25.09.09

By Jennifer Rigby

West End-focused REIT in talks to join forces over £200m redevelopment

Great Portland Estates is in talks to set up a debt-based development joint venture for a £200m scheme in London’s West End.

The West End-focused REIT is in discussions with Eurohypo about joining forces on the Cavendish Gate scheme, formerly known as Marcol House, on the corner of Regent Street and Margaret Street, Property Week can reveal.

The innovative plan could mark the first big deal struck by Great Portland following its £166m rights issue in May. When combined with existing credit lines and third-party capital, the issue gives it spending power of £640m.

Cavendish Gate was bought by Property Merchant Group and P&O Estates, part of Dubai World, for £64m in 2006. Eurohypo provided a £35m loan for the purchase.

Values have fallen considerably since then and Great Portland plans to work with Eurohypo to help the bank recover its money. Property Merchant Group is mounting an eleventh-hour challenge to buy the asset with a new backer.

The site comprises three multi-let buildings and has planning consent for a 120,000 sq ft redevelopment behind the listed facade, which has an estimated completed value of £200m.

The development would also include 23-24 Newman Street, which has planning consent for a 22-flat scheme. This would fulfil Westminster City Council’s requirement for a residential element in the Cavendish Gate scheme.

Great Portland Estates is thought to be in talks with several banks, including Lloyds Banking Group and the Royal Bank of Scotland, about setting up similar joint ventures on development projects in its West End core market.

At the equity raising in May, Great Portland chief executive Toby Courtauld said it would “take advantage of attractive investment opportunities” across London.

Last week, JP Morgan analyst Harm Meijer said: “We believe the company now needs to deliver on attractive acquisitions. It will also be interesting to see the type of transaction, and valuation implications, as we believe it is unlikely to be a ‘plain vanilla’ deal.”

All parties declined to comment

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Source: Property Week (www.propertyweek.co.uk)