Karlin Real Estate tests market appetite with £200m Project Carolus

Karlin Real Estate has assembled a granular portfolio of 30 secondary UK commercial properties, predominantly acquired piecemeal in under the last two years, for sale with an asking price of £200m.

Karlin logoThe sale of Karlin’s portfolio, dubbed Project Carolus, will be keenly monitored by the market as a bellwether of investment demand and pricing for a re-traded portfolio, as the momentum of secondary trades gathers pace by the big private equity winners of loan portfolios.

A sale at £200m would reflect approximately a 9% net initial yield, based on a circa £18m annual rent roll.

CoStar News understands that the Project Carolus portfolio was predominately assembled from July 2013 through to as recently as this month.

Eastdil Secured has been appointed by Karlin, a subsidiary of Los Angeles-based Karlin Asset Management, to seek a buyer and arrange leverage as would be expected of investors interested in a portfolio of this kind. 

Leverage at up to 80% loan-to-cost (LTC) is thought on be achievable again on portfolios of this kind, which would reflect a whole loan of £160m, in the event that the guide price is achieved.

The sale process trajectory has been in planning since before Christmas, but remains at an early stage with Eastdil expected to be seeking soundings of investment appetite for the portfolio.

Project Carolus is a regional granular portfolio over 2.5m sq ft of regional offices, retail, business parks, logistics facilities, and a maintenance and R&D facility.

The portfolio includes:

  • Two-fifths of the portfolio is comprised of the 16 multi-let North West Mangus office portfolio over 458,000 sq ft which Karlin acquired in a recapitalisation strategy from a defaulted RBS loan in September 2014;
  • the 169,931 sq ft Worldwide House office block in in Thorpe Wood Business Park, Peterborough, fully leased through 2021 to Travelex Limited, the world’s largest non-bank foreign exchange business.  It was acquired from Glanmore Fund Advisors for £16m in July 2013, marking Karlin’s entry into the European commercial real estate;
  • the 405,365 sq ft Phoenix distribution building in Ellesmere Port from Highcross in December 2013, located on a 21-acre site within the Hooton Park Supplier Park in Cheshire, leased to Jaguar Land Rover;
  • the freehold interest in Earlswood Court, a two-storey 41,363 sq ft commercial office building in Solihull near Birmingham, from Helix Property Advisors in December 2013. Since construction in 2002, the building has been occupied by The Paragon Group of Companies, a UK based consumer finance and mortgage lender. While the Phoenix distribution building and Earlswood Court were acquired from separate vendors, the price announced at the time was a combined £18m;
  • Jackson House and New Century House, two retail-led buildings over a combined 97,935 sq ft in Gateshead, near Newcastle upon Tyne, from UK-based real estate firm Reef Estates for £8.55m in May 2014. At the time of the acquisition, the circa 22,000 sq ft retail space was fully leased to Halifax Bank, Argos, JD Wetherspoon pub The Tilley Stone, PureGym and Peacocks.  The office component had been renovated and was as of 10 months ago 52% leased;
  • the three building 111,087 sq ft British Airways UK Maintenance and R&D Facility, leased to British Airways Avionic Engineering Ltd. Karlin acquired the BA facility in Llantrisant, South East Wales, from a private investor for £.7.8m.  Purpose built for BA, the airline company signed a 25-year lease in 1994, currently paying circa £987k per annum and on five-yearly upward rent reviews, expires in March 2019;
  • Sony Building, a three-storey office building comprising 50,655 sq ft of office accommodation on 3.07 acres of land in Wavertree Business Park in Liverpool.  Karlin paid Telereal Trillium £4.396m in August 2014, reflecting a net initial yield of 10.75%.
  • International House, in Stratford Park, Telford, comprised of a 101, 573 sq ft industrial unit and 28,888 sq ft of additional office space. Karlin acquired the asset from B8 Real Estate, acting on behalf of Barlows Ltd, in September 2014 for £6.1m.

Last year, UK regional portfolio trades had a banner year accounting for £15.3bn in investment activity in 2014, according to CoStar 2014 UK Investment Review, reflecting a year-on-year increase in volumes.

“The yield gap between London and the rest of the UK narrowed further in Q4 2014, to 260bps.  Although still well above the 10-year average (175bps), this is marked turnaround after reaching a peak of 350bps in Q3 2013,” wrote co-authors of the report, Mark Stansfield and Francesca Cooke at CoStar UK.

“The pace of yield compression is set to slow in 2015 as emphasis switches to value-add and rental growth.”

Karlin Real Estate and Eastdil Secured declined to comment.

jwallace@costar.co.uk

About CoStar News

Finance Editor, CoStar News
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