APAM in the News: TPG's £50M Price Chip Shows Business Parks Are Struggling

This article features commentary by APAM’s Simon Cooke and was first published by Bisnow at: https://www.bisnow.com/london/news/office/tpgs-50m-price-chip-shows-business-parks-are-struggling-76069
TPG’s £440M acquisition of a portfolio of six U.K. business parks highlights what a rough ride out-of-town business parks are having, and are likely to have for the foreseeable future.
When Goodman and Legal & General appointed agents to sell the Serengeti portfolio in November last year, it sought a price of £475M. The portfolio comprises six business parks across the U.K. that are the remainder of the Arlington Business Parks Partnership fund, which is being wound down.
At first it looked like they were going to pull off a great deal. European fund manager Europa Capital was picked as a preferred bidder to buy the portfolio in January at a price of £500M.
But that deal fell apart, and U.S. opportunity fund manager Fortress Investment was in talks about a deal in February, with the price having slipped back to £475M.
Fortress also pulled away from that deal, and U.S. peer TPG is now the preferred bidder to buy the portfolio for £440M to £450M, sources close to the deal said. TPG and Arlington’s owners declined to comment on the sale.
The portfolio has gone from selling at a premium to a near 10% discount as the process has dragged on over the past six months.
It is representative of a sector that has become illiquid over the past few years, with private equity firms looking for knock-down prices among the only buyers in town.
“There is a lot of talk about there being Asian and Chinese buyers for these kind of out of town office parks following Mapletree’s acquisition of Green Park [in May 2016], but to date it has mostly been the private equity guys in the market,” said Simon Cooke, executive director of asset manager APAM, which manages the Arlington Business Park that was formerly part of the fund but was bought by Patron Capital for £80M in 2015.
“For the U.K. institutions, they are too big, too risky and require too much cap ex to upgrade. With Goodman now exiting there is no obvious specialist business park buyer in the market and that creates illiquidity.”
The problem for these parks is that societal trends have turned against them, and investors got the message. For the past three years business parks have been the bottom-ranked sector among investors in the Urban Land Institute’s Emerging Trends in Real Estate Europe report.
The first wave of technology companies that came to the U.K. chose these parks as HQ locations because of the ample parking and way they mirrored U.S. corporate campuses.
Now companies of all stripes are desperate to be in city centres as that is where young, talented workers want to be. That makes it hard to find occupiers for these parks, especially when they lack the additional facilities tenants now demand.
“In a lot of these parks there is little amenity and poorly maintained public realm,” Cooke said. “Tenants now require a lot more than just clean, modern efficient space. If you can position them as technology and innovation space then you could do well, but there are very few business parks in the U.K. that genuinely fit that description.”
For value-add and opportunity fund managers, the lack of specialist players can provide opportunities.
“We are reviewing opportunities to invest in entire business parks as it is one of the only sectors of the real estate industry where there are no longer dominant niche operators, which is in stark contrast to the market at the turn of the millennium,” Europa partner Jason Oram said.
But even he points to the change in occupier patterns. “The challenge is that reductions in permitted parking ratios for business parks mean that occupiers are more dependent on access other than by car and secondly, there is a clear trend for TMT occupiers, which were previously a strong driver of demand for business park accommodation, to now locate in city centres, which is where they are able to attract the best quality employees.”
There are other significant deals in the sector coming down the tracks that will test investor appetite. Oaktree Capital and Patrizia have undertaken a global roadshow to market Winnersh Triangle, an industrial and business park about 45 miles west of London, to international investors.  They initially sought £375M, but market sources indicate a sale is more likely at around £340M.
Harbert Management and XLB are looking for a buyer for the 125-acre Farnborough Business Park for around £180M, and market watchers predict Threadneedle Investments will look to sell Croxley Park in Watford for more than £200M toward the end of the year.
Taken as a whole, the prices achieved and the type of buyer will show whether the business park sector has a viable future.
Read more at: https://www.bisnow.com/london/news/office/tpgs-50m-price-chip-shows-business-parks-are-struggling-76069

Scroll to Top