The owners of Lloyds Chambers in the City have rejected a c.£100m knockout bid for the building – a £35m premium on last October’s purchase price – in favour of adding value to the asset by pursuing new planning applications, writes James Buckley.
Aeriance Investments, a European commercial real estate lending specialist, alongside a joint venture partner, had agreed terms to buy the building for just under £100m with the building’s owners, a joint venture between USA Treasury Secretary John Snow, Chinese investor Fosun Property Holdings, a trust of Judith Ryan, and James Lapushner, the former head of the Morgan Stanley Real Estate investing business in Germany and the founder of Anacott Capital.
The deal went under offer with backing from Aviva Commercial Finance, which provided the £42m senior loan for the JV owners’ original acquisition, and was prepared to transfer the loan to the new owners.
However, the JV owners have opted against proceeding with the deal and will instead focus on discussions with City planners over increasing the size of the building’s massing before submitting a full planning application for the office space. This strategy will be run concurrently with the possibility of converting the office space to residential usage, for which premium values can be commanded.
In the meantime, the partnership will continue to collect the rental income from Aon under the current lease agreement before the underwriter’s lease expires in four years.
The JV completed its purchase of Lloyds Chambers last October for £64.5m amid perception in the wider market that it had overpaid for the asset.
Now, in light of the recent offer and interest from office occupiers looking to take space in the building, the property has the potential to deliver its owners one of the highest relative returns of any single asset sale in the City this cycle.
Last year’s acquisition of Lloyds Chambers marked Fosun Property Holdings’, a wholly owned subsidiary of Fosun International, first foray into UK commercial property, and sees another compelling entrant to the ever deepening pool of investors into the central London market.
Fosun International is the largest privately owned company in mainland China and is headquarted in Shanghai but incorporated in Hong Kong. The firm’s businesses cover industrial operations, investment, asset management, and insurance.
John Snow, who served as the 73rd United States Secretary of the Treasury under former president George W. Bush, joined Fosun International in 2010 as an adviser to its board of directors.
The asset management vehicle in control of Lloyds Chambers is run by James Lapushner and chairman of Silverfin Development, Mike Ryan.
In January 2013, CBRE and Savills were appointed to sell the 193,450 sq ft office building at 1 Portsoken Street, E1, reflecting a net initial yield of 8.75% and a capital value of £396 per sq ft.
Prior to their appointment, a team comprising CBRE, PLP Architects, Gordon Ingram Associates and Miller Hare undertook preliminary development feasibility studies which supported the potential for the site to support a substantial residential scheme of a minimum 222 residential units, which in principle has the support of the City of London’s planning department.
The 1983-built Lloyd’s Chambers is leased until 23 June 2018 to Aon at a passing rent of £7.1m per annum, equating to £36.61 per sq ft overall with no break clauses.
Aon is not in occupation of the whole and there is an opportunity to negotiate an early surrender with Aon, which would consider disposing of its lease and dilapidations liability.
Aon, which is relocating its global headquarters and is consolidating its London presence to British Land and Oxford Properties’ Leadenhall building from the second half of 2014, sublet its space to Hermes Pensions Management when the insurance company relocated to Devonshire Square.