Hammerson and Standard Life’s decision to bring in third-party equity to kick-start the redevelopment of Brent Cross shopping centre, NW4, will offer investors the opportunity to be a part of one of Greater London’s last major retail-led regeneration projects.
The move to bring in a funding partner to contribute towards 25-50% of the £1.4bn development is likely to appeal to large institutional international investors and sovereign wealth funds.
The two firms are still finalising options for the size of stake with Morgan Stanley, which has been lined up to find a partner. The selected party could invest up to £500m to get the development off the ground, and then retain a final stake in the completed scheme.
Charlie Barke, retail investment partner at Knight Frank, said: “The two Westfield schemes have reshaped London retailing over the past 10 years. Croydon will take that a step further, as will Battersea.
“The Brent Cross extension is the final piece of the jigsaw, at least in the short to medium term. It might be one of the last significant retail development opportunities inside the M25 for a number of years.”
Market sources have suggested that one of Hammerson’s existing partners – GIC, Gingko Tree, CPPIB or ADIA – could be a likely fit. It could also present an opportunity for one of the large US REITs to gain a foothold in the UK and European market.
The recent deal between TH Real Estate and Dutch pension fund APG for a 75% stake in the £1bn Edinburgh St James redevelopment demonstrates the international appeal of retail-led developments. Australian superannuation fund AustralianSuper is understood to have seriously considered the deal.
European retail heavyweight Unibail-Rodamco has also been touted as a potential party. However, initial discussions suggest Hammerson and Standard Life will want to retain asset management, making a deal there unlikely.
Sources said it was a logical decision for both Hammerson and Standard Life to bring in a third party.
“As Hammerson is a public company, it cannot be seen to be taking on any more debt following its recent acquisitions, such as Dundrum for £1bn and Grand Central for £335m,” said one observer.
There is expected to be sufficient demand from any of the sovereign wealth funds, but securing the money will be key and Hammerson and Standard Life are unlikely to want to deliver someone else’s vision.
Brent Cross development: key facts
Ownership: Hammerson 41%, Standard Life Shopping Centre Trust 59%
Earliest start: 2017
Potential completion: 2021
Lettable area: 1m sq ft
Current passing rent: £17.6m pa
Occupancy rate: 98.7%
Unexpired lease term: 6 years
Keeping Brent Cross relevant
Developed in 1976, Brent Cross was the first covered shopping centre in the UK. And despite its dated feel, the mall is still successful. It generates £17.6m in rent and attracts 12.4m shoppers each year.
With an additional 4,700 homes planned as part of the wider Brent Cross Cricklewood scheme, that footfall, and hence rent, is likely to increase.
The existing Brent Cross mall will almost double in size to 1m sq ft and will include more than 40 restaurants, a cinema and a hotel, showing a commitment to the growing trend of increased leisure offering in shopping centres.
The most recent planning document says: “In order to ensure the scheme remains relevant to the changing retail and consumer demands, the new centre will attract leading international and UK brands alongside space for local and pop-up businesses and concept stores to test consumer appetite for the latest trends.”
The developers have also already overcome the greatest hurdle in securing occupiers for shopping centre developments, retaining existing anchors John Lewis and Fenwick, as well as delivering a new Marks & Spencer. The three have been tenants since the centre opened.
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