Microsoft’s UK headquarters in the Thames Valley, known as Microsoft Campus, is poised to come to market next month, following the imminent appointment of an investment agent, which is expected to prompt a raft of international bids for the former Mapeley asset which could reach £90m.
Carrie Sharp and Neil Forkin of First Investments, the appointed joint LPA receivers over the enforced Mapeley II loan secured by Microsoft Campus, could appoint investment sales agent by the end of this month, with the formal sales process expected to begin within weeks thereafter.
The much-anticipated sale is timed as a positive momentum builds within regional domestic commercial property investment, coupled with a considerable weight of both equity and debt capital which is seeking to deploy before the year end.
Microsoft Campus was last valued in August 2012 at £82m, by DTZ, in the 13 months since, property fundamentals have improved within the regions, while macro volatility has eased.
The Microsoft Campus spans four interconnected buildings in total, three of which – the 108,942 sq ft ‘building 1’; the 80,956 sq ft ‘building 2’; and the 56,555 sq ft ‘building 3’ – were acquired by Mapeley from a British Land and Teachers Insurance and Annuity Association of America joint venture for £104.3m in December 2005. Microsoft owns the fourth building.
In September 2010, Microsoft negotiated a 22.3% reduction in its headline annual rent – from £7.29m to £5.66m – in exchange for signing a 15-year lease extension, leaving 12 years left remaining, expiring in September 2025.
At an annual rent of £5.66m, the rent per sq ft has fallen from £30 per sq ft to £22.50 per sq ft, although this will resume to an RPI-linked at the end of a 14 month rent-free which is spread over a six-year period from the 2010 lease re-gearing.
Based on the annual £5.66m rental roll for Microsoft Campus, First Investments’ could sell for around £90m, with the market anticipating a trade at a net initial yield of around 5.5%, the favoured proxy for quantifying investment risk.
The price achieved will, of course, depend on the type of investor which wins, its cost of capital and the cost of any finance used to purchase Microsoft Campus.
First Investments would not comment on the guide price for Microsoft Campus, but the firm’s asset manager, James Raspin, said in a prepared statement, that a number of parties had already expressed interest in the office complex which he expects to deliver “strong interest in the UK and internationally”.
The two likely investor groups are life funds, headed by Legal & General Property, M&G Real Estate and Aviva Investors, and sovereign wealth funds, particularly those which are attracted to the security of income underwritten by covenant of global standing, Microsoft.
The recent comparable is the £207m acquisition of Marks & Spencer’s global headquarters in Paddington, known as Waterside, by a four-strong Korean investor consortium, led by the Korean Federation of Community Credit Cooperatives (KFCC).
Marks & Spencer’s investment grade corporate credit rating, at BBB– according to Fitch Ratings, was a driving influence for both the KFCC-led consortium and the financer, MetLife, which provided a five-year £124m senior loan at 175 basis points.
The investment grade rating supported a tight net initial yield as well as the lowest senior, secured margin seen on a prime London office since the global financial crisis, CoStar News understands.
For such investors, buying Microsoft Campus is not purely a real estate play in the improving regional office markets, it is also rationalised as equivalent to a 12-year duration Microsoft corporate bond, with a coveted triple-A rating from both Standard & Poor’s and Moody’s.
On which basis, the investment rationale for some bidders will also reflect diversification in their fixed income portfolio, or a tactical allocation to the IT sector.
Mapeley’s Microsoft Campus acquisition was part of a wider 16-strong regional UK office portfolio, dubbed the ‘Beta’ portfolio and assembled for £277.9m in late 2005, financed by Deutsche Bank with a 10-year £208.5m senior loan, which itself formed part of a securitisation of 22 senior loans in the investment bank’s £680.85m DECO 8 – UK Conduit 2 CMBS.
Solutus Investments, which replaced Hatfield Philips International as special servicer over the Mapeley II loan in February 2012, accelerated the loan last November after a revaluation of the ‘Beta’ portfolio by DTZ revealed a 51.7% fall in the portfolio’s value to £134.3m.