Brookfield Acquires Major London Office Portfolio for $829M

Brookfield Office Properties Inc. has made a major move into Central London as an office property owner with the purchase of interests in buildings totaling 884,000 square feet for $829 million (£518 million) from British property giant Hammerson, its first major foray into Europe.

Brookfield Office Properties Inc. has made a major move into Central London as an office property owner with the purchase of interests in buildings totaling 884,000 square feet for $829 million (£518 million) from British property giant Hammerson. The acquisition also includes a development site with in-place entitlements for an office and residential tower totaling 857,000 square feet.

Brookfield is funding the acquisition through the assumption of $106 million (£66 million) of debt, additional debt that the company will obtain before the deal closes and available cash resources. The portfolio’s initial cap rate is 6 percent, according to the company.

Prior to the acquisition, Brookfield’s 110-building portfolio was concentrated in downtown areas in the United States, Canada and Australia, including holdings in New York, Washington, D.C., Houston, Los Angeles, Denver, Seattle, Toronto, Calgary, Ottawa, Sydney, Melbourne and Perth. The London deal marks its first sizable foray into the United Kingdom–and for that matter, Europe.

“With a toehold in London since 2010, we’ve been seeking an opportunity to grow our presence in this dynamic market,” Dennis Friedrich, president & global chief investment officer, Brookfield Office Properties, told CPE. “The acquisition is an opportunity to acquire a portfolio of quality in a single transaction at an attractive price. It’s also a key step in our plan to build a significant office property holding in central London, providing us with a platform for future growth.”

Despite the tumult across the Channel in the euro zone, demand for office space in London will increase during the rest of 2012, predicts Knight Frank Research, partly driven by the tech sector. As of the first quarter of 2012, the office vacancy rate in central London was 7.9 percent, which is a bit below the historic average.

The assets Brookfield has agreed to acquire include a 50 percent stake in the 328,000-square-foot 125 Old Broad St., which is 98 percent leased; a half interest in 99 Bishopsgate, a 339,000-square-foot property extensively redeveloped in 1995 and 62 percent leased; the 109,000-square-foot Leadenhall Court, which is fully leased to a single tenant until 2014; and smaller assets that include 1 Puddle Dock and buildings on Shoreditch High Street adjoining Principal Place.

For its part, seller Hammerson is refocusing on retail. Among other things, the company will use the proceeds of the sale to further its Les Terrasses du Port retail development in Marseille, which will open in 2014, and the refurbishment of the Queensgate shopping center in Peterborough, England.

“We have been able to achieve our goal of becoming a pure retail business earlier than anticipated by arranging a single transaction for the majority of our London offices,” said Hammerson CEO David Atkins. “In our strategic review announced earlier this year, we identified the opportunity to enhance returns by focusing our energy and capital on the successful sectors of retail.”