CPPIB backs Grosvenor for £200m London investment drive

The fund management arm of London-based Grosvenor has secured a commitment of £190m for a West End office investment programme with a value-added strategy. Grosvenor will invest £10 million into the partnership as well as provide its sourcing and management services.

The Canada Pension Plan Investment Board (CPPIB) is to invest £190 million (€215.7 million; $309 million) into a venture managed by Grosvenor Fund Management which will acquire offices in London’s West End.

Grosvenor, which will co-invest £10 million into the initiative, said in an announcement today that it would commit the capital to ‘value-added office opportunities’ which it would source and manage.

The venture will principally target assets valued up to £100 million each in London’s West End, but will also include investments in London’s Midtown, defined by local real estate professionals as an area which joins the West End to the City of London where many financial institutions are resident.

Grosvenor said it would derive value from its ‘extensive knowledge’ of the sector, specifically selecting properties with short-term leases in place and refurbishment possibilities.

London’s West End has traditionally been the most expensive office market in Europe with rents reaching as high as £140 a square foot prior to the global financial crisis, albeit for lettings on typically small floor plates. Such office space has been popular with private investment houses including hedge funds. While rents have tailed off significantly since then, according to Jones Lang LaSalle, prime rents in the West End are increasing again. Between Q1 and Q2 this year, rents rose 2.7 percent to £95 a square foot. This compares with £55 a square foot in the City.

Wenzel Hoberg, CPPIB’s managing director and head of real estate investments for Europe said: “This venture with Grosvenor Fund Management provides us with an entry into an attractive, niche commercial real estate market in West End London.”

He said: “This investment aligns with our existing European real estate investment strategy and introduces us to a well respected partner in Grosvenor Fund Management, which has a unique knowledge of the West End office market and strong active management and refurbishment expertise.”

Grosvenor director Mervyn Howard said the firm’s experience of its existing Grosvenor London Office Fund, which owns four West End office properties, would serve the partnership with CPPIB well. He said: “We have the in-house skills to execute the strategy of the partnership and believe the timing is right.”

Grosvenor Fund Management, part of London-based real estate firm Grosvenor, was launched in 2005 and currently manages a global portfolio with £3.8 billion of funds under management as at 31 December 2010. The firm had 70 investors invested across 24 funds and separate account mandates.

CPPIB invests capital from the Canada Pension Plan, which totaled $148.2 billion as at March 31, 2011.