Blackstone’s iQ buys defaulted London office for dorms
BLACKSTONE’s iQ Student Accommodation business has bought a plot of central London land out of receivership after its previous owner defaulted on a loan from the billionaire Reuben Brothers.
The 0.6-hectare plot – the former Blackfriars Crown Court in Southwark – changed hands at a significant discount to the value of the outstanding debt, sources familiar with the matter said, asking not to be identified as the information is private. A Blackstone representative declined to comment on the price paid.
The project had a book value of £50 million (S$86 million) and a total outstanding charge of £70 million, according to a report prepared by the liquidator to the company that previously owned it.
The site earlier got permission to be redeveloped into an ambitious 430,000 square feet (39,948 square metres) office project, complete with a sprawling roof garden and swimming pool, but the private equity firm now plans to develop it into student dorms. The deal, which was signed on Wednesday (Dec 11), is the latest in a string of transactions that have seen planned office projects ditched in favour of alternative uses including hotels and student accommodation.
The Covid-19 pandemic has accelerated a shift in London’s office market that’s seen demand concentrated in the most centrally located, well furnished and greenest buildings, leaving a swathe of older properties vacant.
Elevated construction costs and uncertain demand for space has made office developers cautious when bidding on new sites. At the same time, hoteliers and residential investors have been benefiting from surging rents and room rates, encouraging them to outbid office developers.
A NEWSLETTER FOR YOU
Tuesday, 12 pm
Property Insights
Get an exclusive analysis of real estate and property news in Singapore and beyond.
As many as 105,000 full-time students are facing an accommodation crunch in London, according to a report from broker CBRE published earlier this year. The total number of student beds delivered or planned for delivery from 2017 to 2028 is just 2,870 on an annualised basis, falling below the Greater London Authority’s annual target of 3,500.
“As we look to strengthen iQ’s portfolio in towns and cities with high student growth and strong demand for quality accommodation, we are delighted to be making progress on our plans to grow our offering in London – one of the most popular cities in the world for students,” iQ chief executive officer Matt Merrick said.
Blackstone bought the iQ business in 2020 from a venture between Goldman Sachs and the Wellcome Trust for about £4.7 billion in a private real estate deal that was the largest at the time in the UK. The private equity firm has since invested heavily in the platform which now has about 35,000 beds, up from 28,000 when it was acquired.
It is currently developing three projects in Glasgow, Warwick and Manchester that will add 3,000 beds and cost about £425 million to develop.
The Southwark project’s previous iteration was a victim of timing, with developer Fabrix London acquiring the site on the eve of the pandemic when competition was fierce. Its ambitious redevelopment plans ran into surging construction costs as supply chains struggled to cope with lockdowns, while rising interest rates ultimately made it impossible to refinance.
Still, the volume of distressed real estate deals in London has remained a drip, rather than a flood. That’s partly thanks to private equity and alternative capital providers who stepped in to plug refinancing gaps with expensive debt designed to tide borrowers over until rates fell and values recovered.
Can of Ham
Uncertainty over the pace and magnitude of future interest-rate cuts by the Bank of England has also crimped some deals for trophy properties.
Investors led by Nuveen offered the Can of Ham skyscraper at 70 St Mary Axe, whose ovoid form recalls a tin of British luncheon meat, for sale in September, shortly after the Bank of England began cutting rates. They were seeking bids of about £322 million, valuing the building at a yield of 6 per cent, a comfortable spread over borrowing costs at the time and an opportunity for buyers to snap up a fully leased building with the potential for rent hikes when current contracts come up for review.
But stickier inflation and a sharp rise in gilt yields since the building was put up for sale damped demand from potential buyers, causing the sale to collapse.
The top bid for the Can of Ham building, submitted by funds managed by Blackstone, came in at just over £300 million, sources familiar with the process said. Nuveen has since decided not to proceed with that offer but to wait for better pricing to emerge, the sources added, asking not to be identified discussing private information. A spokesperson for Nuveen declined to comment. Green Street News earlier reported the decision.
Its a resurgence of a theme that threatens to derail London’s nascent commercial property recovery, as the gap between buyer and seller expectations widens again after a long period of gradual narrowing that had promised to unlock more activity. It leaves the city’s office market on track for one of its worst years this century even after two years of anaemic deal-making since the advent of higher rates, with forced sales such as Blackfriars Crown court among the few to have closed. BLOOMBERG
Share with us your feedback on BT's products and services
