GPE joint venture acquires 200 & 214 Gray's Inn Road, London (UK)

The Great Ropemaker Partnership ('GRP'), a 50:50 joint venture between Great Portland Estates plc ('GPE") and The BP Pension Fund has exchanged contracts to acquire 200 & 214 Gray's Inn Road, WC1, from an affiliate of Beacon Capital for £132.75 million (approx. €154 million) reflecting a capital value of £455 per ft². Completion is set for October 18, 2011.

200 Gray's Inn Road is a 246,500-ft² (approx. 23,000-m²) grade-A office building arranged over 10 floors that offers highly specified and efficient office space. It is held virtual freehold and is leased to four tenants including Carlton Communications Ltd and ITN at £8.42 million per annum.

The leases expire between 2017 and 2023, with significant rent reviews in 2011 and 2013, and a weighted average unexpired lease term of 6.8 years.

214 Gray's Inn Road comprises 45,500 ft² of predominately car parking and back up accommodation for 200 Gray's Inn Road and is mainly let to ITN until 2023 at a rent of £500,000 per annum. It is held long leasehold expiring June 2174 at a peppercorn rent.

Ben Chambers, GPE Investment Director said "We are delighted to have acquired 200 & 214 Gray's Inn Road at an attractive initial yield of 6.4% and a low entry cost of £455 per ft², significantly beneath our estimate of its replacement cost.

"The building provides a superb standard of office accommodation which combined with the leasing profile, gives GRP opportunities to add significant value through active management.

"Furthermore, it is in an area we expect to benefit in the medium term from the impact of the Crossrail and Thameslink projects at Farringdon, and the continued development activity around King's Cross and St Pancras.

In separate news, GPE will pay Royal Mail Group ('RMG') £120 million (approx. €139 million) in cash for their freehold interest and has leased back the entire site to RMG until June 2013, with GPE receiving total net rent of £4.6 million.

Vacant possession will be delivered to GPE at the end of the lease back whereupon GPE expects to commence a major mixed-use redevelopment.

In May 2011, RMG submitted a planning application for approximately 383,435 ft² of net area including offices, residential, retail and substantial public realm improvements, together with a new public street connecting Newman Street through to Rathbone Place and Charlotte Street. Based upon this scheme, the price paid by GPE, excluding the leaseback rent, equates to a capital value of £313 per ft².

Immediately post completion, GPE will withdraw the current planning application and will begin work on a new proposal for the site, expecting to submit a new application during 2012.

RMG will share in the potential future profits should GPE redevelop the site via an overage arrangement after GPE have received a priority profit equating to a compounding 12% return on all capital expended. If available, the next 1.5% (or £10 million if higher) of return will be paid to RMG, with any surplus thereafter split 80:20 in GPE's favor.

Toby Courtauld, GPE Chief Executive said, "We are delighted to have added this important West End site to our medium-term development pipeline. Its redevelopment will accelerate the regeneration of the East End of Oxford Street, one of London's most exciting submarkets, which is set to benefit significantly from the opening of Crossrail.

"We look forward to working closely with both Royal Mail Group and Westminster City Council to maximize the benefit the site can bring to this part of the Capital."

Source: Great Portland Estates

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