Tishman Speyer has financed its £132.5m purchase of London headquarters of The Economist Group with a £75m five-year senior loan from Deutsche Pfandbriefbank (PBB).
The Economist Plaza, located at 25 St James’s Street, comprises three mixed-use buildings – the Tower Building, the Bank Building, and the Residential Building – totalling circa 81,000 sq ft arranged around a central plaza.
The Economist Group is expected to vacate its occupied space within 18 months, as part of its sale-and-leaseback deal with Tishman Speyer which closed this month.
The scheduled departure of The Economist Group from the Tower Building, which has housed the editorial staff of The Economist newspaper since 1964, provides opportunistic investor Tishman Speyer with a material value-creation opportunity through securing a replacement tenant.
Tishman’s negotiated a price for The Economist Plaza no doubt factored in The Economist Group intended departure, which will be materially enhanced once the US opportunistic investor re-occupies the looming vacancy in the Tower Building.
Charles Balch, head of real estate finance international clients, UK & CEE at Deutsche Pfandbriefbank, said: “We are delighted to have worked together with Tishman Speyer on this landmark transaction. The UK continues to be a core market for us.”
In the PBB’s first annual results posted by PBB since its IPO completed last July, the listed bank noted that spreads on Pfandbrief bonds – the source of capital for many German banks – are expected to increase this year due to lower demand at current yields. This increase in funding costs could narrow the profitability on Pfandbrief-reliant banks’ new lending.
Dan Nicholson, head of UK at Tishman Speyer, said: “The acquisition of The Economist Plaza, which further expands Tishman Speyer’s portfolio in London. We have a very positive view of the London commercial real estate market and we look forward to repositioning this property as a best-in-class West End office destination.”
Tishman Speyer also owns the Sainsbury’s headquarters near Chancery Lane tube station and an office building in Paddington called The Point.
The Economist Group sold the three-building complex in St James’s to part-fund a £182 million share buyback in August 2015 from Pearson plc, its former parent company, in an effort “safeguard the independence of the company and crucially, the editorial independence of The Economist”.
At the time of the share buyback, Rupert Pennant-Rea, the chairman of The Economist Group, explained that the sale of the Economist Complex was sanctioned by the Board to “shore up an even greater asset, our independence”.
He added: “New offices, with more space for our digital ambitions and the needs of a 21st century media company, will be found for a new chapter in our history.”
Concurrent with The Economist Group share buyback, Exor, the investment company led by the 39-year-old Fiat heir John Elkann, paid £287m to increase its stake from 4.7% to 43.4% and become the single largest shareholder in the Economist Group.
This sequence of transactions was triggered by Pearson’s sale of the Financial Times to Nikkei for £844m in July 2015.