Aviva Investors exits £470m London development

Aviva Investors, the investment management business of UK insurer Aviva, and its investment partners, have fully exited from one of the largest developments in central London in a deal valued at £470 million (€547 million; $704 million).

Aviva has sold PaddingtonCentral, a multi-component development in central west London, to London-listed REIT British Land on behalf of a consortium of investors that also included Avestus Capital Partners, a European real estate investment management firm formerly known as Quinlan Private, Liquid Realty, the San Francisco based real estate secondaries investment firm, Henderson Property, the property arm of investment house Henderson Global Investors, and Equitable Life, another UK insurance business. 

The sale marks a curtain-call for Aviva’s association with the asset following 13 years of development. Aviva acquired the 11-acre site, then a derelict goods yard, in 2000. Aviva teamed up with London-based developer Development Securities to develop a mixed-use but office-led scheme that today comprises one 143,000 square foot office, one 268,000 square foot office, a hotel and planning permission for further 145,000 square foot and 210,000 square foot offices. Aviva described the development as a “prime Paddington location” and “at the forefront of establishing this sub-market within the West End”.

One of the offices, 3 Sheldon Square, which was speculatively developed, has already demonstrated letting success with leases awarded to occupiers including Visa, Prudential and Kingfisher at rents of between £40 a square foot to £45 a square foot. The second office to be developed improved on that rental level and, via lettings to Vodafone, AstraZeneca and Rio Tinto, has attracted rents of £60 per square foot. According to an analyst’s note from investment bank JPMorgan, the completed buildings, which are 91 percent occupied, benefit from a 10.7 years average outstanding lease length. 

The note said the deal was struck at a 3.3 percent yield however JPMorgan calculated that the yield would rise to 5.3 percent next December when rent-free periods expire and 6.2 percent once fully let. Nonetheless, Aviva will have left some value creation potential on the table. The note stated that British Land could be in line to achieve IRRs of approximately 20 percent from the remaining development, assuming it commits £180 million of capital expenditure in the process. 

Aviva did not ultimately disclose the return to itself and its co-investors in its announcement on the sale, but Richard Jones, managing director within its real estate division, said: “We are proud to have played a key role in bringing forward a major Central London regeneration project and of the returns it has delivered for our investors. The sale allows us to crystallize these development profits and provides funds for our ongoing central London development pipeline.”