Gatehouse acquires One Sovereign Street
Published: Jul 11, 2010 23:31 Updated: Jul 11, 2010 23:31
London-based Gatehouse Bank, the latest Islamic bank to be authorized by the UK's Financial Services Authority (FSA), has acquired One Sovereign Street, the home of British Telecom (BT's) regional headquarters in Leeds, for 40.175 million pounds sterling in one of the biggest commercial property deals to be closed in Yorkshire this year.
One Sovereign Street represents Gatehouse's third real estate acquisition in the UK to date following its acquisition of the headquarters of Proctor & Gamble in Weybridge, Surrey in December 2009 and a portfolio of student accommodation units in Liverpool and Loughborough in March 2010. This latest transaction brings the combined lot size of these assets to over 100 million pounds making Gatehouse one of the most active non-institutional investors in the market.
The deal comes as a breath of fresh air following recent negative reports about the state of Islamic finance in the UK. All the five Islamic banks in the UK - Islamic Bank of Britain (IBB), European Islamic Investment Bank (EIIB), Bank of London & the Middle East (BLME), European Finance House (EFH) and Gatehouse Bank - all authorized under the UK Banking Act, have had a difficult year in 2009 going through to this year. While some of this is due to the impact of the global financial crisis and the credit crunch, the fundamental problem in some cases lie with flawed business and marketing plans and in one or two cases with mismatched senior management with minimal experience in Islamic finance.
The Gatehouse deal is yet another sign that the real estate market in the UK is bouncing back as investors are increasingly targeting bespoke and added value opportunities in traditional asset classes including real estate, albeit with selective niche opportunities. Earlier this year BLME arranged a 6.8 million pounds mezzanine financing for the Peterborough Garden Park shopping complex development. Other recent Islamic real estate financing for assets based in the UK include the CL Global Property Fund PCC Ltd., which is registered in Gibraltar and which will invest in a portfolio of student accommodation assets and other real estate developments such as residential property and distressed property developments, which may be leveraged through Shariah-compliant facilities such as commodity Murabaha or Ijara arrangements. Indeed BLME was also involved in the CL Global Property Fund PCC Limited agreeing in principle to allocate 25 million pounds as mezzanine financing to the fund.
In September 2009, Gatehouse Bank launched a 350 million pounds Shariah-compliant London Office High Income Recovery Fund. The investment strategy of that fund is to purchase real estate in the London office sector as well as greater London and the London Orbital Sector locations let on long leases to high quality tenants.
The acquisition of One Sovereign Street for 40.175 million pounds is part of this portfolio. Global real estate adviser DTZ advised Gatehouse Bank on the acquisition of One Sovereign Street from UK fund manager La Salle on behalf of Royal Mail Pension Fund.
According to DTZ, the Grade A office space, totaling in excess of 139,000 sq ft, is let on a single lease to BT until September 2020. This is a key strategy of Gatehouse's real estate portfolio - to acquire assets which are rented to blue chip tenants on relatively long leases with upward-only rental reviews.
The deal represents a net initial yield of 6.75 percent. Built in 2002, the landmark building is situated close to Leeds Station, one of the strongest growing business districts in the city. The area has recently benefited from the 'makeover' of the Neville Street underpass. With the anticipated opening of the 13 million pounds southern entrance to Leeds Station in 2012, it is set to continue to thrive as a prime business location in the region.
According to Adam Cavanagh, vice-president of Real Estate at Gatehouse, "This latest acquisition brings the total value of our UK portfolio to more than 100 million pounds. This is a major transaction, particularly in a recovering market, and makes a significant addition to the high quality portfolio that we have established for our clients over the last six months. It is clear that the appetite from Islamic investors for prime real estate investments remains unabated, and we look forward to working on further acquisitions in the near future."
For Richard Thomas, CEO of Gatehouse Bank, this is not his first foray into the commercial property market in Yorkshire. At ABC International Bank, he structured a significant three-phased parallel Istisna for a commercial-cum-residential development in Leeds.
These transactions, however, have to be put in perspective regarding Islamic finance deals in the UK. The business model is too fragmented and deals too few and far in between, not sustainable for a long-term investment banking proposition.
Real estate is also the preferred asset class by far and the challenge for the four UK-based Islamic investment banks is too diversify into other asset classes including sukuk, asset management products, private equity deals and exchange-traded funds and commodities. - M.P.
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