Legal & General Capital and Lendlease have teamed up together in a bid to buy Network Rail’s Arches portfolio.
A frenzy of interest has reached fever pitch around the process codenamed Project Condor. Of around 20 submitted bids, a cluster of aggressive bids are understood to have been submitted at between £1.3bn and £1.4bn with the joint venture between the pair amidst the mix.
By use category the 5,476 asset portfolio is 28% industrial and it is understood that Legal & General is considering, were it to be successful in buying the portfolio with Lendlease, to integrate some of the assets into its Industrial Property Investment Fund (IPIF).
In February, the £2bn IPIF was turned from a closed-ended, fixed life vehicle into an evergreen open-ended PAIF and current fundraising efforts could be put towards the purchase.
London assets make up 77% of the Arches portfolio by income; L&G is considering creating a specialist fund to hold similar properties in the capital, which could be capitalised by internal mandates.
Lendlease would take a lead operational role were the duo successful in buying the portfolio. However, Lendlease will also be a capital partner and could use the buy to help revive its own European fund management business which currently does not manage any vehicles other than the liquidating Lendlease Retail LP.
Lendlease has been rapidly expanding its number of projects in London in recent months. Most notably, last month it was selected by HS2 as the preferred developer of a £4bn project around Euston station, it is teaming up Starwood Capital to develop Silvertown Quays and was last week it was put on a shortlist of two by Peabody to develop Thamesmead Waterside.
The pair have worked together previously having invested together in the Performance Retail Limited Partnership, which owned UK shopping centre assets.
Any end buyer of the Arches will essentially have to be custodian of public sector assets with many properties integrated into the railway system. Legal & General has a strong track record of linking up with public sector bodies having been the prominent buyer of the Government Property Units’ hubs and is working alongside councils on regeneration projects in Leeds, Newcastle and Manchester.
It is expected that a relatively large number of bidders for the Arches will be taken through to a second round of bidding and that operational and capital partners will start to team up.
Other bidders for the portfolio include Telereal Trillium, Criterion Capital, Blackstone, Goldman Sachs with Wellcome Trust, Terrafirma and Brookfield.
Rothschild is advising Network Rail.
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