Innovative financial engineering and lease restructuring proved an inspired move for an £18m long-term investment in a central London office building.
Maritime began our involvement with 16-17 Clerkenwell Close in July 2021. We recognised that the area was due to be linked to the new Elizabeth Line, and market rates would soon increase as a result of its improved infrastructure and enhanced transport connectivity.
The asset is located within five minutes’ walk of Faringdon Station - a prime position for which tenants would be willing to pay a premium.
The five-storey office building was leased to a subsidiary of a prestigious global firm, who were coming to the end of their lease. The previous owner was negotiating a new 5 year deal at £38psf.
Simply continuing with the tenants’ existing terms did not make financial sense - plus their parent company was also considering relocating them and centralising their offices in south London.
Instead, Maritime worked with the firm and developed a creative solution.
The building felt a little unloved and was in need of investment, and we were keen to secure them as long-term tenants.
We made the decision to offer £2.5m as a capital contribution restricted to improvement works on the building (landlord benefit).
In return, they agreed a new deal at £57psf on a new 10-year term with ultimate parent guarantee.
The deal has created an asset valued at £24.5m. Taking into account the purchase price and the building transformation costs, Maritime has created £4m of value thanks to astute financial engineering and structuring that few other investors would have considered.
Maritime made the decision to focus on long-term returns, with the view that the arrival of the Elizabeth Line would transform the area into a hub that businesses and communities would gravitate to.
Our evaluation has proved correct, with nearby properties already commanding higher rents, giving us a strong negotiation position when the lease is due for review.
Maritime’s smart decision led to a capital gains win, coupled with rental uplift and an upgraded asset, all while having a prestige long-term tenant in place.
