MEPC, the property investment subsidiary of Hermes Real Estate, has selected a four-strong shortlist of bidders through to the second and final round to acquire three of its seven UK business parks which were put up for sale two months ago.
CoStar News understands all four finalists are joint venture bids comprised of: Oaktree Capital Management with Patrizia; Apollo Global Management with M&M Real Estate; Moorfield with Mount Kellett Capital Management; and Goldman Sachs with Square Metre Properties.
First round bidders which did not make it through to the final round include Blackstone with XLB, Starwood Capital with Catalyst Capital and separate bids by KKR, Pimco and Harbert.
MEPC, which is ultimately owned by the BT Pension Scheme, has called for fully funded final bids on Monday 14 June.
The three business parks are spread over 4m sq ft of mixed-use space leased to 510 tenants and comprise: the 2m sq ft Hillington Park in Glasgow, the 1.2m sq ft Birchwood Park in Warrington, and the 820,000 sq ft Chineham Park in Basingstoke, which includes MEPC as a tenant.
CoStar News understands pricing has improved considerably on the original £400m asking price. While the winning equity price is expected to be toppy this is likely to be counterbalanced by very competitive senior lending terms.
Some of the bidders are expected to bridge the acquisition with an all-cash acquisition, and secure financing post completion which would trigger a senior financing mandate of between £275m and above, depending on final price.
This dynamic of punchy equity price and shallow senior margins for properties outside London is reminiscent of Oaktree and Patrizia’s £245.1m acquisition of SEGRO’s IQ Winnersh in June last year, financed by a £140m Barclays Bank senior loan and a £35m mezzanine loan extended by Europa Capital Mezzanine on behalf of a Korean pension fund.
The financing – agreed 13 months ago – was 220 bps for the senior and circa 6% for the mezzanine facility. Senior margins over the subsequent period have narrowed markedly as competition has increased and lenders’ funding costs have reduced.
Oaktree is thought to again be a competitive finalist, having assembled a significant portfolio of office campuses in the UK. It has been mooted that Oaktree’s exit could be a stock market listing in future.
MEPC, which owns seven business parks in total spread over 7.4m sq ft, plans to diversify its business through recycle the net proceeds by developing estates for fast-growing science and technology sectors in the UK, including for hi-tech and bio-tech companies.
JLL is selling the three-strong business parks portfolio on behalf of MEPC.
All parties declined to comment.