Rare deal: University move leaves bidders vying for a chunk of Midtown
When the University of the Arts London put its Southampton Row home in WC1 on the market, there was a clear flurry of interest. The1.2-acre site is ripe for redevelopment, and locations of this calibre and size rarely become available.
In 2011, Central Saint Martins College of Art & Design is set to move to Argent’s scheme at King’s Cross Central, N1, paving the way for up to 350,000 sq ft of mixed-use development at the site.
Architects’ proposals include a tall building and other eye-catching elements, but planning consent is far from a given. And with the funding squeeze getting tighter, how many bidders will be able to afford the multi-million-pound price tag?
After inviting expressions of interest in November, agent Drivers Jonas has worked with UAL to select up to 10 second stage bidders for sale and short-term leaseback.
Shortlisted parties are now drawing up detailed bids for the site, which is being sold at the same time as another 90,000 sq ft university asset on Charing Cross Road, WC2.
An announcement of the preferred purchaser is due later this month.
Indicative plans
It is hoped that the sale of the 230,000 sq ft Southampton Row campus will contribute around £60m toward funding the college’s move.
“We’ve had interest from a number of well-known property companies and developers”, says Drivers Jonas planning associate Adam Pappini.
When packaging the site for sale, UAL commissioned architect Woods Bagot to draw up indicative plans. The designs were presented to Camden council in a series ofpre-application meetings, which agreed broad planning principles.
Proposals include converting the college’s Grade II listed Lethaby building into a hotel and serviced apartments. The remainder of the site could provide 105,000 sq ft of grade A offices facing Red Lion Square, together with ground-floor retail.
Demand for residential accommodation has been addressed by proposals for 110,000 sq ft of private and affordable housing, much of which would be accommodated in a 25-storey tower.
“It’s a great site”, says local agent Neil Warwick, partner with Kinney Green. “There’s plenty of demand from hoteliers and residential developers in the area, and the office space would do very well. Today, 105,000 sq ft of top commercial product would achieve £80 per sq ft in that location, and a developer wouldn’t have a problem securing a decent prelet.”
He adds: “When a cautious developer such as Englander Group decides to speculatively develop a building of more than 100,000 sq ft across the road at Number One Southampton Row, it says a lot about how well Midtown is performing.”
Warwick argues that an injection of improved stock is making the area far more sustainable. Be it Land Securities’ New Street Square, EC4 Beacon Capital Partners’ MidCity Place, WC1 or Castlemore’s 40 Holborn Viaduct, EC1, Midtown schemes are attracting a range of occupiers from indigenous businesses looking to expand, City occupiers heading west, or West End tenants looking for better value space.
But whatever the conditions today, Central Saint Martins’ purchaser will have to resort to crystal ball-gazing to predict how the market will look when it gains possession in October 2011.
So who, given the economic conditions, could buy the site?
Agents predict that UAL’s shortlist will include a mixture of UK players prepared to take a punt on long-term growth and affluent overseas bidders keen to get their name against a major London development.
“The market is drastically different to when marketing of the site began last year,” says DTZ director Julian Hodnett. “The seller has to realise that the pendulum has now swung in favour of the buyer, and there aren’t many left able to raise the necessary funds.”
He adds: “Yields have moved out by up to a percentage point in the past 12 months, and that has a major impact on development appraisals. £60m is a very optimistic figure given the circumstances. I’d guess it will go for somewhere between £30m and £40m.”
Pappini concedes that, post-credit crunch, potential bidders have had to reassess their acquisition strategies, but claims there are still plenty of parties keen to exploit the opportunity.
Although UAL will not accept offers subject to planning, it is willing to pay leaseback rental to cover the purchaser’s holding costs, and consider overage offers that incorporate a proportion of uplift payments.
But because the university remains reliant on significant upfront receipts to help fund its relocation programme, if bids fail to meet its affordability criteria, it will be back to square one.
“If it came to that, we’d have to have a discussion with Argent about time frames,” says Pappini. “We’d either have to market the site afresh or go back to the 30 or so parties who submitted expressions of interest. But we’re offering two very high-profile central London sites, and all the signs suggest second stage bidders are committing a lot of time and effort to securing a deal.”
So whoever gets it will need to be a well-funded outfit, which can afford to hold onto the asset and take a long-term view, says EA Shaw partner Charlie Killen.
Commercial space
“There may be a shortage of commercial space right now, but no one company can predict what the scenario will be by the time its development comes on line,” he says.
In an effort to increase square footage and maximise returns, Killen also predicts the successful bidder will want to tweak the architect’s designs, and must be adept at getting a complex scheme through planning.
Although Camden council supports the broad principle of mixed-use development, it is mindful of site sensitivities and constraints. For example, the western section of the site lies within a conservation area, and the Grade II-listed space must be reused in a sensitive manner. Planners also insist that a lot more work needs to be done to support the case for a high-rise tower.
“Bidders need to come up with realistic plans”, says Frances Wheat, major developments team leader in Camden council’s development control division. “These are just notional proposals, and applications of this scale and complexity would involve extensive discussions.”
