M&G bags £105m Manchester office for UK pension fund

The deal involved an unnamed Asian institutional investor and marks M&G’s first property investment on behalf of a UK public pension fund. 

M&G Real Estate has acquired a prime office building in the center of Manchester for £105 million ($135.9 million; €118 million) on behalf of West Yorkshire Pension Fund and an unnamed Asian institutional investor.

The London-based investment arm of Prudential bought 101 Embankment, a 165,000-square-foot office building in the Cathedral district of the city. The building is the new head office of UK insurer Swinton, which has recently signed a 10-year lease.

The property also includes a 442-space car park, which has been let to UK car parks operator Q-Park on a separate 35-year term.

Neither M&G nor WYPF would disclose return targets for the transaction, but the joint venture used capital from M&G’s core UK commercial property strategy to buy the asset. Typically, core investments are expected to produce returns in the single digit percentages, value-added investments produce returns in the high teens, while opportunistic returns tend to be above 20 percent.

The real estate investment manager confirmed it had purchased the building at a net initial yield of 5.3 percent. The seller was also a three-way partnership between Tristan Capital, Ask Developments and Carillion.

PERE understands it is the first time M&G has completed a deal of this kind with a UK public pension fund.

WYPF, one of the largest of its kind in the UK, said the deal would be the first of many over the coming years because it had entered into a long-term partnership with M&G.

“Thanks to M&G Real Estate’s expertise in sourcing and structuring this deal, we stand to benefit from stable returns from a high-quality asset and meet the strategic objectives of our fund,” said Simon Edwards, alternatives investment manager at WYPF.

Martin Towns, head of capital solutions at M&G, said the pension fund was attracted to the joint venture structure because it would not normally be able to take exposure to an asset of that size on its own.

“WYPF was attracted by the fundamentals of the asset and the investment itself. It very much suits them to be able to partner with other investors and get access, without too large an exposure, to assets such as this,” said Towns.

Towns added that the partnership would see an income-return from the transaction through two main avenues. Firstly, the leasing agreements with Swinton and Q-Park have guaranteed rental increases built-in to the contracts, plus he said he expected further rental growth in the Manchester office market.