Euro fund manager eyes asset in 'cheap' West End

Standard Life Investments is in talks to sell 40 Portman Square in London’s West End to European fund manager Aerium in a sign that plummeting values are making the capital attractive for continental investors.

The 100,000 sq ft office block on a 125-year lease has been placed under offer at around £140m, which reflects a 6.75% yield.

The property has been bought for the closed-ended fund manager’s Glen Arrow UK Property Fund, which was set up last October to invest in trophy UK office and retail property and has more than £600m to spend.

The building, developed by Delancey, is fully prelet to US venture capital firm Ziff Brothers Investments and private equity firm BC Partners, at an average rent of £107.50/sq ft on 15-year leases.

NB Real Estate research shows that prime rents in the West End fell by a third over the last year from £120/sq ft to £85/sq ft, so the building appears over-rented.

However, it is understood that London-based Aerium hopes rents will be higher by the time of the next rent reviews in five years’ time.

Aerium manages more than 650 European properties with an estimated value of €8bn (£7.5bn).

The purchase is a sign that falling values and the weakness of sterling is making UK property more attractive to European investors.

Aerium has also launched two funds to target development and investments in Switzerland. It has raised equity from European, US and Middle Eastern institutional investors and has an ‘immediate investment capacity’ of (Swiss francs) CHF1bn (£610m).

It has already bought CHF300m (£183m) of assets: the new Tellpark shopping centre in Schattdorf; the Winterthur shopping centre in Grutzepark; Mars AG’s headquarters in Zug; an office block in central Geneva let to FIPOI; and an office in Montreux let to UBS and GE.

Aerium said it would buy in the office, shopping centre, retail warehousing, light industrial and logistics sectors. The property team is headed by Brieuc de Crombrugghe.

The new funds bring its total assets under management to 14, with an estimated value of more than €8bn (£4.9bn). Two funds are fully invested and have delivered an internal rate of return of between 28% and 35%.

CB Richard Ellis advised Standard Life. All parties declined to comment.

Chelsfield Partners is front runner ahead of a Middle Eastern investor to buy the US Embassy on Grosvenor Square.

A final decision is expected today for the 999-year leasehold, which has been valued at between £250m and £400m. A decision is awaited on whether all or part of the building should be listed. Cushman & Wakefield is advising on the sale.