The Blackstone Group is closing in on its first London office deal for several years with the creation of a joint venture to own the Broadgate complex at Liverpool Street Station, the biggest asset of London-listed REIT British Land.
The highly structured £2.13 billion (€2.37 billion; $3.4 billion) JV is being funded by Blackstone Real Estate Partners Europe III, which closed this summer, and Blackstone Real Estate Partners VI.
Under the terms of the deal – expected to close next month – the venture will acquire a 50 per cent interest in Broadgate valued at £1.07 billion. The estate was valued at £2.16 billion as at the end of August.
Blackstone’s share of the gross attributable value includes £987 million of third party debt, being 50 per cent of the debt secured against the assets of Broadgate, and the net consideration paid for the 50 per cent interest in Broadgate valued at £77 million.
Broken down, Blackstone has agreed to pay £34 million in cash on completion of the transaction expected next month; £15 million, being the present value of £18 million payable in cash instalments until September 2016, and a further £28 million, being 50 per cent of £55 million payable in cash by Blackstone to the JV on completion of the transaction.
The deal values the estate at a net equivalent yield of 7.4 percent and a net initial yield of 7.1 percent.
British Land will be asset manager and administrator for the JV on an ongoing basis.
Broadgate is British Land’s largest asset and currently represents 27 percent of its portfolio. This reduces to 16 percent after the transaction.
Chad Pike, senior managing director and co-head of Blackstone Real Estate, said in a statement that Broadgate would benefit from Blackstone’s existing relationships with multi-national tenants in its current office portfolio as well as in the financial sector.
The three largest tenants at Broadgate are Swiss bank UBS, Royal Bank of Scotland and law firm Herbert Smith. Other major tenants include Deutsche Bank, Henderson, Reed Smith, Mayer Brown and ICAP.
The JV will own the 14 securitised Broadgate buildings and the recently completed sister buildings 201 Bishopsgate and The Broadgate Tower, which will continue to be held outside the existing Broadgate securitisation. The new partners will share equally in the returns from the 4.4 million square feet estate and any future capital requirements.
Broadgate was constructed in phases between 1984 and 2008. The weighted average lease length is 11 years.
The partners said average contracted office rents are £47.40 per square foot and that 31 per cent of leases would expire over the next 5 years. The buildings where leases expire may require additional capital to reposition the buildings, if vacated.
The estate is financed by a securitisation which has £1.9 million outstanding with an average maturity of 16 years.
The securitisation has no loan to value covenant.
Chris Grigg, chief executive of British Land said in the statement that the transaction increased its capacity to invest elsewhere in more diversified, liquid assets. “We have selected Blackstone as a valued partner with excellent financial strength and real estate capabilities,” he added.