Days before last Christmas, when shoppers were streaming through its doors to stock up on last minute presents, one of the owners of the 1.6m sq ft Bluewater shopping centre in Kent abandoned its hunt for an investor to buy a £120m stake in the asset.
Hermes Real Estate dropped the sale of the remaining 7.5% of its original 10% slice of the scheme, having previously sold the other 2.5% to Invista Real Estate Investment Management.
Last October, Hermes instructed niche shopping centre investment agent HP Four to find a buyer, giving as a reason that it was looking to rebalance the BT Pension Scheme’s real estate portfolio, in which the asset sits.
By offering investors the chance to buy into one of Europe’s largest shopping malls, Hermes has thrust Bluewater into the spotlight at a time when the scheme faces competition from newer developments which are popping up in the region, most notably Westfield’s offering in Stratford, east London.
So, is Bluewater all at sea?
GIC, the government of Singapore’s sovereign wealth fund, is understood to have considered buying the stake, and PRUPIM and Canadian Pension Plan Investment Board also looked at the opportunity.
Hermes and GIC decline to comment.
Complex ownership structure
Hermes’ decision to shelve the sale surprised some observers, but market sources say the complex ownership structure – which means the investor would actually buy into a trust with Invista rather than buy directly into Bluewater – deterred potential investors.
At the same time as the Hermes drama was unfolding, Lend Lease Real Estate Investment, which owns a significant slice of Bluewater, was busy confirming its stake in the development’s future. Last December, it extended the life of the Lend Lease Retail Partnership, which owns a 25% stake in Bluewater, until November 2017. The partnership had been due to terminate in March 2011.
Lend Lease, which manages Bluewater as well as part-owning it, has a fight on its hands as rival schemes spring up across the South East. It argues that Bluewater remains a strong asset, and that it continues to invest in its future as the shopping mall sets course for its 13th year of trading.
Richard Loveland, senior asset manager at Lend Lease, points out that 34 brands opened stores last year, and sales are up 3.3%, which he says outperformed the market.
“We own 30% of the centre, and manage the lot of it, and we are constantly working to keep the centre fresh,” says Loveland. “We relet 10% of the shops in 2010, and we have seen 25-30 stores refurbished, and that is a good way to keep it fresh.”
Highlights include a large increase in floorspace for fashion retailer All Saints, the arrival of music and lifestyle brand Hed Kandi and the first of Cadbury’s new concept, Cadbury Cocoa House. New arrivals into the UK also continued to beat a path to Bluewater. Spanish fashion brand Desigual signed up for 2,900 sq ft, and premium Brazilian footwear brand NAO Do Brasil took 1,100 sq ft.
Leisure offer
Loveland is anxious to rebut criticism that Bluewater’s customer dwell-time is shrinking as a result of a poor leisure appeal. Last April saw Japanese video game firm Sega launch its XD Motion Theatre at Bluewater, and he says it is part of an evolving leisure offer.
“Bluewater isn’t just retail – the Sega ride has done well, and we have 50 acres of landscaped grounds, which appeals in the summer, but we do understand that our guests need to have everything they require,” he says. “The centre was built 12 years ago, and we need to continually improve. That is why we are opening the new events venue, and we are including in that five new restaurants. Demand from restaurant operators is phenomenal.”
A refreshed tenant line-up is also promised. Bluewater insiders prefer not to talk about forthcoming deals, but it is understood that US fashion chain Forever21 is in talks for a 60,000 sq ft store. Meanwhile, clothing retailer Superdry, which opened a 17,000 sq ft store on the upper level of Bluewater’s Thames Walk in 2009, now says it wants a bigger outlet. Fashion retailer Ted Baker also wants to expand its sales area by around 20%.
Creating larger units is a priority, says Lend Lease. It already plans to combine existing units and use mezzanines, but small new-build extensions are also on the agenda. “We could add 5,000 sq ft here, 10,000 sq ft there,” speculates Loveland.
Confidential business plans are understood to show Bluewater’s £90m pa rent roll growing steadily over the next five years, but outsiders suggest it will be hard work.
Headline zone A rents have slipped from £415 per sq ft to £400 per sq ft. Although this represents a modest 3.6% drop at a time when many high street stores have seen rents tumble much further, it sends a warning that growing income when rents are under pressure will pose Lend Lease some tricky problems.
But the developer is undeterred. Its 28m visitors pa come from the most affluent catchment of the big UK shopping centres. Loveland says: “Sales in 2010 significantly outperformed the Investment Property Databank benchmark for retail investment. I think that is because we have had no big changes in ownership since Bluewater was built.”
Bluewater’s owners and manager cannot afford to relax, however. Westfield’s 1.9m sq ft Stratford shopping complex, due for completion this year, will impinge on the mall’s eastern catchment. The fight for shoppers will soon be on.
Tale of two centres: Fremlin Walk and The Pantiles
Hermes Real Estate’s stalled sale of a stake in Bluewater is not the only retail investment deal in Kent to fall out of bed of late.
Europa Capital has had a bumpy ride attempting to flip the 350,000 sq ft Fremlin Walk shopping mall in Maidstone (pictured above), while the sale of the Pantiles centre in Tunbridge Wells, which was formerly owned by defunct developer Targetfollow, was pulled last year.
Before Targetfollow Property Holdings and Targetfollow Property Investment & Development were pushed into administration last year, the landlord had been hoping to sell the 56,000 sq ft Pantiles scheme.
Plans had been floated for a redevelopment soon after Targetfollow acquired the scheme for £11m in 2008, but by 2010 it was on the market with a £23m price tag. This would have represented a 6.5% net initial yield.
Savills, which advised Targetfollow, says it had plenty of interest, but hints that the price was too high. Deloitte, the administrator to the scheme, is now considering its position.
The Fremlin Walk story has a happier ending. Last spring, a £100m sale by Europa to Aviva Investors collapsed within weeks when a price could not be agreed. Patience was rewarded in January with a £92m off-market sale to Legal & General Property, on behalf of its UK Property Income Fund.
The lower price might look like a disappointment, but everybody at Europa is smiling. The sale means a £23m profit on flipping the centre, bought in June 2009 for £69m as part of a joint venture with Scoop AM.
