Monday 24 September 2018

Korean investor is said in talks for WeWork London landmark

Landmark: Aermont Capital LLP, the owner of the building at One Poultry (pictured), is said to be seeking a price of about Stg£185m ($240m)
Landmark: Aermont Capital LLP, the owner of the building at One Poultry (pictured), is said to be seeking a price of about Stg£185m ($240m)

Jack Sidders

Hana Financial Group Inc. is in talks to buy a landmark office property opposite the Bank of England that's being transformed into a major WeWork Cos. co-working space, according to people with knowledge of the plan.

Aermont Capital LLP, the owner of the building at One Poultry, is seeking a price of about Stg£185m ($240m), the people said, asking not to be identified because the information is private. A spokeswoman for Aermont, a real estate manager spun out of Perella Weinberg Partners LP, and an official at Hana Financial Investment declined to comment.

Korean investors have been pouring into London real estate this year, lured by higher returns than other western European capitals and lower currency hedging costs than in the US, where interest rates have risen further and faster. Pension funds and securities firms from the region are on track to spend about Stg4bn on property in the UK this year including major deals for buildings such as Goldman Sachs Group Inc.'s European headquarters, according to a forecast by broker Cushman & Wakefield Plc.

Goldman Sachs Group Inc. has agreed to a deal with Korea's National Pension Service to sell and lease back its new London headquarters, in a transaction valuing the property at Stg£1.16bn ($1.5bn).

The Wall Street bank will lease back the building for at least two decades, according to an emailed statement, committing the bank to London for the long-term even as Britain's departure from the European Union looms. The building will be ready to move into by the middle of next year.

It is the biggest deal announced for a London office building this year and the second-largest ever behind last year's sale of the Walkie Talkie tower for Stg£1.28bn.

Banks including Goldman and Lloyds Banking Group Plc have been agreeing to sale-and-leaseback deals in London as they seek to cash in on demand from Asian investors for property in the UK capital and raise funds to reinvest in their core operations.

"The development of Plumtree Court and our signing of a long-term lease demonstrates our continued commitment to London and our European operations more broadly," Richard Gnodde, vice chairman of Goldman Sachs and CEO of Goldman Sachs International said in the statement.

Goldman developed the building itself and plans to use the space for 8,000 workers to consolidate staff from its current three main London offices.

Korean investors have been resurgent in London's real estate market this year and the deal marks NPS' first acquisition in the UK capital since its 2009 purchase of Citigroup Inc.'s Canary Wharf tower. Investors from South Korea spent Stg£1.1bn on U.K. commercial property in the six months through June, more than double the amount in all of 2017, and are forecast to spend Stg£4bnin the year through December, according to broker Cushman & Wakefield Plc.

Goldman's new European headquarters "is well-aligned with our defensive strategy and will be an excellent addition to our already strong core portfolio," Scott Kim, head of global real estate at NPS said.

The 10-storey building spans about 826,000 sq ft (76,740 sq m), the equivalent of almost 13 soccer fields, and has the flexibility to be occupied by multiple tenants, according to Goldman Sachs' statement. In a tweet last year in October, former Chief Executive Officer Lloyd Blankfein said the bank was still "expecting/hoping to fill it up but so much outside our control #Brexit." The building will also boast a fitness centre, on-site health services and childcare.

The terms of Hana Financial Group's bid to acquire the One Poultry Building from Aermont Capital LLP meanwhile, have not yet been finalised and there is no certainty the deal will be completed, the people familiar with the matter said.

The property, best known for its stripes of pink and yellow limestone and the rooftop Coq d'Argent restaurant, occupies a prime spot in the centre of the City of London financial district and has historic protections. The property is being modernised for WeWork, which leased the space last year after previous tenant Aviva Plc moved out.

Leasing space to WeWork can have a downside, though. A study conducted by Cushman & Wakefield Plc found that properties for which WeWork accounts for more than 40pc of the rent typically sell for lower prices. That reflects caution about the limited trading history of the co-working company that's now the largest private office tenant in London.

Moody's Investor Service last week dropped its ratings of WeWork and its inaugural bond deal, citing a lack of information about the company's creditworthiness.

Moody's wasn't being paid for the rating, according to a spokesman for the company that runs shared office space for tenants from start-ups to large enterprises. The credit grader published an unsolicited assessment in April that ranked WeWork's $702m of unsecured debt in the lowest speculative-grade tier. That was lower than the grades assigned by Moody's rivals S&P Global Ratings and Fitch Ratings.

WeWork saw voracious demand for its debt bond offering, ultimately boosting the size of the deal by 40pc. The ratings it received spanned across the junk spectrum, underscoring the difficulty of assessing the creditworthiness of start-ups with big ambitions but negative free cash flow.

Moody's rated the company B3, or six steps into junk, and its seven-year unsecured bond one notch lower at Caa1. Fitch Ratings grades the notes BB-, meaning "speculative" but with adequate financial flexibility, while S&P Global Ratings assigned them B+, or "more vulnerable to non-payment."

A representative for Moody's declined to comment beyond the statement.

(Bloomberg)

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