UNDOUBTEDLY, London has been a magnet for foreign investors putting their money in the booming real estate sector in the UK capital.
Investors from as far as China, Qatar and Russia have been snapping up prime property assets in the city.
For instance, Chinese investors have paid £1.3 billion for London’s landmark “Walkie Talkie” building. The price tag was the highest ever paid for a single UK building.
The 37-storey tower was nicknamed Walkie Talkie for its distinctive top-heavy shape.
The skyscraper, officially called 20 Fenchurch Street, is being bought by the property arm of Lee Kum Kee Health Products Group, a conglomerate that makes condiments and healthcare products and also develops property.
In 2014, HSBC’s London headquarters was sold to the Qatar Investment Authority for £1.1 billion. Last year, Chinese buyers paid £1.2 billion for the “Cheesegrater.”
The Cheesegrater is the tallest building in the City of London. The deal was touted as the second-biggest ever sale of a UK building.
The developer behind the 224-metre tower, British Land, and its joint venture partner Oxford Properties, the global property arm of a Canadian pension fund, have sold the landmark building to CC Land, a Hong Kong-listed company controlled by Cheung Chung-kiu.
So, it should not raise eyebrows when two big Malaysian investors are seeking to buy another London landmark, the Battersea Power Station.
Permodalan Nasional Berhad (PNB), alongside Employees Provident Fund (EPF), on Thursday announced their intention to purchase the Grade II-listed building, Battersea Power Station Development Company said in a statement.
The £1.6 billion sale will transfer ownership of Battersea Power Station, but not the 42 acre land around the building, overtaking the £1.3 billion paid by Chinese investors for the Walkie Talkie building.
The proposed sale of Battersea Power Station to a pair of Malaysian funds will be one of the largest property deals ever to take place in the UK.
PNB owns 80 per cent stake in the project to develop the power station and the 42 acres surrounding it, through its stakes in developers SP Setia and Sime Darby. EPF directly owns the remaining 20 per cent.
Thursday’s announcement means EPF and PNB will take ownership of the commercial assets in Phase Two of the seven-phased Battersea project. Phase Two is known as the Power Station building, which is the anchor project consisting mainly of retail and office space.
As expected, some sections of the UK media were quick to criticise the deal, even labelling it as a “bail-out”.
But, is it really the case? The rationale for the deal is clear cut: it is a pure commercial transaction, with no government intervention or instruction from the top.
The business case is justified. It has a potentially lucrative deal that will benefit millions of PNB unitholders and EPF contributors through rental income.
As announced, US tech giant Apple will be the main tenant as it has decided to relocate its UK headquarters to Battersea by 2021, a year after the rebuilding of the former power station is completed.
Apple’s move is a huge boost for the £8 billion regeneration of the Grade II-listed building — and a thumbs up for London following June’s Brexit vote.
Apple will take 500,000sq ft — amounting to some 40 per cent of the office space — across six floors in the power station’s central boiler house. It will move 1,400 Apple employees into the building in 2021 from its eight other London offices.
The Battersea site will be one of Apple’s biggest offices outside the US.
The deal follows Google and Facebook signing up for similarly large developments in London. Google is building a campus in King’s Cross while Facebook will occupy offices off Oxford Street.
By the time Apple moves into Battersea power station in 2021, a new London Underground station is scheduled to open at the site, which will connect it to the Northern line.
In addition to Apple, the Battersea Power Station will house 250 homes and other commercial space, including a 2,000-capacity event venue. Phase one of the Battersea development was completed last year.
A Battersea Power Station Development Company source told a UK newspaper that the deal with the Malaysian investors is not linked to reported financial difficulties on the project.
But it was rather a benefit of Apple’s decision to relocate their UK headquarters, which will guarantee a future income stream.
Another source told this newspaper that there had been some interests from foreign parties to buy into Battersea, reflecting the viability of the project.
But the project developer decided to offer it to the PNB-EPF consortium. It was an arms-length decision and has complied with the relevant governance codes.
One of the key challenges facing the EPF-PNB consortium in completing the project is escalating costs.
Building projects across London have faced rising construction costs as a result of the drop in the value of sterling after the Brexit vote, and increased difficulties in attracting skilled workers.
Battersea Power Station was opened in 1933, but the generator was not completed until 1953 after construction was delayed by the Second World War.
The power station generated 20 per cent of London’s electricity supply at its peak.
The power station, which was designed by Sir Giles Gilbert Scott, has been empty since 1983 when it stopped generating electricity and was decommissioned. Various attempts to redevelop it, including turning it into a theme park, have failed.
It was rescued in 2012 by a Malaysian consortium. The Sime Darby-led group has made significant progress, including the successful completion of the first phase of the development which is now home to over 1,000 residents and a collection of independent retailers and restaurateurs.
The Malaysians bought the wider site for about £400 million in 2012, beating at least nine other bids, including one from Chelsea Football Club Ltd.
Will the PNB-EPF gamble pay off? Their detractors might be proven wrong.
As PNB chairman Tan Sri Abdul Wahid Omar puts it: “One should know you can’t compare a derelict land and a developed real estate with good tenancy.
“The reference to 1,000 times the original price is mischievous.”
He said PNB and EPF would buy the building upon completion with ready tenants and decent yield.
The writer feels in a digital world, the winner does not always take all