Credit Suisse buys slice of Cardiff’s 1m sq ft Central Square

By James Buckley - Monday, October 16, 2017 15:47

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Credit Suisse Asset Management has bought Cardiff’s Sir Norman Foster-designed 2 Central Square development, part of the 12-acre, 1m sq ft mixed-use office-led scheme in the heart of the city, in a deal valued at £56.5m, CoStar News can reveal.

Credit Suisse AM simultaneously exchanged and completed the acquisition for the 148,000 sq ft asset at the end of last week, 11 months prior to practical completion of the building.

The scheme – part of Wales’ largest regeneration project - is being developed by Paul McCarthy’s Rightacres Property with development finance from Legal & General Capital.

Credit Suisse, which has bought the asset for one of its funds, has made an initial payment of £20m, with a £36.5m second tranche payment due on completion of the building to account for the construction costs. Structuring the deal in this way, in a tripartite arrangement with L&G, has allowed Credit Suisse to save on stamp duty which would have been due had the building been fully completed. 

The overall price of £56.5m reflects a net initial yield of 6.25%.

Legal & General will use the proceeds from the sale to reinvest into other similar real asset backed economic growth opportunities and said it remains committed to the regeneration of Cardiff city, continuing to fund the construction of the project through to completion of the build phase.

At the back end of last year, law firm Hugh James announced it was to pre-let 100,000 sq ft of office space at 2 Central Square, adjacent to the new BBC Wales headquarters. The deal, which will see the legal outfit relocate to the building late summer of 2018, was the largest office letting in Wales of 2016. It will pay a rent of around £25 per sq ft on a 15-year lease with no breaks.

The lower 48,000 sq ft of 2 Central Square has been pre-let to Cardiff University’s School of Arts and Journalism at a rent of £25 per sq ft on a 25-year lease with no breaks.

Stephen Widnall and Paul McCarthy were involved for Rightacres and were joined by L&G's development department. Knight Frank acted on-behalf of Credit Suisse, while Nicholas Gunn closed the deal for Credit Suisse.

In August, Rightacres and L&G completed the largest ever office leasing deal in Wales with the UK Government opening a new Government hub at 6 Central Square.

Central Square is set to become home to more than 4,000 public servants from several UK Government departments. This includes HMRC, which will run one of its 13 regional centres from the site, and the Office for the Secretary of State for Wales. The UK Government Property Unit (GPU) is overseeing the deal for the new hub.

Construction of phase one of the Central Square project commenced in 2014, with 1 Central Square having completed in March 2016. It was 21% pre-let to Blake Morgan LLP, demonstrating demand for high-quality office space in the area.

Works are progressing on phases two and three of the scheme, which will include a new £120m headquarters for BBC Cymru Wales which L&G have forward funded on-behalf of their life annuity fund, and is expected to be completed by mid-2018, offering a range of new local dining options and amenities for the influx of employees working in the area.

The Credit Suisse acquisition is the latest on the site in recent months. In July Ærium, the European real estate fund manager, acquired 1 Central Square, a newly developed office asset in the centre of Cardiff from Legal & General for £51m. The price reflected a yield of 5.7%, keener than the 6.25% Credit Suisse paid, but a reflection of 1 Central Square’s tenant line up, comprising 5A1 covenants, and also the fact the property is already built. One Central Square was the first building to be completed within phase one of the estate.

Laura Mason, director of direct investments, Legal & General Capital, said: “The transformation of Cardiff Central has been phenomenal and Legal & General’s continued funding commitment alongside the development expertise of our partner Rightacres will see the project evolve at an extremely impressive rate. Central Square is one of the UK’s most impressive and transformational regeneration schemes, and is already delivering major social and economic benefits as well as being a great match for Legal & General’s patient capital. 

“We made a £15bn commitment to investing in UK infrastructure and have already invested over £12bn to date.  As part of this, we remain committed to helping to rebuild the UK’s major regional centres and will continue to seek further significant investment opportunities in future-looking cities such as Cardiff.”

Paul McCarthy, Rightacres chief exec said: “Getting a global player like Credit Suisse to invest at this level in Wales is great recognition of the Central Square development and Cardiff as a prime real estate location. The development momentum continues to build and the level of interest from both occupiers and investors continues to grow.”

Gareth Lloyd, partner at Knight Frank, added: “The acquisition of Two Central Square by Credit Suisse is further evidence that Cardiff is now one of the most sought after destinations the regions for both domestic and overseas investors. Given the strength of the office market dynamics and the ongoing infrastructure improvements in Cardiff we expect this trend to continue.”

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