The British monarchy’s property manager may revive a plan to sell a stake in Regent Street, in the heart of London’s West End shopping district.
The Crown Estate, which oversees real estate that the monarchy handed over in 1760 in exchange for annual payments, is sounding out investors including sovereign wealth funds and pension funds to gauge demand, Chief Executive Officer Roger Bright said. It may present a proposal to its board “in a matter of months,” he said. CB Richard Ellis Group Inc. is advising on the possible sale.
This is the second attempt in a year by Crown Estate to raise money for a redevelopment of Regent Street costing an estimated 750 million pounds ($1.1 billion). Its board blocked proposals in September to establish a fund that would sell units to investors, citing its complexity, Bright said.
“We are looking at more straightforward ways to include third-party capital,” Bright said in an interview at Crown Estate’s headquarters behind Regent Street. “We are at the stage of expressions of interest; we haven’t yet got to the decision stage.”
Regent Street, between Piccadilly Circus and Oxford Street, is Crown Estate’s biggest asset. While the trust has partnerships with developers for individual sites, it’s considering bringing in long-term investors that would share its vision for Regent Street as a whole, Bright said.
The street, with more than 350,000 square meters (3.77 million square feet) of mostly retail and office space, was valued at 1.6 billion pounds in Crown Estate’s accounts for the financial year ended March 31, published today. It appreciated by 240 million pounds from the previous financial year and now represents 24 percent of Crown Estate’s assets.
The value of the entire portfolio, including royal estates first registered in the Domesday Book in 1086, climbed by more than 10 percent in fiscal 2010 to 6.6 billion pounds. The previous year, the properties lost value for the first time since 1993.
Crown Estate owns the freehold of Regent Street, which was finished in 1825 in one of the biggest projects in central London’s history as a dedicated shopping strip separating the neighborhoods of Mayfair and Soho. Apple Inc., Hamleys Plc and Burberry Group Plc all have stores there.
As the freeholder, Crown Estate may sell a site for a specific period of time, known as a leasehold, and receives regular income in the form of ground rent. Once a leasehold lapses, the site and the buildings on it revert to the freeholder unless a renewal is granted at an additional cost. A leaseholder collects rent from the tenants occupying buildings on the site.
“We are anxious not to lose control of Regent Street,” Bright said. Crown Estate will probably seek to retain control of the freehold of the street, according to the CEO.
What may appeal to investors is the resilience of prime retail properties during the U.K. recession that ended in the last quarter of 2009. The West End has London’s biggest concentration of theaters, luxury stores and restaurants. The pound’s weakness has also helped draw tourists.
In May, retail sales on Bond Street, Oxford Street and Regent Street rose 6.2 percent from a year earlier, according to the latest index compiled for the New West End Co. group by market researcher Springboard.
Average rents for retailers that lease prime buildings on Regent Street were 475 pounds a square foot at the end of June, or 5.6 percent more than a year earlier, CB Richard Ellis estimates. Regent Street is the ninth most expensive shopping street in London in rental terms.
The proceeds of any sale would help finance the Quadrant project, the redevelopment of Regent Street that will include the construction of a five-star hotel on the site of the former Cafe Royal, along with new office and retail space.
Crown Estate also needs money to purchase assets outside London to become less dependent on the U.K. capital. In December and May, the organization acquired stakes in shopping centers in the cities of Oxford and Exeter for a total of almost 160 million pounds.
The 1956 and 1961 Crown Estates Acts prohibit the corporation from borrowing or investing in anything other than U.K. property and government bonds. Any profit from asset sales is reinvested and net rental income generated by the properties passes directly to the U.K. Treasury.
Crown Estate today reported a 7 percent decline in net rental income to 210.7 million pounds as a result of lower interest income. The profit, which isn’t taxed, passes to the government under the arrangement from 1760, when the monarchy exchanged its real estate for the yearly payment known as the civil list.
The occupied palaces -- Buckingham Palace and Windsor Castle -- are managed by the royal household. The Historic Royal Palaces is a charity that runs the Tower of London, Hampton Court Palace, Kew Palace, Kensington Palace and the Banqueting Hall. The private estates of Sandringham and Balmoral are managed by the Queen’s administrators.