July 2 (Bloomberg) -- The 42-story building in London's Canary Wharf that serves as Citigroup Inc.'s European headquarters was bought by Derek Quinlan, an Irish investor, and Propinvest Holdings Ltd. for about 1 billion pounds ($2 billion).

Royal Bank of Scotland Group Plc was the seller of the building at 25 Canada Square, said Carolyn McAdam, a spokeswoman for the bank. Royal Bank acquired the property at the end of 2003 for more than 700 million pounds. Today's sale was the U.K.'s second-largest property transaction.

``This is a long-term personal investment in a prime property in the heart of London's new financial center,'' Quinlan, a 59- year-old former tax inspector, said today in a statement.

An increase in central London office rents, the most expensive in the world, is prompting investors to pay record amounts for commercial real estate. HSBC Holdings Plc, Europe's largest bank by market value, in April sold its London base at 8 Canada Square to Metrovacesa SA for 1.09 billion pounds, the U.K.'s biggest property deal.

Citigroup, the largest U.S. bank, is the only tenant at 25 Canada Square, a building with 1.2 million square feet of space. The tower was completed in 2001 and has a height of 200 meters (655 feet), the same as HSBC's premises and 35 meters lower than Canary Wharf's tallest structure. The three buildings are the highest in the U.K.

Rent Reviews

New York-based Citigroup's 25-year lease expires in 2026, with upward-only rent reviews every five years. The yield, calculated by dividing rental income by a building's value, is about 4.5 percent, according to Quinlan's statement. That implies an annual rent of about 45 million pounds, ``significantly'' less than the average for the City of London and Canary Wharf financial districts, Quinlan said. The rent will probably increase to reflect the market rate, he said.

The sale price is higher than the record $1.8 billion paid in December by the Kushner family for a single office building in New York City. The $1,635 price per square foot achieved for the Citigroup building is higher than the record $1,589 paid last week for 450 Park Avenue in Manhattan. That price was reported today by the Wall Street Journal.

Tenants pay about twice as much to rent prime office space in London's West End as Citigroup pays for its European headquarters in Canary Wharf.

$1 Billion Deals

A total of 14 separate real estate assets changed hands for more than $1 billion in the first half, the same number as in the whole of last year, property broker Jones Lang LaSalle Inc. said today. Seven of the buildings were in New York, five were in London, one was in Paris and one was in San Francisco.

Fitch Ratings Ltd., the world's third-largest credit rating company, said today it will move into a new building in Canary Wharf when construction work is completed in 2010. The property will cost 290 million pounds, according to a statement from Songbird Estates Plc, the company that controls the Canary Wharf development.

Songbird, a consortium including Morgan Stanley, New York investor Simon Glick, Saudi billionaire Prince Alwaleed bin Talal and British Land Co., bought the 97-acre estate in London's Docklands for 1.6 billion pounds in 2004.

Best-Performing Assets

Office buildings in central London will probably be the best-performing U.K. commercial real estate asset this year and next, according to an Investment Property Forum survey of investors, realtors and analysts at the end of 2006.

In the 12 months ended May 31, this type of building returned 26 percent, according to Investment Property Databank Ltd. That compared with 14 percent for all U.K. commercial property.

Quinlan controls a real estate and private equity firm that oversees assets of more than 10 billion euros ($14 billion). Quinlan Private and a group of investors last month paid 1.16 billion euros for a chain of budget hotels owned by Jurys Doyle Hotel Group Plc. Quinlan was the main investor in the 1.1 billion-pound purchase from Royal Bank of 47 U.K. hotels operated by Marriott International Inc.

Quinlan and Propinvest, which is owned by property investor Glenn Maud, were on the shortlist to buy HSBC's London headquarters, Property Week reported in April. Propinvest lost out to IVG Immobilien AG and investment bank Evans Randall over the 600 million-pound sale in February of the London office tower dubbed ``the Gherkin.''

Royal Bank of Scotland paid 1.11 billion pounds for 25 Canada Square and 5 Canada Square in December 2003, 95 million pounds more than their value at the end of June that year.

The bank is also marketing the smaller building, which has 515,000 square feet of space, for sale. The 16-story office block is rented to Credit Suisse Group, which has sublet it to Bank of America.

Quinlan Private and General Electric Co.'s real estate unit today agreed to buy the Mall of Plovdiv shopping center in Bulgaria's second-biggest city, the companies said in a separate statement. The mall is due be completed in the fourth quarter of 2008. The companies acquired a shopping center in the capital, Sofia, last year.

To contact the reporter on this story: Peter Woodifield in Edinburgh at pwoodifield@bloomberg.net.

Last Updated: July 2, 2007 12:16 EDT