Yesterday, the UK’s commercial property portal, CoStar reported that the Woolgate Exchange building in the City of London has finally been sold. Formerly owned by David Arnold and Siobhan Foley’s D2 Private and subject to significant lending from what was Anglo Irish Bank, CoStar is reporting the sale price as GBP 265m (€326m) and the buyer is the US investment group, David Bonderman’s TPG – the folks behind Burger King and which at one point were behind a bid for the Royal Liver portfolio of commercial property in Dublin city centre. TPG is joined by Canadian property investment group, Ivanhoe Cambridge. CoStar says the initial yield is 6% and that the purchase price works out at GBP 740 psf. The property was purchased for GBP 325m in 2006 and Anglo, or IBRC as it is now known, is likely to have taken a significant hit on its mezzanine finance for the property.
Today sees the publication of the November 2012 IPD Monthly Property Index for the UK. The IPD (Investment Property Database) index is the only UK commercial index referenced by NAMA’s Long Term Economic Value Regulations (Schedule 2) and is used to help calculate the performance of NAMA’s “key markets data” shown at the top of this page.
The Index shows that capital values fell by 0.5% in November 2012, which follows declines averaging 0.3% per month since December 2011. Prices reached a peak in the UK in June 2007 and fell steadily until August 2009 when a rally started. Prices then increased by 15% in the year to August 2010 but have since been declining and are down by 3.9% in the last 12 months prices. Overall since NAMA’s Valuation Date of 30th November, 2009 prices have increased by 7.1%. Commercial prices in the UK are now 36.7% off their peak in June 2007. The NWL index falls to 789 which means that NAMA needs to see a blended increase of 26.8% in property prices across its portfolio to break even at a gross profit level (taking into account the fact that subordinated bonds will not need be honoured if NAMA makes a loss).
The table below shows the three subsectors in UK commercial property with an index for all three at NAMA’s valuation date of 30th November 2009 of 100. Offices have been relatively buoyant whereas industrial premises like factories and warehouses have been relatively flat.
The UK economy is suffering difficulties almost every bit as challenging as those in the EuroZone and Ireland. Sure, they have their own currency and they’ve printed GBP 300bn of it in an economy with a GDP of 1.5tn, to help inflate their problems away. And yet they appear poised for a triple dip recession. Last week, the UK’s independent Office for Budget Responsibility published its latest fiscal outlook which forecasts GDP for 2012 at -0.1%, 1.2%, 2.0%, 2.3%, 2.7% and 2.8% (but as with all economic forecasts in the long term, all forecasters forecast a peachy outlook). Deficit:GDP is forecast as -5.7%,-4.6%,-3.7%,-2.8%,-1.4% and -0.4% between 2012-2017. Debt:GDP is forecast at 90.3%, 93.5%, 96.3%, 97.4%, 96.6% and 94.4%. Inflation is forecast at 2.8%,2.5%,2.2% for 2012-2014. It expects commercial property to change -2.1%, 1.0%, 3.1%.3.6%, 3.9% and 3.5% in 2012-2017.