Manafea buys Livingstone brothers’ £65m City trophy triggering LoRDS CMBS repayment

London & Regional, Richard and Ian Livingstone’s privately-owned property company, has sold 68 King William Street in the City for around £65m to Manafea Holding, a Saudi investor, which will trigger a £56.6m repayment on the outstanding securitised debt in January, CoStar News can reveal.

Manafea, a four-year old company with investments across real estate, financial services and tourism, closed the sale with the Livingstone brothers on Friday, in the first unwinding of the veteran property entrepreneurs’ UK offices securitised portfolio, known as London & Regional Debt Securitisation No. 1 plc CMBS (LoRDS), writes James Wallace and James Buckley.

The price paid for the EC4 property, which Savills was instructed to sell in January, reflects a net initial yield of 5.5%.

The 97,878 sq ft office and retail building is fully let to Regus and House of Fraser under long-term leases, which expire in May 2023 and April 2033, respectively.

The deal follows Manafea’s £80m purchase of 3 Bunhill Row, EC1, also in the Square Mile, from Henderson Global Investors in December last year – a price which also reflected a yield of 5.5%.

Four weeks ago, the issuer of the Morgan Stanley agency-style LoRDS CMBS set out the terms of a restructuring the portfolio’s £362.45m combined securitised and junior debt which originally was due to mature today, in which London & Regional requested a three-month loan extension to this month’s debt maturity to enable sufficient time for further capex work to improve value.

As part of the proposals put to bondholders in an extraordinary resolution, London & Regional agreed not to sell King William Street for less than £65m, according to the issuer, which is consistent with the a CBRE desktop valuation, dated 26 June 2012.

From this total, £56.6m will be used to repay class A and B noteholders in LoRDS CMBS at the next interest payment pate, on 15 January 2013.

London & Regional’s LoRDS UK office portfolio now comprises four office properties, including three in London and one in Manchester for a combined £219.7m, against an outstanding securitised debt of £177.6m following the January IPD repayment.

CoStar News understands that the original interest-only £128.25m B-note underneath the CMBS debt was held by Hypo Real Estate at the time of origination, which has since been transferred to its bad bank, FMS Wertmanagement.

The combined outstanding CMBS and B-Note debt is £305.85m, which put the securitised LTV at 80.8% and the whole loan LTV at 139.2%.

London & Regional retain the right to a concurrent refinancing or disposal strategy for the remaining portfolio under the terms proposed last month, allowing the Livingstone brotehrs to “to explore any and all alternatives to the restructuring which may include such further property disposals and or refinancing discussions”.

CBRE’s June desktop valuations of the remaining four properties in LoRDS comprised: £79.3m for St George’s Court in Bloomsbury; £68.5m for First Central Business Park in west London; £53.9m for Skipton House in Elephant & Castle; and £18.3m for Trinity Bridge House in Manchester.

AgFe was appointed in June as adviser to London & Regional.

The five-strong portfolio comprises four central London offices and one Manchester office acquired by London & Regional during 2005, valued at a combined £407.3m ahead of securitisation that November.

AgFe commissioned CBRE to conduct a desktop valuation in the same month which has revealed a 43% fall in the value of the five-strong portfolio to £284.7m in the subsequent seven years, as a result of the UK property market’s fragmented recovery and the individual assets lease run-off.

The LoRDS portfolio has been owned and managed by a subsidiary of the London & Regional Group for over 10 years and is fully-let to Diageo, HM Revenue and Customs (HMRC), House of Fraser, Regus, the Secretary of State for the Environment and the Secretary of State for Defence (SOSD).

At Trinity Bridge House, L&R is in discussions with the sole occupier, HMRC, to re-gear its lease, which expires in August next year.

Talks are advancing to grant a new 15-year lease at a rent of no lower than £3.15m per annum with five yearly upward-only rent reviews and a rent free period equivalent to two years. L&R wants to conclude the negotiations by the end of the year.

L&R has also agreed terms with SOSD, the sold tenant of St George’s Court, whereby it will continue to pay rent up to 28 September 2016 together with a dilapidations settlement. The agreement has been reached after SOSD gave notice earlier this year of its intention to exercise its lease break in November 2017.

Additionally, London & Regional obtained vacant possession of St George’s Court in April, which will allow it to undertake a 15-month, circa £30m refurbishment programme whilst continuing to receive rent.

Discussions are now underway with a potential tenant for most of the space in the property, although no heads of terms have yet been agreed.

jwallace@costar.co.uk and jbuckley@costar.co.uk

About CoStar News

Finance Editor, CoStar News
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