City Developments Limited (CDL) has acquired Aldgate House, a prime commercial building in London for £183 million (approximately $239 million) from a joint venture between Hermes Investment Management and the Canada Pension Plan Investment Board (CPPIB) to continue expanding recurring income in global gateway cities.
The Singapore-listed developer, which is controlled by the city’s Kwek family, makes this latest UK acquisition as it continues to focus on expanding its European footprint. The 211,000 square foot (19,600 square metre) building adds to a collection of 10 London projects acquired by CDL, and the company also added a pair of German hotels to its portfolio within the last 15 months.
Betting on London’s Future as a Global Financial Hub
“We see tremendous potential in this prime commercial building and we continue to believe that London will remain as a global financial hub,” said CDL’s Group chief investment officer, Frank Khoo in a statement. “The vibrant Aldgate district is home to major occupiers from a diverse sector base including financial, fintech, insurance, legal, cultural and creative companies. It is also emerging as the heart of Digital London and the presence of healthtech companies is expected to increase with plans to develop a world-class life sciences research facility in the vicinity.”
Situated in EC3 district in the City of London and adjacent to the Aldgate station on the London Underground, Aldgate House offers grade A office, retail and ancillary spaces spread over ground and mezzanine levels capped by eight upper floors, in addition to two basement levels. The 1970s vintage building currently has an occupancy rate of 88 percent and is achieving a passing yield of about five percent, the company said. Among the building’s tenants are office fit-out firm ISG, UK financial clearing house LCH and Taboola Europe.
Hermes and CPPIB See 83M Capital Gain in Five Years
A 50-50 joint venture between UK pension fund manager Hermes Investment Management and CPPIB, which manages nearly $281 billion in assets, purchased Aldgate House for £100 million in 2013, and have undertaken significant refurbishment of the property.
The partners had engaged brokerages Corbett Northam and JLL earlier this year to market the property in London’s EC3 district, with the asking price at the time set at £175 million, according to an account in UK real estate website CoStar.
CDL Sees Leasing Upside in Aldgate
Noting that over 45 percent of the office rentals in the building are below market rents in the Aldgate area, “there is strong potential for positive rental reversions,” CDL said in a statement. “The overall Weighted Average Unexpired Lease Term (WAULT) for the building of 6.2 years (to lease breaks) and 7.9 years (to lease expiries) is attractive as this will provide stable recurring income to CDL,” it added.
The company also noted that Aldgate House is well-positioned to capitalize on increasingly favourable conditions for office landlords in the city, as rental growth in the central London office market outlook is expected to continue into 2021, bolstered by the heightened demand and tightening of both existing office stock and new supply. Investment sales transactions in the City of London area have also recorded their highest level of activity since the end of 2015, due to London’s status as a global financial hub and favourable exchange rates.
According to CDL, there is significant potential to add value to the property, through such undertakings as refurbishing office spaces to support higher rentals and converting underused areas to provide additional F&B facilities.
On the Hunt for More UK Deals
CDL’s Khoo said the company will continue to seek recurring income stream opportunities through acquisitions and organic growth to help mitigate the volatility of development projects.
Aldgate House is CDL’s second recurring income asset in London, after the company acquired Development House, a prime freehold office building in city’s Shoreditch area in 2016. The 28,000 square foot property on Leonard Street, in the emerging tech hub, remains fully leased but is expected to be vacant from during this quarter. Planning approval has already been obtained to redevelop the project into a nine-storey building consisting of over 72,000 square foot of net leaseable area.
In addition to the pair of commercial projects, CDL acquired a luxury residential project in London’s Battersea district for £58 million in early 2017. The company announced at the time that it planned to transform the freehold Ransomes Wharf site on the south bank of the Thames river into a £222 million residential project.