Derwent London swaps assets with LaSalle

Derwent London has announced a deal with LaSalle Investment Management where it is swapping 22 Kingsway WC2, Mark Square House EC2, and a 50% interest in a new joint venture at 9 and 16 Prescot Street E1 for a minimum 175-year long leasehold of 20 Farringdon Road, Clerkenwell EC1 and £27.3m in cash.

20 Farringdon Road sits on the corner of Cowcross Street, adjacent to the site of the new Farringdon Crossrail station and opposite 19 Charterhouse Street EC1, which Derwent London bought in November 2013. In its heyday it was the main office for Merrill Lynch. The six-storey property totals 170,600 sq ft comprising 141,400 sq ft of offices, 5,700 sq ft ancillary space, 1,200 sq ft retail, and a 22,300 sq ft gym. The passing rent is £3.6m per annum or £3.2m per annum net of the 10% ground rent. The ground floor offices (26,200 sq ft) are let at a peppercorn with a break in December 2015. The average rent on the other office floors is c.£27 per sq ft with leases expiring between 2015 and 2022. The net initial yield is 3.4%, which reflects a capital value of £545 per sq ft after costs.

Derwent London reckon they can get the rent up in the near term and redevelop the property in time.

The value they are getting for the Kingsway and Mark Sq. properties is premium to their values at June 2014. They are hanging on to the other 50% of 9 and 16 Prescot Street. 9 Prescot Street is a 98,500 sq ft office building, let to two tenants. Barts Health NHS Trust occupies the lower five floors, comprising 60,000 sq ft, on a five-year lease for a rent inclusive of service charge of £1.5m a year. The Co-operative Bank (“Co-op”), whose lease over the whole building was due to expire this year, now lease the top three floors. In total the Co-op occupy 36,600 sq ft, where the lease will break later this year. The joint venture intends to refurbish this space once it becomes available. 16 Prescot Street is an 8,800 sq ft restaurant let at £9 per sq ft. The lease expires in 2021. They say that, in the short term, these properties are income producing, but longer term there are redevelopment opportunities across the whole site.

DLN : Derwent London swaps assets with LaSalle