The riddle of the Pinnacle, the City’s most beleaguered skyscraper development, looks set to finally be solved, if its Middle Eastern owners can find a buyer willing to stump up £770m. Estates Gazette takes an exclusive first look at the complex deal that will unlock the project.
Principal owners Sedco, Wafra and Arab Investments have bought out Pramerica and have agreed to sell the freehold interest in the site to an investor willing to commit to speculative construction of a revised scheme, subject to a profit share.
Under the new structure, devised by adviser CBRE, buyers will be required to pay around £220m for the unencumbered freehold site at the junction of Bishopsgate and Threadneedle Street, and be able to finance the £550m build cost for an immediate start on site.
The revised scheme, including reconfigured retail space and a marginally reduced total floorspace with
substantially higher occupational density, would be expected to net in the region of £1bn once fully let, assuming a yield of around 5%.
The new owner will be entitled to the first tranche of profit up to an agreed level, with the existing consortium then sharing in any “super” profits.
The exact threshold at which profits are shared will be subject to negotiation together with control over the leisure space at the top of the tower.
CBRE chairman Stephen Hubbard said: “When these building characteristics are combined with the proposed terms of the transaction we believe there is a real opportunity for an incoming investor to generate significant returns and own a truly rare asset.”
The level at which the profit share kicks in will “reflect the required rate of return for investors engaging in speculative development while also reflecting the trophy nature of the asset”, according to CBRE director Peter Coates.
CBRE is already engaged in initial talks with investors to gauge interest in the deal and will soon begin a global marketing campaign. Propcos with development management expertise in the UK have been briefed on the rough structure of the proposed deal on the assumption that any overseas investor will be likely to need on-the- ground expertise.
Khalid Affara’s Arab Investments is likely to sacrifice its role as development manager but will remain a beneficiary to the profit share.
HSH Nordbank, which issued the £145m loan to fund the £210m purchase of the site in 2007, will be repaid as part of the site sale.
Contractor Brookfield Multiplex, which settled a legal dispute over unpaid fees for work already completed early last year, will also receive around £20m from the sale as a second charge behind HSH.
Multiplex, engineer Arup, architect Kohn Pederson Fox and consultant Hilson Moran have costed the revised scheme, a process audited by Aecom, and agreed in principal to a guaranteed maximum price contract to complete the project.
CBRE has been approached by several investors that have drawn up radically revised plans for the tower. But Coates said: “The consortium will only consider parties who will develop the revised scheme.”
Alternatives have been ruled out because the need for a new planning consent would delay the consortium’s divestment and jeopardise viability. The City of London Corporation is satisfied the refined scheme does not require a new planning consent as the majority of changes are within the external envelope of the building.
The minimal external alterations are deemed minor material amendments that can be addressed through a section 73 application.
Were the scheme to go back to planning it would be subject to Crossrail and community infrastructure levies of around £20m.
The City has also firmly ruled out any proposals to incorporate alternative uses into the scheme, including residential.
CBRE hopes to have agreed a deal in principal by the end of March, with a view to work re-starting on site before the end of the year. Completion is anticipated in Q4 2017.
The consortium stands to make a substantial loss on the deal, having already spent between £450m and £500m on buying the site, design, planning, finance, legal fees and initial construction work including demolition, piling, the ground floor slab and core up to level six.
CBRE restructure finds it’s what’s on the inside that counts
At 945ft the revised tower will retain its would-be title as the tallest building in the City, as well as its distinctive helter-skelter design.
The external revisions have focused on simplifying the snakeskin cladding to standardise the size and shape of each panel to make it possible to mass produce them.
The more radical internal revisions include a new layout which effectively splits the building into two distinct offices, both accessed from Bishopsgate and Undershaft, but with separate entrances in the north and south cores, offering EC2 or EC3 postcodes to suit tenants’ preferences.
The first boasts 209,000 sq ft of office space over floors two to nine, with floorplates of 19,300 sq ft to 27,600 sq ft and enhanced heights to accommodate trading floors.
The occupational density of the space has been slashed to just one person per 6m² – half the original design.
The space will be marketed to a single large corporate occupier with conservative estimated rental values of around £55 per sq ft.
The tower floors will be accessed by a separate entrance to the south, with lifts leading to a double-height “sky lobby” on floors 10 and 11 (pictured), which could provide meeting, retail and restaurant space.
Office floors 12-53 will all be accessible from the sky lobby, in contrast to the previous design, which envisaged two lift changes to access the higher floors.
Its floorplates will range from around 21,000 sq ft to 6,000 sq ft, with floors 44-53 all boasting private balconies.
ERVs for the tower floors range up to £75 per sq ft.
CBRE director Peter Coates said: “We have adopted current day rents in our financial analysis, with ERVs included at a discount to rents being achieved today on equivalent floors in the Cheesegrater and the Walkie Talkie.”
The tower floors will boast an occupational density of 1:8 up to and including the 48th floor and 1:10 on floors 49-53.
To accommodate the increased density the building will require additional plant and around 50,000 sq ft of lettable space has therefore been sacrificed from the original design. Three floors of plant will sit above the office space.
“The original scheme envisaged a restaurant on floors 57-62, however, initial conversations with the City Corporation have indicated there is a broadly supportive view for conversion to a viewing gallery,” Coates said.
The consortium hopes to agree a long lease on the viewing gallery as part of the deal.
In total, the scheme will boast 974,135 sq ft of accommodation, of which 949,908 sq ft will be offices.
The viewing gallery will be reached via a double-decker lift, accessed from the ground and mezzanine floors of a self-contained lobby off the northern core by Bishopsgate.
jack.sidders@estatesgazette.com
