Cash-rich Asian SWFs buying up City

By Bridging Loan Directory -

Asian sovereign wealth funds are leading investment in the City of London and Canary Wharf as capital dries up for big-ticket assets, according to Cushman & Wakefield and reported by IP Real Estate.

Head of City investment Bill Tyser told IP Real Estate that, since 2008, Asian sovereign wealth fund investors had acquired on average four properties annually in London’s financial district, targeting what he described as “large, shiny, well-let, freehold, income-producing buildings” with price tags above £100m (€120m).

“Internationally, you can’t easily get those lease lengths elsewhere with indexation and upward rent reviews,” he said. “They’re rare commodities.”

Overall, investors closed 108 deals worth £6.3bn last year, compared with £4.7bn in 2010.

“The number of players that can invest that much in one deal is limited – especially when there is no financing in the market,” Tyser said.

“You end up with only sovereign wealth funds being able to buy these assets.”

Although the China Investment Corporation (CIC) co-owns the AIM-listed parent company of the Canary Wharf Group via a major shareholding, Tyser said the primary investors in London’s financial district were sovereign wealth funds from Singapore, Malaysia and Korea.

Malaysian sovereign wealth fund Permodalan Nasional Berhad was behind the fourth-quarter, £350m acquisition of two former social housing blocks at the edge of the City.

Despite strong appetite from institutional investors with sufficient capital, deals dwindled in Docklands last year as a result of a lack of supply, picking up only in the fourth quarter with 27 transactions worth £1.75bn.

“The buildings just weren’t there to buy in Canary Wharf,” said Tyser.

Asset valuations effectively priced international private investors starting to dominate West End investment out of the City, according to Cushman & Wakefield.

In the last quarter, Far East private investors concerned with wealth preservation accounted for 35% of acquisitions in the West End, up from 30% the previous quarter.

In contrast, the relatively lower number of private investors in the City and Docklands would be limited to one or two club acquisitions – although Tyser pointed out that Morgan Stanley’s Canary Wharf headquarters had been acquired by a private investor following a tender involving 20 bids.

Another asset at 1 Cabot Square is understood to be under offer on a second sale-and-leaseback deal.

The prospective acquirer is not known.