HSBC have completed the sale of their headquarters at Canary Wharf for a record breaking £1.09 billion to Spanish property company Metrovacesa.
The terms of the deal includes a twenty year lease and an option for a further five from the new owners to HSBC who will pay Metrovacesa £870 million in rent over this period. Metrovacesa also gets a 998 year lease of the tower as part of the deal meaning even more money for them if HSBC decide to stay.
The reason for the sale is simple. Shareholders don't like large unrealised assets on the balance sheet and this gives HSBC a way of making the building at 8 Canada Square more profitable whilst giving a nice big injection of capital into a year's results and fatter bonuses for staff.
Although the £870 million might sound like a lot of money, inflation will erode the actual value of this over the period of 20 years making the deal considerably cheaper for HSBC than it first appears whilst the return on the £1.1 billion will make it even more advantageous.
With the headquarters having cost approximately £500 million to build back in 2002, HSBC will in real terms probably come out a little ahead thanks to the sale assuming they find somewhere else when their lease runs out.
That's an impressive achievement for a bank to manage with a headquarters that accommodates over 5000 workers, has what is rumoured to be the largest staff canteen in Europe, a gym taking up an entire floor, and is 199.5 metres tall.
For Metrovacesa it's a long term deal which allows them to sit on a property in a booming area that has a guaranteed rent for a period of time whilst enjoying the rising values that the area is experiencing and in the long term are likely to continue. Once HSBC's lease runs out they should also come out ahead assuming property values don't slump in being able to command both higher rents and have a valuable asset in their property portfolio.
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