Case Studies

Alban Gate, London

Purchased in December 2000 for £156.5 million. Renegotiated 11 of the 13 office leases. Sold in June 2003 for £239 million. Annualised Investor IRR of 34% on £42 million of investor equity.

Alban Gate, an 18-storey headquarters building spanning a street in the City of London, had suffered delays that led to late delivery of the completed building. It struggled to find a single tenant for its 380,000 sq ft. and eventually let in a weak market to more than a dozen tenants.

Market opportunity

By the time we were offered the building, off market, the location had improved and the passing rents were 30% less than could be achieved at the time. The 13 office leases were then held by just three occupiers. Eighty per cent of the office income was derived from one tenant - JPMorgan Chase - and subject to tenant break clauses in 2006-08. We believed that the large lot size, combined with all those break clauses to so large a tenant, would enable us to buy the building at a substantial discount that could be reduced through active management.

Strategy

We formed a UK limited partnership to purchase the building, with partners including Morgan Stanley Real Estate Fund, Hermes and NatWest Property Investments. Research of JPMorgan Chase’s options concluded that it was unlikely it would take advantage of the break clauses. In 2003 we completed the re-structuring of the leases, with JPMorgan Chase taking a new 22-year lease, without breaks, for the entire building. The building was sold in June 2003, one of the City’s largest single property transactions that year.

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