London's largest tower attracts ‘huge’ investor interest

Home to lender HSBC’s global headquarters, London’s largest and most expensive office tower was brought to market at the end of May and comprises 1.1 million square feet (102,000 m2) over 44 storeys.

It is being sold by the South Korean pension fund, National Pension Service of Korea (NPS). JLL and GM Real Estate have been hired to market the landmark tower by JP Morgan, which is acting on behalf of the owner.

It is one of just five buildings of over a million square feet in London, all of which are situated on the Canary Wharf Estate.

Another of the five buildings, Clifford Chance’s London headquarters, was snapped up this week by a consortium led by China’s largest insurer China Life Insurance for £795 mln.

There has been ‘a lot’ of interest in the HSBC property, according to James Beckham, a director in the capital markets group at JLL in London, who is marketing it. Interest has been ‘very international’, according to Beckham, who declined to provide further details.

JLL has carried out a global marketing campaign, including direct presentations to potential buyers. Although Beckham declined to say when first round bids were due, they are expected on 3 July according to one analyst, who asked not to be identified. ‘There were believed to be around nine bidders, which I expect will be whittled down to six by next Thursday,’ the analyst said.

ASIAN INVESTORS
Taiwanese insurer Cafay Life is believed to be among the bidders, as are funds from Kuwait, Korea and Norway. ‘I wouldn’t be surprised if CIC (ed - China Investment Corporation, China’s largest sovereign wealth fund) was looking as it already owns a stake in Songbird Estates, so this would be the next step,’ the analyst said. Asian sovereign wealth funds and Chinese insurers are also believed to have shown an interest in the skyscraper.

And according to Andrew Thomas, a partner in the Central London investment team at Cushman & Wakefield, investment interest is fierce because the skyscraper is ‘so iconic’. ‘It’s interesting to see how much global capital is looking,’ he said, declining to discuss would-be bidders. ‘Given the amount of equity in the market, even a £1.1 bn asset such as this is liquid today,’ he added. Interestingly, given the scale of the interest, it is by no means a foregone conclusion that HSBC Tower will go to an established player, Thomas said. ‘Given the amount of capital out there and the nature of this asset, it could even go to a new entrant,’ he said.

HSBC has full control of occupancy for the remaining 13 years of the existing inflation-linked 20-year leaseback period at a current rent of over £50 mln per annum, which would make it an attractive bet to investors looking to hedge against inflation. Around 8,500 people work in the building.

The London market is ‘incredibly hot at present, with a real depth of buyers and mounting competition’, according to David Hutchings, head of EMEA investment strategy at Cushman & Wakefield in London. ‘Large assets such as the HSBC Tower are in particularly strong demand because they offer a quick route to getting invested. Such an iconic building and global brand is bound to attract the interest of foreign players in particular, notably those seeking secure long term growth rather just a short-term gain as the cycle rises,’ Hutchings said.

SALES HISTORY
The Canary Wharf landmark has a chequered history and has been sold a number of times in recent years. NPS bought the building for £772.5 mln in cash in 2009. It was sold just two years previously to listed Spanish property group Metrovacesa for £1.09 bn. Sold at the height of the property boom, the deal marked the single largest commercial property sale London had ever seen. However, just one year later, Metrovacesa was forced to sell the property back to HSBC when it defaulted on loans.

For would-be buyers who miss out on the HSBC Tower, there are other options. The ‘Gherkin’, also designed by Lord Foster, is expected to go on the market shortly with a guide price of around £600 mln. Lenders put the building at 30 St Mary’s Axe in London’s financial district in receivership in April after its owners, German bank IVG and investment bank Evans Randall, defaulted on loans. As befits its status as one of the most recognisable - and best loved - buildings in the capital, it is also expected to attract bids from a wide-range of international investors.