Although neither officially confirmed nor denied, rumours have been flying that Swiss RE are planning on selling off their almost new headquarters in the City of London, 30 St Mary Axe for a reported sum between £560 million and £600 million depending on which press report you believe.
Wondering just why they would do this, we've decided to do with some very crude assumed figures, a look at the financial pros and cons of such a deal.
Given the current value of the building it's a move that probably surprises no-one. City property prices are on the up once again, particularly for grade A space and in a now almost completely let, prestigious and landmark development such as the Gherkin this would come at a premium.
First up, the Gherkin pulls in a reported rent of £27 million. If half of this has been occupied by Swiss RE then since they took possession of the tower they will have saved themselves a further £27 million in rent, although that doesn't take into account the fact that it took them a while to fill up parts. £27 million a year in rents alone should give a landlord a not to bad annual yield of 4.5% whilst an attractive leaseback deal for Swiss RE could reduce the costs of their occupation.
Further enhancing the figures for Swiss RE are the development costs. Construction costs are reportedly £138 million with the land the building occupies having cost a further another £90.6 million back in 1998. Even when liberally factoring in additional tens of millions of unspecified costs on this, the yield for Swiss RE on their original investment can work out well in excess of 6%, a much more attractive figure for them than their 4.5% return on holding an investment worth £600 million.
Put simply, as a company with an obligation to maximise their profits, the return on capital can be greater for Swiss RE if they dispose of the pride and joy of their property portfolio than if they retain it.
This has proven a successful approach before with big financial companies in the City, both Aviva and Natwest disposed of their headquarters in successful deals that saw them come out with hundreds of millions of pounds and realise inefficient property assets more effectively.
Numerous property and investment companies have been linked to any future sale including British Land, Prudential and ING Direct.
More interestingly, news of the potential sale has been widely reported internationally, in particular in the Middle East where a number of Royal families including the rulers of Abu Dhabi have been expressed interest in what would be the ultimate rich man's toy, a giant glass vegetable. If you already have a life size Millennium Falcon how could you resist?
Article Related buildings: