TH Real Estate snaps up London project at 4.5%

TIAA Henderson Real Estate has exchanged contracts to acquire a 151-year leasehold interest in 12/14 New Fetter Lane in London from Great Portland Estates. The investment volume of £165.8 mln (€211 mln) reflects a yield of 4.5%.

The 142,500 sq ft (13,200 m2) office development is under construction with practical completion expected in the fourth quarter of 2015.

The scheme is fully pre-let to international law firm Bird & Bird for 20.25 years after completion at a gross rent of £8.28 mln per annum.

TH Real Estate will acquire the site from GPE, subject only to freeholder City Corporation's consent, and will fund all development costs up to a maximum of £165.8 mln. The site price will be £92.8 mln assuming completion at 1 December 2014, which is £12.4 mln (15.5%) ahead of GPE's March 2014 valuation, adjusted for capital expenditure.

TH Real Estate will receive a deduction on the final price in lieu of interest on their capital outlay until completion at a rate of 4.5% per annum. Based on the current cost and programme, GPE will also receive a final payment of £5.1 mln on completion.

'This sale continues our strategy of recycling capital out of assets, where we have created significant value and back into our exciting 2.2 million sq ft development programme. 12/14 New Fetter Lane has been an exceptional project for us. Having secured attractive planning permission, re-geared the headlease with the City Corporation and fully pre-let the building, this sale crystallises a return on capital since committing to the scheme of 82.7% and an unlevered internal rate of return of 55.1%,' commented Toby Courtauld of GPE.