OVERSEAS INVESTMENTSThe bargain basement price tag the Cosgrave Property Group has paid for the Zara shop on London's Oxford Street has taken many in the industry by surprise, writes Gretchen Friemann
COSGRAVE PROPERTY Group, the Dublin-based developer, has become one of the largest landowners on London's Oxford Street after acquiring a third shopping block at the knockdown price of £43.7 million (€55 million).
The 3,716sq m (40,000sq ft) office and retail unit, which houses the Spanish clothing chain Zara, was a strategic purchase for the company as it adjoins its first acquisition on the street, Jubilee House. Together the two properties represent a 1.1-acre landbank east of Oxford Circus.
But it is the bargain basement price tag that has taken many in the industry by surprise. Cosgrave bought the part-listed building from one of the UK's largest property funds, Scottish Widows, after dwindling cash reserves forced the institution into selling some of its key assets.
It is understood the property was quietly offered to the Irish developers in a bid to avert negative publicity and prevent another surge in cash withdrawals.
Last January the Edinburgh-based fund became the third UK institution to impose restrictions on redemptions as investor confidence in the sector plummeted amid concerns over falling property values.
However a source also pointed out that "Scottish Widows realised the strategic importance of the purchase" for Cosgraves and knew the developers "had the fire-power to do the deal".
While some commentators predict London commercial property prices have further to fall, others claim there has been an over-correction and this latest Cosgrave purchase could strengthen that argument. According to one source the same building, which has just been refurbished by Scottish Widows, would have fetched around £55 million (€69 million) this time last year generating a yield of 4.25 per cent.
But the prolonged market turbulence enabled Cosgrave to secure a yield of 5.25 per cent.
It is understood that Ulster Bank financed the deal on 215-219 Oxford Street where Zara's 20-year lease generates an annual rent roll of £1.5 million (€1.882 million). The building, often referred to as Hill's Place, also houses the London HQ of America's National Football League, as well as two recruitment companies.
The deal underscores Cosgrave's focus on the retail sector in the UK. Late last year the company paid over £1 million (€1.254 million) to buy out Superdrug's lease at Jubilee House, which is next door to the Zara unit, and installed River Island into the 1,858sq m (20,000sq ft) shop at a record rent of £1.7 million (€2.135 million).
Cosgraves bought the retail block and West End House office building from Prudential for £136 million in March 2006.
Last September the company paid £86.5 million for another shopping block to the west of Oxford Circus, which also houses a River Island outlet. The 5,110sq m (55,000sq ft) building was purchased from another property institution, AXA Real Estate Investment Managers, and generates a total rental income of £3.4 million (€4.268 million).
And in further defiance of the gloom surrounding the sector, Cosgraves also splashed out £30 million (€37.5 million) to buy the former Littlewoods store beside the Liberty shopping centre it owns in Romford, north-east London.
The deal means Cosgraves could extend the mall by 8,361sq m (90,000sq ft) if the company receives planning permission for its recently submitted application from the local authorities.
According to a source close to the group, a number of high street retailers are keen to open at the centre.
But others point out that this is a difficult time for the UK retail sector with many businesses either exiting the country or requesting delays to their rental payments as conditions on the high street worsen.
A number of retailers are also rumoured to be scaling back their expansion plans and cutting capital expenditure to stores in a bid to protect cashflows after a quiet Christmas quarter.
Fergus Keane of CB Richard Ellis acted for Cosgraves in its three purchases on Oxford Street and its acquisition of Liberty shopping centre.
