Great Portland Estates this morning confirmed the acquisition of two West End developments and the formation of a profit share and debt structuring arrangement with Eurohypo to develop the properties.
The central London REIT has bought the special purpose vehicles, which own Marcol House at 289-295 Regent Street and 23/24 Newman Street from Istithmar World for £10m upfront and a share of potential future profits, as revealed by Property Week two months ago (25.09.09).
The acquisition was revealed alongside Great Portland’s half-year results to 30 September, which showed an 8.2% drop in net asset value to 225p a share. The six-month period was one of two contrasting halves, reflecting the bottom of the UK market being reached in July. In the second quarter the NAV rose 4.2%, driven by a 2.6% increase in the value of the portfolio.
Marcol House is a Grade II-listed, office and retail development site with planning consent for 111,548 sq ft 150 metres to the north of Oxford Circus. Newman Street is an existing office building of 25,200 sq ft with planning consent for conversion to 22 residential apartments and provides the residential planning requirements for the Marcol House site.
Simultaneously with the acquisition, Great Portland has agreed with Eurohypo to restructure the existing debt facility on Marcol House in exchange for a profit share arrangement in the developments. Under this arrangement, Great Portland will begin the development of the two properties early in 2010, providing all of the funding for the £78m development costs.
Great Portland will act as development manager and receive a priority return of up to £26.3m. The next £51m of profit will be split equally between Great Portland and Eurohypo while the excess over a combined valuation for the two schemes of £165m will be shared 50:50 by Great Portland and Istithmar.
“The overall arrangement is innovative in that it unlocks the potential in these sites and allows both Eurohypo and Istithmar to share in the upside,” said Great Portland chief executive Toby Courtauld. “We hope to be able to use this structure on other deals in the future.”