L&G in talks for major govt hubs investment

By Paul Norman - Tuesday, May 02, 2017 15:10

L&G is in talks to or has completed funding and investment deals for at least four of the Government Property Unit’s proposed UK office hubs, as it cements a position as the funding partner of choice for the government’s ongoing real estate efficiencies drive.

The Government Property Unit has been overseeing a major drive to reduce the cost of the government estate via its Hubs Programme, which sees government departments consolidated from various addresses into shared regional hubs. Over the past year it has been moving fast to reach agreements that are helping to buoy regional office markets.

Legal & General, the institutional real estate investment giant which has a particular focus on supporting regeneration and regional growth, has so far reached agreement to forward fund Salmon Harvester Properties’ 3 Glass Wharf on Avon Street in Bristol city centre’s Temple Quarter Enterprise Zone, where HMRC last year prelet 110,000 sq ft of offices, and, alongside partners Rightacres and Cardiff City council, L&G has secured HMRC for a circa 300,000 sq ft headquarters at the Central Square regeneration scheme it is funding in the centre of the Welsh capital.

L&G has now entered exclusive talks to buy the 350,000 sq ft India Buildings in Liverpool from Shelborn Asset Management - where HMRC is set to lease around 250,000 sq ft – for around £125m.

And CoStar News understands L&G has also entered talks to forward fund the 240,000 sq ft of offices that GPU is in talks to prelet at Miller Developments’ Arena Central scheme in the centre of Birmingham.

L&G is in talks to buy the India Buildings on Water Street from Shelborn Asset Management for circa £125m, on condition that HMRC confirms plans to take around 250,000 sq ft of the 350,000 sq ft building. Shelborn is being represented by Knight Frank.

Place Northwest has reported that the acquisition would be the largest office investment seen in the northwest city.

CoStar News revealed in January that The Government Property Unit is in advanced talks to take 240,000 sq ft of offices at Miller Developments’ Arena Central scheme in central Birmingham. CoStar News understands L&G has entered talks to fund the development on condition the lease is completed.

Three developments in Birmingham city centre had been shortlisted for what is the first tranche of a larger office requirement. The requirement is on behalf of a number of government departments including HMRC.

The three shortlisted developments were: M&G and Ballymore’s Three Snowhill; Miller Developments’ Arena Central scheme; and Chatham Billingham’s Post & Mail site.

At the end of 2016 HMRC signed a 107,000 sq ft pre-let at Salmon Harvester Properties' 3 Glass Wharf in Bristol city centre - in a deal first revealed by CoStar News - with the new development to be forward funded by Legal & General .

Legal & General Investment Management Real Assets (LGIM Real Assets), on behalf of Legal & General Retirement, has agreed to forward fund the new scheme after HMRC pre-let the entire office element on a 25-year index linked lease.

It is understood HMRC is paying close to the £28 per sq ft tenants have paid at the adjoining 2 Glass Wharf. The tax authority is taking eight floors in the building, including secure basement parking, from 2019.

The scheme should be ready for HMRC to commence fit-out in 2018. HMRC anticipate the first members of staff will move in from 2019.

LGIM Real Assets has previously said that the mixture of top specifications, strong environmental credentials, and a long term agreement with the covenant strength of the government departments fits ideally with its investment strategy for matching its pension liabilities.

BNP Paribas Real Estate represented HMRC; Alder King advised Salmon Harvester on the letting and HSM advised on the investment and funding.

In Cardiff HMRC has chosen Rightacres, Legal & General and Cardiff council’s Central Square regeneration scheme in the centre of the Welsh capital as the preferred option for a circa 300,000 sq ft headquarters in Wales ahead of two other shortlisted options – Rapport and Stoford’s two acre site covering a car park and offices on Bridge Stree, and a JR Smart development site at John Street and Callaghan Square.

HMRC is expected to pay an inflation linked rent of £16 a sq ft pa on a 25 year lease with no break

The GPU has been making progress seeking regional hubs in other major regional cities

Last year it first agreed a deal to lease the first 184,000 sq ft at Building 1, Ruskin Square, Croydon from Schroders and Stanhope with an option to take double that again at the site.

HMRC also looks set to pre-let 180,000 sq ft at Artisan Real Estate’s New Waverley development for a new regional hub in Edinburgh.

In Glasgow it has shortlisted three sites for a circa 250,000 sq ft office - HFD Group’s 177 Bothwell Street, BAM Property’s 300,000 sq ft Atlantic Square redevelopment, Drum Property Group’s planned regeneration of the Tradeston Street area on the banks of the Clyde.

In Manchester it has shortlisted five sites for a first circa 3 00,000 sq ft requirement with the overall requirement thought to be close to 900,000 sq ft. The sites are:

• NOMA - Hermes Investment Management and the Co-op's 20-acre mixed-use neighbourhood linking the central shopping district in Manchester with Manchester Arena, the Northern Quarter and the revamped station.

• Muse Developments, Legal & General and the Homes & Communities Agency's £650m New Bailey scheme

• The £750m Circle Square joint venture site between Select Property Group and Bruntwood

• Patrizia and Greater Manchester Property Venture Fund's First Street development

• U + I, LCR, Manchester City Council and Transport for Greater Manchester's £850m Mayfield development next to Piccadilly station

CoStar News was unable to talk to parties involved with the above transactions as the government is in purdah, a period of time immediately before elections or referendums when it cannot respond to the media.

The GPU is advised by JLL.

pnorman@costar.co.uk

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