Madison International Realty has acquired a circa 14% stake in WELPUT for more than £150m with the New York-based secondaries investor quietly expanding its presence in London.
It acquired the interest in the West End of London fund run by Schroders and Grafton Advisors in the second half of 2016.
The interest was bought with the $1.4bn (£1.1bn) of equity it raised last July to buy property in the US and Europe, with a particular ambition to take advantage of uncertainty in the UK market following the EU referendum. The same fund was pooled to acquire a £200m stake in Oxford Properties’ Paternoster Square assets, EC4.
Madison under offer on Paternoster assets >>
Derek Jacobson, co-chief investment officer at Madison International Realty, said: “That’s a portfolio that we’ve been looking at for many years. And have always tried to find the right opportunity to invest in it, and given where pricing has come, given Brexit and maybe some other outside forces, it’s something we actioned on.”
WELPUT was the most traded unlisted fund on the UK secondary market over the last year, with £212m of units acquired by overseas investors since January 2016. The proportion of international investors in the fund has increased from 15% to 60% since the fund’s modernisation in 2014, when its investible area was expanded to benefit from changing occupier requirements in locations such as King’s Cross, N1.
Madison remains committed to the London offices market, and recently bid on British Land’s 50% stake in the Leadenhall Building, EC3. Jacobson said Madison was initially interested to partner with Oxford Properties, given their existing relationship at Paternoster Square. However, when CC Land made a bid for the whole building, their interest floundered as Madison does not tend to acquire full interests in buildings.
“It turned out that they went in a different direction, with both partners deciding to sell, and frankly at a price that was probably a little too sport for us,” he said. “I think we wanted to throw our hat in the ring and we looked at it seriously. It’s an iconic building with iconic tenants and is tough to not look at. But there’s a price for everything and that was a little too much for us.”
Despite the prospect of Brexit and the soon to be triggered Article 50, Jacobson said Madison remains “pretty bullish” on London. “You have to think of it with a global investor perspective on a relative basis, so clearly there’s turbulence in the US with Trump and everything that is happening. On the Continent, there are elections coming up and I’m not sure what what the European Union is going to look like in the future so despite Brexit and despite Article 50, in some ways you could argue that the UK looks pretty stable.”
Madison describes itself as a “leading liquidity provider to real estate investors worldwide” and has around $3.1bn assets under management. It provides joint venture and preferred equity capital for real estate owners and investors looking to de-lever their properties; seek an exit strategy; or where existing sponsors seek to sell a portion of their ownership position. It likes to do things quietly, with its former interest in Songbird Estates, the majority owner of Canary Wharf Group, only becoming known 18 months after it first acquired a small stake in the business in 2013. In December 2014, it accepted the Qatar Investment Authority’s offer for the company.
Madison has similarly quietly increased its interest in the Houndsditch Estate, EC3, an office portfolio in the City which it originally bought a 50% interest (then valued at around £200m) from TIAA Henderson Real Estate in December 2014. Madison now owns 75% and has sought advice from agents about a potential sale of the estate in the near future.
Jacobson said: “I think everything is for sale for a price. I mean we do have a little bit of leasing to go in the portfolio, so we think we can continue to optimise the rent roll. There’s a lot of opportunity in the portfolio in the medium term, certainly in the long term. That may not be for us. So, it’s one of those portfolios that we continue to monitor but not necessarily something that we would look to exit right now.”
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