Great Portland buys Royal Mail building freehold

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roperty group Great Portland Estates (GPE) has been giving its cheque book a bashing, buying up properties in London's West End.

The company has exchanged contracts to acquire a major 2.3 acre freehold site between Rathbone Place, W1 and Newman Street, W1, 50 yards north of Oxford Street. Completion is set for 22 September.

GPE will pay Royal Mail Group (RMG) £120m in cash for its freehold interest and has leased back the entire site to RMG until June 2013, with GPE receiving total net rent of £4.6m. After that, RMG will vacate the building, at which point GPE expects to commence a major mixed-use redevelopment.

The price paid by GPE, excluding the leaseback rent, equates to a capital value of £313 per square feet, the company said.

RMG will share in the potential future profits should GPE redevelop the site via an overage arrangement after GPE has received a priority profit equating to a compounding 12% return on all capital expended. If available, the next 1.5% (or £10 million if higher) of return will be paid to RMG, with any surplus thereafter split 80:20 in GPE's favour.

Meanwhile, the Great Ropemaker Partnership (GRP), a 50:50 joint venture between Great Portland Estates and The BP Pension Fund has exchanged contracts to acquire 200 & 214 Gray's Inn Road, WC1, from an affiliate of Beacon Capital for £132.75m, reflecting a capital value of £455 per square foot. Completion is set for 18 October.

Ben Chambers, GPE Investment Director said: "We are delighted to have acquired 200 & 214 Gray's Inn Road at an attractive initial yield of 6.4% and a low entry cost of £455 per square foot, significantly beneath our estimate of its replacement cost."

Chambers added that there are opportunities for GRP to add significant value through active management. "Furthermore, it is in an area we expect to benefit in the medium term from the impact of the Crossrail and Thameslink projects at Farringdon, and the continued development activity around King's Cross and St Pancras," Chambers said.