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UPDATE: British Land, Blackstone To Build London HQ For UBS

Mon, 2nd Aug 2010 13:02

(Adds detail.)

By Anita Likus

Of DOW JONES NEWSWIRES

LONDON (Dow Jones)--The U.K.'s second largest landlord and developer, British Land Co. PLC (BLND.LN), and private-equity firm Blackstone Group LP Monday confirmed they will develop a new London headquarters for Swiss bank UBS AG (UBSN.VX).

The new building at Broadgate Estate will be the biggest in London's financial district, the City, with 700,000 square feet of space, and will be built to UBS' requirements, including office space and trading floors. It will not be a tower, in keeping with other buildings on the estate.

In order to make space for the building, British Land and Blackstone's joint venture company, Bluebutton Properties, will demolish two existing buildings at 4 and 6 Broadgate, on the estate by Liverpool Street Station.

The development, which is subject to planning approval, will cost some GBP340 million, excluding land and interest costs, with both partners sharing the costs.

The deal will be seen as a coup for the owners, and in particular for Blackstone, which bought a 50% stake in Broadgate last summer, close to the bottom of the market. The deal is also crucial for the partners because they will retain their largest tenant at Broadgate Estate.

It will also be seen as good news for other property owners in the wider City of London leasing market because a major bank has decided to commit to London for the long term.

Other buildings expected to proceed soon are Land Securities Group PLC's (LAND.LN) 20 Fenchurch Street skyscraper, dubbed the 'Walkie Talkie' tower, on which it might take a joint-venture partner. It is in exclusive discussions with developers of London's second financial district Canary Wharf Group PLC, the main subsidiary of Songbird Estates PLC (SBD.LN). British Land is currently seeking pre-lets before restarting development at its Leadenhall offices, also in the City of London.

Developers currently are restarting developments to benefit from rising rents, having stalled building as the credit crunch and recession hit the property markets. Because of the stalled developments, the City is facing a shortage of space, so demand will outstrip supply, which will drive rents higher. Property services company King Sturge expects rents to reach GBP67.50 per square foot by the end of 2013 from GBP49.50 currently, which is already about 12.5% higher than the second quarter in 2009.

UBS and the British Land joint venture partners have been talking about a deal for some time and in May signed a nonbinding agreement but details weren't disclosed at the time.

UBS will pay initial headline rent of GBP54.40 per square foot and receive 18 months rent free on its 20-year lease. The rent is in line with what is currently offered in the market but the rent-free period is lower.

But more importantly, the bank will defer any lease breaks in existing UBS lease agreements on other Broadgate buildings.

The Swiss bank will move most of its operations, currently spread across about one million square feet in a number of properties in London, to the new building.

JP Morgan analyst Harm Meijer said that, while the terms of the deal are in line with expectations, UBS deferring its break options on 755,000 square feet of occupied space elsewhere at Broadgate will generate additional income of GBP68 million to the joint-venture partners.

British Land Chief Executive Chris Grigg said, "The new building will enhance the overall quality of Broadgate while generating an attractive development return."

Construction is expected to begin in the middle of next year and the shell and core of the building are scheduled to be finished in the second half of 2014.

-By Anita Likus, Dow Jones Newswires; +44 20 7842 9407; anita.likus@dowjones.com

(END) Dow Jones Newswires

August 02, 2010 08:02 ET (12:02 GMT)

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