2013 investment drive in January with the acquisition of 5 Canada Square at Canary Wharf in London for close to £385 mln (€448 mln). The 14-storey building is located in the heart of London's Canary Wharf, adjacent to the London Underground, Dockland Light Railway and future Crossrail stations. It is let to Credit Suisse International on a 25-year lease.

BLACKSTONE CASHES IN
The next two transactions by volume after ‘More London’ involved sovereign wealth funds as buyers and shared a common seller, Blackstone Real Estate.

The transactions allowed the US private equity giant to earn a neat Christmas bonus as it sold down its involvement in two earlier value-add office ventures in London. In the first, Blackstone divested its 50% stake in the Broadgate Estate held by Blackstone Real Estate Partners Europe III and Blackstone Real Estate Partners VI to GIC, the Government of Singapore Investment Corporation.

Neither side revealed the financial details but the investment volume was widely reported to be €2 bn, just a little lower than the amount paid by St Martins for 'More London’. The transaction includes Blackstone’s 50% interest in 5 Broadgate (5BG), a new office building which is due to be completed in 2015.

The other 50% of Broadgate and 5BG have been retained by British Land, one of the UK’s largest REITs and the asset and development manager for the estate. Broadgate is a 437,000 m2 business district with 17 office buildings and retail and leisure amenities. 5BG will provide 66,000 m2 of office accommodation in the heart of Broadgate and is pre-let in its entirety to UBS.

Christopher Morrish, regional head for Europe at GIC Real Estate, said: 'Broadgate is an ideal addition to GIC’s value-driven global real estate portfolio. We believe it provides a rare opportunity to invest in a world-class asset. The estate will give us an attractive combination of stable long-term income with the potential to create additional value through active management, repositioning of the office buildings and by enhancing the retail and leisure offer.'

CHINA'S TOWN
The third-largest transaction underscores the emergence of China among the top ranks of big-ticket Asian investors targeting London. China Investment Corporation (CIC), which is charged with managing part of China’s foreign exchange reserves, reportedly paid €940 mln to acquire 120,000 m2 Chiswick Park in west London from Blackstone.

To put this into perspective, CIC shelled out at a single stroke the equivalent of almost 31% of the €3.05 bn in European commercial property transactions carried out by the Chinese in 2013, according to data compiled by RCA. The 2013 volume recorded for the Chinese represented a huge jump from their transaction level of €978 mln the year before, RCA said.

Blackstone, meanwhile, has not exited Chiswick Park completely as it will continue to manage the scheme for the new owner and has also retained the 30,000 m2 Building 7. That said, the deal with CIC allowed Blackstone to monetise its investment at a strong mark-up after acquiring it from a consortium of Aberdeen Asset Management, Schroders and Stanhope in mid-2010 for £480 mln. The sale was made partly possible by a €711 mln refinancing of Chiswick Park secured in May 2013 from Deutsche Bank and Apollo Global Management.

The Hong Kong Monetary Authority carried out the fifth SWF deal in London in late 2013 by reportedly splurging €240 mln on a mixed-use complex in the UK capital. Also in London, the Ontario Municipal Employees Retirement System (OMERS), acting through its subsidiary Oxford Properties, purchased the leasehold of the Royal Exchange for about €104 mln.

AustralianSuper, one of Australia’s largest superannuation funds, ventured outside London for its entry into the UK retail real estate market. The fund acquired a 50% stake in thecentre:mk in Milton Keynes at the turn of the year from Hermes Real Estate Investment Management Limited, which was acting on behalf of the BT Pension Scheme (BTPS). The investment volume for the transaction came to £270 mln (€325 mln).

CONTINENTAL CAPERS
Another sovereign wealth fund, Abu Dhabi Investment Authority (ADIA), chalked up the fourth largest deal, but this time the investment location was France rather than London. ADIA acquired Les Docks Lyonnais, owner of a €750 mln portfolio of 5 assets in a deal valued at €670 mln. Vendor UBS Asset Management was looking for a quick sale as the funds that own Docks Lyonnais were due for termination at the end of the year. The properties had been acquired before the financial crisis for a total investment representing around €900 mln.

Chinese sovereign money also made an appearance in Continental Europe during the review period as Gingko Tree, part of the Asian giant's State Administration of Foreign Exchange (SAFE) agency, acquired the former Adlerwerke office site in Frankfurt for €110 mln. RCA reported that Gingko Tree was China’s most active buyer in Europe’s real estate markets in 2013, acquiring 16 properties for €1.8 bn.

Cormac Mac Ruairi
Staff reporter