Blackstone has sold a £395mn waterfront office complex near the Tower of London to a Singaporean investor, who said turmoil in the UK had created a buying opportunity.
St Katharine Docks, a complex of office buildings, retail space and a 185-berth marina to the east of the City of London, has been acquired by City Developments Ltd, the Singapore-based property group led by billionaire Kwek Leng Beng.
The transaction comes at a difficult time for commercial property investors. Rising interest rates have knocked real estate valuations, and some property funds run by several major investors, including Blackstone, have limited withdrawals as investors pull out.
The UK has been particularly hard hit in the wake of last year’s “mini” Budget, which led to a sharp rise in interest rates and knocked investors’ confidence in Britain.
“The current uncertainty in the UK has provided us with strategic opportunities to acquire prime assets and expand our portfolio,” said Sherman Kwek, City Developments’ chief executive. He said the company is confident in the UK’s long-term economic prospects.
The pound hit a record low against the US dollar in the aftermath of the “mini” Budget in September. It has since recovered from those depths but remains 9 per cent lower against the dollar year on year, making UK assets better value for dollar-based international investors.
Zachary Gauge, head of real estate research at UBS asset management, said that after a sharp fall in valuations at the end of last year, UK property now “appears attractively priced versus other global markets”.
Blackstone said foreign investors were temporarily put off by the turmoil, but pent up demand and cheaper prices for sterling assets could reel in buyers this year. “When I am talking to investors out of Asia, my perspective is that they see an attractive entry point into sterling,” said James Seppala, Blackstone’s European head of real estate.
“My sense is that global capital might have been on pause during some portion of quarter four, but that hiatus could well lead to a rebound in activity over the course of 2023,” he added.
The 23-acre complex near the foot of Tower Bridge, which takes its name from a 12th-century hospital built on the site, was the prize asset of Nick Leslau’s Max Property Group, which Blackstone acquired and took private in 2014. It spans 451,000 sq ft of office space let to tenants including WeWork and Northeastern University and attracts nearly 6mn visitors each year.
Blackstone estimated it paid about £300mn to buy St Katharine Docks as part of the broader deal for Max’s portfolio. It forms part of its fourth Blackstone Real Estate Partners Europe fund, which raised €6.7bn from institutional investors in 2013.
Blackstone is one of the world’s largest real estate investors with a global portfolio worth $577bn and roughly €120bn in Europe, of which 13 per cent is made up of offices.
The deal takes City Developments’ UK portfolio to more than £1bn. It owns two other office buildings in the capital.