For all its recent problems with rebel shareholder Nathan Kirsh, shares in Minerva Plc, the property investment and development company have risen steeply in recent weeks after the firm confirmed that it was in preliminary takeover talks with an unnamed bidder, thought not to be Kirsh who is chiefly unhappy at the Minerva management teams perceived inability to find tenants for either of its City of London office developments, the Walbrook and St Botolphs office schemes, which as of 30 June 2010 had a combined valuation of £486.5m.
The quality of the two buildings cannot be doubted yet by the time that Minerva updates the markets with its half yearly report, likely to be in the last week of February, the Walbrook, located directly opposite Cannon Street station will have stood empty for an unprecedented 12 months. With 382,786 sq ft of office space available across 10 floors that equates to an annual rent of approximately £21m that Minerva is now loosing out on at the Walbrook alone, based on the assumption that the developer could comfortably achieve the current prime City rents of £55.00 per sq ft for what is arguably some of the highest quality Grade A office space available.
Minerva's strategy for letting the Walbrook is open to question however. Originally the firm had stated that they were not prepared to take undue speculative risk and that a pre-let would be required prior to the commencement of the development, yet in 2005 confirmed that they were pressing ahead with a speculative build on the back of an improving City office market. Despite the collapse in demand for office space in the square mile as a result of the global economic crisis, by the time the building reached practical completion in February 2010, three major deals had been missed when BlackRock, Macquarie and Nomura all opted to take space, totalling well over a million sq ft in rival schemes with 'space' issues at the Walbrook being cited as the key concern.
This contradicts entirely however, the fact that the building, penned by Foster and Partners was always designed around the prospect of securing a major financial occupier, who it was assumed would require large trading floors, to the point that the Walbrook even has its own dedicated dealer entrance off Bond Court, which leads directly to two vast trading floors of 50,493 sq ft and 50,095 sq ft respectively that rival anything currently available in the City. It is known that Bloomberg, who themselves have now committed to the neighbouring Walbrook Square development considered the Walbrook for its new London headquarters but walked away from any deal on the back of Minerva over-negotiating.
Minerva will only go as far as to confirm that the developments are being actively marketed in a supply constrained market, supported by the fact that both the website and brochure for both the Walbrook and St Botolphs have recently been comprehensively updated indicating a major sales push, however they are now competing head-on with the likes of British Land and Land Securities for the signature of the City's major occupiers that have a known space requirement and are willing to sign a pre-let. Similarly, the schemes that have also recently completed such as Heron International's Heron Tower at 110 Bishopsgate are also managing to attract occupiers and pushing prime City rents above £55.00 psf.
A more pressing issue however, is that the development loans that Minerva has secured against both the Walbrook and St Botolphs contain leasing milestones, which require around two-thirds of the respective buildings to be let by the financial year ending 30 June 2012. Whilst this should be achievable at St Botolphs, where six of the 13 office floors are already let to international law firms Clyde & Co and Lockton, whether Minerva and its joint leasing agents, Knight Frank and CB Richard Ellis can secure a deal at the Walbrook in that time remains to be seen, which would have real financial implications for the firm, whilst the current office market in the City suggests that Minerva will also have to offer any prospective occupiers a rent-free period of around 36 months on a 15-year lease.
Few firms have been directly linked with the Walbrook building to date, which Minerva is keen to let in its entirety whilst the likes of Schroders, known to be looking for around 250,000 sq ft are now almost certain to commit to taking space in the Pinnacle. If the firm can find a tenant for the Walbrook, with Lloyds Banking Group still seen as a viable candidate, then it will ease the considerable pressure on Minerva's under fire management team and almost certainly lead to a further increase in the firms share price, which in mid-morning trading stood at 100.5p, valuing the firm at approximately £163.6m. Given the lack of progress made over the past year however, that would seem to be a big ask.
The quality of the two buildings cannot be doubted yet by the time that Minerva updates the markets with its half yearly report, likely to be in the last week of February, the Walbrook, located directly opposite Cannon Street station will have stood empty for an unprecedented 12 months. With 382,786 sq ft of office space available across 10 floors that equates to an annual rent of approximately £21m that Minerva is now loosing out on at the Walbrook alone, based on the assumption that the developer could comfortably achieve the current prime City rents of £55.00 per sq ft for what is arguably some of the highest quality Grade A office space available.
Minerva's strategy for letting the Walbrook is open to question however. Originally the firm had stated that they were not prepared to take undue speculative risk and that a pre-let would be required prior to the commencement of the development, yet in 2005 confirmed that they were pressing ahead with a speculative build on the back of an improving City office market. Despite the collapse in demand for office space in the square mile as a result of the global economic crisis, by the time the building reached practical completion in February 2010, three major deals had been missed when BlackRock, Macquarie and Nomura all opted to take space, totalling well over a million sq ft in rival schemes with 'space' issues at the Walbrook being cited as the key concern.
This contradicts entirely however, the fact that the building, penned by Foster and Partners was always designed around the prospect of securing a major financial occupier, who it was assumed would require large trading floors, to the point that the Walbrook even has its own dedicated dealer entrance off Bond Court, which leads directly to two vast trading floors of 50,493 sq ft and 50,095 sq ft respectively that rival anything currently available in the City. It is known that Bloomberg, who themselves have now committed to the neighbouring Walbrook Square development considered the Walbrook for its new London headquarters but walked away from any deal on the back of Minerva over-negotiating.
Minerva will only go as far as to confirm that the developments are being actively marketed in a supply constrained market, supported by the fact that both the website and brochure for both the Walbrook and St Botolphs have recently been comprehensively updated indicating a major sales push, however they are now competing head-on with the likes of British Land and Land Securities for the signature of the City's major occupiers that have a known space requirement and are willing to sign a pre-let. Similarly, the schemes that have also recently completed such as Heron International's Heron Tower at 110 Bishopsgate are also managing to attract occupiers and pushing prime City rents above £55.00 psf.
A more pressing issue however, is that the development loans that Minerva has secured against both the Walbrook and St Botolphs contain leasing milestones, which require around two-thirds of the respective buildings to be let by the financial year ending 30 June 2012. Whilst this should be achievable at St Botolphs, where six of the 13 office floors are already let to international law firms Clyde & Co and Lockton, whether Minerva and its joint leasing agents, Knight Frank and CB Richard Ellis can secure a deal at the Walbrook in that time remains to be seen, which would have real financial implications for the firm, whilst the current office market in the City suggests that Minerva will also have to offer any prospective occupiers a rent-free period of around 36 months on a 15-year lease.
Few firms have been directly linked with the Walbrook building to date, which Minerva is keen to let in its entirety whilst the likes of Schroders, known to be looking for around 250,000 sq ft are now almost certain to commit to taking space in the Pinnacle. If the firm can find a tenant for the Walbrook, with Lloyds Banking Group still seen as a viable candidate, then it will ease the considerable pressure on Minerva's under fire management team and almost certainly lead to a further increase in the firms share price, which in mid-morning trading stood at 100.5p, valuing the firm at approximately £163.6m. Given the lack of progress made over the past year however, that would seem to be a big ask.
1 comment:
Possible potential lettings news due via RNS on Tuesday 21st February 2011, Estates Gazette and rumour mills say that the Spanish bank Stantader wants 100,000Sq Ft and the Bank of England also want 100,000 Sq Ft, good news if this is true!! This should move the share price UP and bring forward any potential bids!!
Faz Hussain (London)
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