BOC, Guorui Lead $465M Mainland Surge in London Office Deals This Month
by Greg Isaacson
Three mainland Chinese firms are buying up office properties in the City of London financial district this month for a total of £352.5 million ($465 million), in a flurry of deals revealed last week.
Standard Life, chaired by Sir Gerry Grimston, appears keen to sell buildings to Chinese firms
An affiliate of Beijing Guorui Holdings has agreed to pay £134.5 million ($177 million) for a six-storey, grade A commercial building at 100 St Pauls Churchyard, while two other mainland investors – Bank of China and Hengli Group – are said to be close to buying office properties in the area for £68 million ($90 million) and £150 million ($198 million), respectively.
The burst of Chinese deals in London’s prime real estate market indicates that some mainland investors are still able to buy properties overseas, despite a Chinese government crackdown on showy, large-scale acquisitions.
Guorui Builds a London Office Portfolio
GR Properties, a Hong Kong-listed arm of Beijing-based property firm Guorui, announced last week that it had agreed through a subsidiary to buy the building known as Juxon House from a unit of Scotland’s Standard Life, which developed the property adjacent to St Pauls Cathedral in 2003.
Juxon House at 100 St Pauls Churchyard is selling for $102 million
The building has a net lettable floor area of around 123,781 square feet (11,500 square metres), including 100,774 square feet (9,362 square metres) of offices, and is fully let to four office and four retail tenants. Juxon House has a historical rental yield of about 4.1 percent.
The deal forms part of an offshore acquisition drive by Guorui, which made its London debut in August of last year by purchasing Boundary House on the City of London’s Jewry Street for £27.8 million.
Guo Rui, which is controlled by chairman Wei Chunxian, focusses on developing and managing properties in Beijing and last year earned revenue of $18 million. The firm also picked up a land parcel in Santa Monica, California in 2015, where it is developing a three-storey, mixed-use property, and said it will explore more opportunities in the US and the UK.
Bank of China Strengthens British Foothold
On the same day as Guorui’s announcement, Standard Life was said to be selling another building in the neighbourhood to a Chinese buyer. According to a report in the Estates Gazette, state-owned giant Bank of China has agreed to purchase the long leasehold of 60 Gresham Street, a 60,000 square foot (5,574 square metre) office block, from Standard Life Investment’s Pooled Pension Property Fund for about £68 million.
Bank of China is poised to buy 60 Gresham Street for $90 million
The building is next door to Bank of China’s London headquarters at 1 Lothbury, a seven-storey property that the lender acquired in 2009, 15 years after setting up its first London office. The property is tenanted by a range of financial and professional services firms, and Bank of China plans to take over occupation as floors become available.
The reported deal comes as the Beijing-based institution expands its financial service offerings in Britain. This past June, Bank of China agreed with HSBC and ING to jointly finance the £1.15 billion ($1.42 billion) acquisition of London’s “cheesegrater” office tower by Chongqing-based CC Land.
Hengli Group Said in Talks for Lloyds HQ
As part of the spate of deals revealed last week, mainland conglomerate Hengli Group is said to be close to buying the City of London headquarters of Lloyds Banking Group at 25 Gresham Street. Hengli, a textile maker based in the eastern Chinese city of Suzhou, offered about £150 million for the 120,000 square foot (11,148 square metre) office building, according to an account in Bloomberg, citing sources close to the deal.
Lloyds is said to be in exclusive talks to sell and lease back the building to a company linked to Hengli. Under the terms of the deal, which had not been finalised, Lloyds will commit to a new long-term lease on the 10-storey property.
Formed in 1994, Hengli is a large-scale private enterprise that has branched out into real estate by developing over ten residential and office projects in lower-tier cities in Jiangsu province as well as Dalian in northeastern China. The potential London deal appears to mark the company’s first overseas property purchase.
Chinese Investment Down But Not Out
The moves by the set of mainland investors run counter to a dramatic fall in outbound property deals in recent months, as Chinese regulators have intensified curbs on cross-border capital flows and punished companies like Dalian Wanda Group that are deemed to have splurged on overseas projects.
Chinese outbound investment in commercial real estate plunged 51 percent year-on-year to $2.5 billion in the third quarter, the lowest level in 14 quarters, according to a new report by international brokerage Cushman & Wakefield.
Flagship state-owned firms such as Bank of China appear to be largely immune to the capital controls, however, and major exporters such as Hengli may have offshore investment platforms that enable them to skirt regulatory roadblocks.