Brookfield Office Properties Inc. has broken into London's financial district, spending $829-million (U.S.) to secure a beachhead in the heart of Britain's banks and insurers.
The company, one of the publicly traded subsidiaries of Toronto-based Brookfield Asset Management Inc., has long wanted to establish a platform in The City, which it views as a third key market in addition to Toronto and New York. It also believes that scale is needed to be successful, and that building a portfolio tower by tower is both expensive and time-consuming.
Brookfield's break came earlier this year after European real estate company Hammerson PLC concluded a strategic review, decided it wanted to concentrate on properties such as shopping centres, and announced it would sell its office properties.
Brookfield is now acquiring most of that portfolio, including three office buildings and a development site that will become the home of new office and residential towers.
The deal comes as the family of Brookfield companies has begun keeping close tabs on Europe for possible opportunities in the midst of the continent's woes.
Brookfield isn't the only interested player. On Tuesday, Walgreen Co., the largest drugstore chain in the United States, struck a deal to buy a 45-per-cent stake in European retailer Alliance Boots GmbH for $6.7-billion, its first deal in that region.
Montreal-based CGI Group Inc. recently announced a $2.8-billion acquisition of Logica PLC that will vault the Canadian company into Europe. Bankers and executives say a number of major firms on this side of the pond are scouring for potential deals as Europe's fortunes diminish.
Dennis Friedrich, president and global chief investment officer of Brookfield Office Properties, said that for all of the pain London's financial institutions have been through, he believes The City is still a good long-term investment. And although Europe is becoming interesting, when it comes to office towers the company will tread more lightly on the continent, he said.
"We're getting intrigued by the opportunities that are coming there [on the continent], but we'll be pretty disciplined," he said in an interview Tuesday.
London, on the other hand, is a market that Brookfield has been coveting for some time. Hammerson initially contemplated selling its portfolio assets one by one, but an eager Brookfield persuaded the company that it would benefit from doing a larger deal all at once, Mr. Friedrich said. It's rare that an entire portfolio of office properties comes up for sale in cities such as London and New York.
"We have been trying hard to establish a platform there," Mr. Friedrich said. "This basically secures us one in one transaction, and it's a platform that we plan to build upon."
The buildings it is picking up are in the insurance district. "There's still strength in the existing insurance companies, and they all like to be around Lloyds of London," he noted.
He said demand from tenants in London, and in New York, is softer than in Toronto, where Brookfield recently announced plans to build a second high-rise tower at the Bay Adelaide Centre in the downtown core.
But he added that rents and prices continue to be relatively strong in London and New York, thanks to their reputations as havens for capital. "We're long-term investors and we believe in London long term," he said.
Brookfield's London properties
- 125 Old Broad St.
This 328,000-square-foot, class A, 26-storey office tower at the site of the former London Stock Exchange was completely redeveloped in 2008. The building is 98 per cent leased to various tenants. Brookfield will own a 50-per-cent stake in it, along with the two existing joint venture partners.
- Leadenhall Court
A 109,000-square-foot office building at Gracechurch and Leadenhall Streets, within steps of the Lloyd's of London building. The building is fully leased until March, 2014, to a single tenant.
- 99 Bishopsgate
This 26-storey, 339,000-square-foot office building was extensively redeveloped in 1995. It is 62 per cent occupied; the refurbishment of the balance of the space was completed a few weeks ago. The property is two blocks from Liverpool Street station and adjacent to the 100 Bishopsgate development, which Brookfield Office Properties owns in a 50-50 joint venture with Great Portland Estates.