Palace Capital has scrapped plans to add three storeys to a Leeds office building occupied by the Bank of England, telling shareholders the project is “not currently financially viable”, after the property’s value halved.
Bank House, at 27 King Street, was harder hit than any other Palace property in the REIT’s half-year results, released today, accounting for £5m of a £15.6m deficit and 11.4p per share of a 34p EPRA NTA per share drop.
CBRE, which has replaced Cushman & Wakefield as Palace’s valuer since its full-year results, valued the Grade II listed building at £5.3m, down from £10.1m at the end of March. The agency valued the entire portfolio at £235.6m, a drop of 6.5%. Excluding Bank House, that drop stood at 4.6%.
Palace bought the 89,000 sq ft building for £10m in early 2015, shortly after it was listed. It was constructed around 1969 and was designed by Building Design Partnership for the Bank of England, which now only uses the ground floor and basement as a money handling and processing facility. The rest of the building is held on short-term tenancies.
The building’s falling value, along with soaring construction costs, mean Palace has now dropped plans for three new storeys and “extensive” exterior alternations, which were approved by Leeds City Council last month.
“The company has now conducted detailed viability analyses of the proposed scheme for which planning permission was sought and has determined that such a scheme is not currently financially viable,” Palace said in its results statement. “Accordingly, the company is now analysing options for the refurbishment and remediation of the existing building, alongside environmental improvements.”
Palace is also reviewing whether there is a case for de-listing the building “as part of the process to maximise its value for sale in due course”.
The REIT has been looking to offload assets since a strategic overhaul earlier this year, ahead of which founder and chief executive Neil Sinclair left the business.
In October, however, the company said the economic downturn meant it would pause the disposal programme, and in today’s results added that “due to significant volatility and uncertainty… this remains the case”. The company sold four properties in the six months to 30 September for £4.8m, 25% ahead of the March 2022 book value.
To send feedback, e-mail tim.burke@eg.co.uk or tweet @_tim_burke or @EGPropertyNews
