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Koreans put M&S's Paddington HQ up for sale

By Paul Norman - Wednesday, June 13, 2018 9:30

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Gaw Capital, acting on behalf of the Korean Federation of Community Credit Cooperatives (KFCC), has formally brought to market Marks & Spencer's Paddington headquarters for circa £250m or a 4.5% yield.

As revealed by CoStar News in March Gaw has appointed CBRE and Eastdil Secured to sell Waterside House, the 237,801 sq ft Grade A office building and has now formally launched the sale.

The vendor is seeking a base price on the passing rent which reflects a net initial yield of 4.5% plus a second tranche payment which the parties said will "capitalise the uplift following settlement of the imminent rent review".

The Lord Richard Rogers-designed building is let in its entirety to Marks and Spencer for 10 years and acts the company’s global headquarters.

Marks & Spencer is undertaking a significant refurbishment programme across the building which it has occupied since 2003.

The parties involved said: "British Land’s established ownership at Paddington Central and purchases by overseas investors such as Tishman Speyer and CC Land demonstrate the continued demand for quality product in the high growth sub-market."

The Elizabeth Line opens at Paddington Station in December 2018.

James Rood, Senior Director, Central London Investment, CBRE said: “There is proven investor appetite for high quality assets with secure, long income. With the excitement around Crossrail and overall growth potential of the Paddington market, we are confident that Waterside House will generate significant international and domestic interest. The occupier market in Paddington remains robust and further growth is likely, strengthening the investment rationale.”

KFCC, the supervisory body which manages the Community Cooperatives’ (CC) businesses including overseeing the management of its life and pension fund investments, bought the building for £198.3m – a 5.35% yield – in 2013, providing around half the equity to buy it from D2 Private, the Irish property investment company founded by Deirdre Foley and David Arnold. The deal was financed by a five-year £124m senior loan from MetLife.

Hyundai Fire & Marine Insurance, the Korean non-life insurance company specialist, was the second largest equity backer, alongside two minority stakes which includes a family office, in a deal brokered by GAW Capital.

Both the Korean consortium and MetLife were thought to have been attracted by the income security of an internationally-recognised retailer with an investment grade corporate credit rating. At the time of the acquisition, the KFCC and Hyundai-majority were also thought to be interested in the expansion potential at Waterside, which currently only uses 49% of the site’s entire land.

M&S pre-let the 13-storey building in June 2003 from developer Chelsfield on a 20-year lease, with five-yearly upward-only rent reviews, inclusive of a final five-year lease extension option which can be exercised either by the tenant or the owner.

MetLife’s financing of the deal saw the Korean consortium secure one of the cheapest senior secured loan margins for any prime, central London property at that point in the market cycle. In a deal brokered by Eastdil Secured, MetLife priced the five-year £124m senior loan at around 175 basis points over three-month LIBOR, with at least three lenders submitting term sheets of sub 200 bps.

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