Kildare Partners, Ellis Short’s private equity firm, has instructed CBRE and GN2 to seek offers in excess of £75m for 2 Park Street in Mayfair, which if achieved would crystallise a profit of more than £22m in 18 months.
Kildare European Partners Fund I, Kildare’s maiden €2bn opportunistic, acquired the 50,342 sq ft Mayfair office block in October 2013 for £52.5m, including costs, from a Danish pension fund advised by Cording Danmerc, as revealed by CoStar News at the time.
The acquisition reflected a 4.5% net initial yield 18 months ago, which compares to targeted exit net initial yield of 3.34%, based on a £75m sales price.
This circa 115 basis points yield compression would compare quite favourably to the 20 basis points to 3.2%, according to CoStar UK, among the broader West End offices market over the 18 month period to February 2015.
More substantively than yield compression over the period under Kildare’s ownership is the increase in net effective rent the private equity firm has achieved over the period.
Curzon Advisers, an entity wholly-owned by Ellis Short which is responsible for all Kildare’s asset management throughout its European investments, increased the net effective rent from circa £59 per sq ft to just above £90 sq ft for the leases re-geared under Kildare’s ownership.
This has led to an increase in net rent to £2.55m and £3.0m from top-ups after reversionary leases end.
This value uplift has been achieved through straight forward re-gearing on leases which were under-rented, and improving the weighted average unexpired lease term of approximately 5.1 years to expiry and 3.3 years to break.
The deal was sourced by former Royal Bank of Scotland structuring and trading executive director Christian Matthews after he joined Kildare Partners in September 2013. He has since moved onto Park Street Advisors, a corporate moniker inspired by the maiden Kildare office block acquisition.
Kildare acquired the office block after a previous deal collapsed. An initial financing package offered by Münchener Hypothekenbank, through Laxfield Capital, fell through and instead Helaba financed the office block with a circa 65% loan-to-cost (LTC ), which will repay on change of ownership.
However, it is thought likely that Helaba would be keen to refinance the new owner, if applicable.
Current tenants at 2 Park Street includes Triton (West Park Management Services), which is currently in advanced discussions to extend its 10,354 sq ft by an additional 3,090 sq ft which would see an increase on the current £60 per sq ft.
In addition, Sun European Partners occupies 7,327 sq ft at £55.55, with a break clause option 7 November this year. Crossbridge Capital takes 3,618 sq ft at £93.97 and Equus Petroleum takes 2,376 sq ft at £94.70, both leases were re-geared by Curzon.
Laxfield Capital, the UK commercial mortgage advisory and execution firm, also is also a tenant, occupying 1,779 sq ft on a reversionary lease, currently paying £112,077 per annum until December when it will step up to £170,000.
Kildare strategically opted to keep the top floor empty to give prospective buyers the option to be a part owner-occupier given the attractiveness of the location.
The new owner would have the opportunity to gain vacant possession in 2020, which could tempt investors keen on a potential residential conversion. A sale is expected to complete before the summer.
Kildare declined to comment.
CoStar Finance 