Japan’s SMBC Bids $190M for Nuveen-Controlled London Office Block

Japanese banking giant Sumitomo Mitsui Banking Corporation (SMBC) is bidding to buy a London office block controlled by US investment manager Nuveen Real Estate, as investors from Asia’s second largest economy grow their appetites for UK commercial properties.

Tokyo-based SMBC has gone under offer to acquire One Portsoken in the City of London for £150 million ($190 million), according to market sources who spoke to Mingtiandi. Nuveen had gained control of the asset after the building’s owner, New York-based private investment firm Alfred Equities, in 2022 failed to refinance debt linked to the building, leading it to default, according to UK news outlet Green Street News which earlier reported the offer.

News of the bid comes as Japanese investors rebuild their global property portfolios, driven in part by the appeal of higher yields overseas and a strategic push for international diversification, with a renewed interest in UK and European office assets amid improving sentiment, according to JLL.

“Property values in London have adjusted more rapidly compared to continental Europe,” Matthiew Mequillet, director of Europe, Middle East and Africa office capital markets at JLL told Mingtiandi. “As a result, certain office deals in London now present attractive opportunities for investors to re-enter the market at what appears to be the beginning of a new cycle. We are expecting more Japanese capital to be deployed in the coming months before expanding to key European cities.”

Higher Education Facilities

One Portsoken is said to have been appraised at around £220 million in February 2022, with SMBC’s offer price reflecting a 32 percent discount from that valuation and a yield of 7.25 percent. Prime office yields are averaging 5.25 percent in the City of London and 4 percent in the West End area, according to an October report by Savills. Yields on office properties in Tokyo are currently averaging below 3.5 percent, according to some industry data.

SMBC’s offer for the freehold asset works out to £464 per square foot on a gross internal area basis. The property is leased to a pair of private higher education providers – UK-based BPP Holdings and Boston-based Northeastern University – which use the building as teaching facilities, with the asset generating £11.7 million in annual base rent, according to a marketing document from Cushman & Wakefield.

Situated at the junction of Portsoken Street and Mansell Street in London’s Aldgate area, One Portsoken measures 323,533 square feet (30,059 square metres) in gross internal area and 238,874 square feet in net internal area across basement, ground, and nine upper floors.

Nuveen Gains Control

Alfred Equities, controlled by private investor Abraham Schwartz, acquired what was then known as the Lloyds Chambers building in late 2017 for £97 million and spent an additional £50 million in 2021 to redevelop the 1982-vintage property.

With the UK office market facing plummeting valuations and tightening lending conditions in 2022, Alfred Equities failed to secure refinancing for about £140 million of borrowings on the property ahead of the debt’s maturity in July of that year, which eventually triggered a default.

In September 2023, when the property’s valuation had fallen to a reported £155 million, Nuveen Real Estate purchased a £70 million senior loan on the property from US alternatives giant Apollo Global Management. The acquisition gave Nuveen, which already held a £20 million junior loan against the property, control of the debt associated with the asset.

Alfred Equities began seeking buyers for the asset in late 2023 following Northeastern University’s 98,138 square foot letting in September of that year, which brought the building to full occupancy. The institution currently accounts for 43 percent of the property’s rental income, with the remaining share earned from BPP Holdings.

Brokers began formally marketing the asset in March of this year, with Alfred Equities said to have sought £160 million for the asset. Alfred Equities and Nuveen, which is a subsidiary of US financial retirement services provider TIAA, had not responded to Mingtiandi inquiries by the time of publication, while SMBC could not be reached for comment.

UK Investment Blitz

SMBC’s planned acquisition of One Portsoken is the latest in a series of UK office investments by Japanese investors since 2023.

“While the US remains the primary destination (50 percent to 60 percent of capital outflows), we’re observing renewed interest in real estate opportunities and deals in London and key European gateway cities from Japanese investors,” Mequillet said.

Earlier this year, Nomura Real Estate Development announced a pair of office investments in London’s West End, including the acquisition of a building at 55 St James’s Street as well as its participation in the Fitzrovia redevelopment project alongside UK fund manager M&G Real Estate.

Last year, Mitsubishi Estate acquired an office building formerly leased to WeWork at 125 Shaftesbury Avenue in the West End from a joint venture of Savills Investment Management and Korea’s Vestas Investment Management, months after completing its JPY 114 billion 8 Bishopsgate office redevelopment project in the City of London. At the time that deal marked the Japanese real estate giant’s largest overseas project to date.

Mitsui Fudosan last year teamed up with local builder Greycoat Real Estate to purchase Sancroft, an office building in the City of London also known as 15 Newgate, for £315 million from defaulted Shanghai-based developer Shimao Group.