Rockpoint and ADIA to sell Devonshire Square

Rockpoint and Abu Dhabi Investment Authority (ADIA) are finally bringing the 13-strong Devonshire Square Estate portfolio to the market, ahead of its loan expiry in 15 months’ time.

The City of London portfolio will be marketed jointly by CBRE and Eastdil Secured, a subsidiary of Wells Fargo, with an asking price in the high £300m range – below the £410m Rockpoint paid for it in late 2006.

The likely sale of the Devonshire Square Estate was first reported by CoStar News back in September.

CoStar News understands that despite the high profile depature of Aon, the global insurance company, to British Land and Oxford Properties’ Leadenhall “Cheesegrater” Building on a 19-year lease in the second half of 2014, the anchor tenant will remain at Devonshire Square for the best part of the next five years in a staggered lease expiry of its total space.

Aon currently provides £10.7m, or circa 44.5% of the 626,135 sq ft Devonshire Square Estate’s almost £25m annual rent roll across 35 tenants.

Even with Aon staying possibly as long as 2016, its dominant rental contribution across the overall portfolio, combined with the refinancing challenge in 15 months on circa £340m of outstanding debt will make this price target difficult, according to debt investors.

“Aon’s departure, which represents over 40% of the income, together with the fact that debt markets are tough for this type of asset means realistically they will do well to get £325m,” said one debt expert.

For the purchaser of the Devonshire Square Estate, therefore, it presents an intriguing asset management story for the new owner or owners, who can expect an uplift in value once a replacement or replacements for Aon are found. 

This, however, will be a significant task given the fierce competition among developers who are all chasing the same 20-or-so names which have break clauses or lease expires due in the coming years.

There are likely to be a raft of City office invetsors keen to look over the prospectus for the Devonshire Square Estate, which will likely include Brookfield Office Properties, Tishman Speyer, Helical Bar, Max Properties,  as well as private equity players such as Apollo Global Management and Morgan Stanley Real Estate Investing. 

The current vacancy rate is close to zero per cent, following new tenancies taken up in the last four months.

Rockpoint and ADIA first initially appointed just CBRE on an advisory mandate last October, following an 18-month extension and restructuring of the Morgan Stanley securitised loan with a brief to consider both a possible refinance beyond the April 2013 extension while seeking to re-gear expiring leases and maximise value in the City of London office estate south of Liverpool Street.

As part of a restructuring agreement with Morgan Stanley Loan Serving (MSLS), the primary servicer, the joint venture partners injected £3m equity to re-gear leases, which is expected to deliver an uplift in the portfolio’s value by the time of the next valuation.

In addition, the outstanding £285.5m securitised loan in Morgan Stanley’s ELOC No. 26 CMBS will repay ahead of the £50.7m junior loan, which will accrue interest at each interest payment date (IPD), to be repaid at the loan’s maturity on 22 April 2013, or after the sale of the estate, whichever is sooner.

Following the expiry of the interest rate swap last October, which fortuitously was matched with the loan maturity and side-stepping erosive liabilities, Rockpoint and ADIA entered into an interest rate cap of 3%, an alternative hedging tool to protect interest payments on the underlying floating rated debt beyond the agreed threshold.

Rockpoint bought Devonshire Square Estate in late 2006 for £410m from JPMorgan and O’Connor Capital, financed with a £340m senior and junior loan underwritten by Morgan Stanley. After purchasing the estate, Rockpoint sold a circa 25% to 30% stake to ADIA.

Separately in the City, Woolgate Exchange is understood to have gone under offer to a client of Knight Frank’s.

All parties declined to comment.

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