A four-strong Korean investor consortium led by the ethically-motivated quasi-banking group, the Korean Federation of Community Credit Cooperatives (KFCC), is buying Marks & Spencer’s global headquarters in Paddington for £207m financed by a five-year £124m senior loan from MetLife, CoStar News can reveal.
KFCC, the supervisory body which manages the Community Cooperatives’ (CC) businesses including overseeing the management of its life and pension fund investments, has provided around half the equity to purchase Marks & Spencer’s HQ, known as Waterside, from D2 Private, the Irish property investment company founded by Deirdre Foley and David Arnold.
Hyndai Fire & Marine Insurance, the Korean non-life insurance company specialist, is 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 are thought to have been attracted by the income security of an internationally-recognised retailer with an investment grade corporate credit rating and an effective unexpired lease term of just under 15 years, notwithstanding Fitch Rating’s one-notch downgrade of M&S’ rating to BBB– in May.
The KFCC and Hyndai-majority investor consortium are 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 (pictured below) 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.
Chelsfield sold the 237,801 sq ft Waterside, designed by Richard Rogers, for £140m to D2 Private in 2005.
M&S’ investment-grade credit rating, together with the current supply-demand dynamics of senior debt and the need for banks, insurance lenders and debt funds to deploy capital by year-end to meet lending targets, have combined to provide the Korean consortium with one of the cheapest senior secured loan margins for any prime, central London property in the last five years.
CoStar News understands that MetLife has 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.
Downward pressure on senior margins has been steady over the last 12 month. Just last month, returning senior debt lender GE Capital Real Estate financed Ares Real Estate Group’s £115m acquisition of 10 Fleet Place with a five-year £72.5m senior loan, priced at 200 bps.
MetLife’s £124m senior loan would reflect a 60% loan-to-cost, for the financing mandate arranged by Eastdil Secured, the wholly-owned subsidiary of Wells Fargo.
D2 Private is selling to the Korean consortium the Jersey-based property unit trust which owns the virtual freehold of Waterside, which has a 989-year remaining head lease from British Waterways Board.
M&S is paying an average rent per sq ft of £47.75, which compares favourably against the average for prime rents in Paddington of £57.50 per sq ft, according to a sales brochure by Jones Lang LaSalle and CBRE, which were jointly-appointed to sell Waterside back in February.
A five-year upward-only rent review was due in June, which has been postponed due to the sales process, allowing the Korean consortium to initiative negotiations. Currently, the annual gross passing rent is £11.39m, while annual net rent is £10.83m.
All parties declined to comment.