Goldman’s New London HQ Gives Qatari Royals And Asian Billionaires £800M Headache

“Just left Frankfurt. Great meetings, great weather, really enjoyed it," Goldman Sachs Chief Executive Lloyd Blankfein wrote on Twitter 19 October. "Good, because I'll be spending a lot more time there. #Brexit"

“In London," he added 30 October. "GS still investing in our big new Euro headquarters here. Expecting/hoping to fill it up, but so much outside our control.#Brexit"

In the debate about the effect Brexit will have on Goldman's London real estate all of the conversation has centred on the new 850K SF headquarters the U.S. investment bank is building in the Midtown area: How many jobs will it move out of London, how much of the space will it occupy, and will it sublease any? But there is more to the story.

The more interesting impact could be around the corner on Fleet Street and next to St Paul’s Cathedral, in the buildings it now occupies.

Goldman intends to entirely move out those four buildings, leaving them vacant with no rental income.

That leaves some very high-profile owners, including two Asian billionaires and Qatar's royal family — confirmed for the first time by Bisnow as the owners of Goldman office Peterborough Court — with big swathes of real estate becoming vacant on the same street at the same time, a time of great uncertainty for London. 

Goldman is one of the largest occupiers in London, and leases four large office buildings on Fleet Street: the 430K SF River Court; the 370K SF Peterborough Court and Daniel House; the 303K SF Christ Church Court; and the 190K SF Warwick Court.

The leases on all of them expire or can be broken in 2020 and 2021. That means at the point when Britain will be approaching the end of a Brexit transition deal — if indeed one is agreed — more than 1.3M SF from one occupier, in buildings more than 25 years old, will be put on the market on a half mile stretch of one road.

Just before this in 2018-2019, law firm Freshfields will have vacated 370K SF in the same area, bringing the total vacancy to close to 1.7M SF.

The owners of Goldman's buildings make an interesting list, particularly at Peterborough Court, which was bought out of receivership by an anonymous Cayman Islands special purpose vehicle called Fleet Street Investments II for £264M in 2012.

It had been rumoured the building was owned by the Qatar Investment Authority, but Bisnow can reveal it is owned individually by two Qatari Royals: former emir Sheikh Hamad bin Khalifa bin Hamad bin Abdullah bin Jassim bin Mohammed Al Thani; and former Prime Minister Sheikh Hamad bin Jassim bin Jaber bin Mohammed bin Thani Al Thani, better known as HBJ.

Documents show Luxembourg-registered Constellation Hotels owns Fleet Street Investments II, and Constellation is owned by vehicles controlled by the two royals.

In the summer of 2016, a 50% stake in the Peterborough Court building was offered to investors for around £175M, but there were no takers because of the uncertainty immediately around the Brexit vote. It is an open question as to whether that uncertainty has now lifted, and what the current value of the building is, but the previous attempted sale indicates the two Qatari royals will look for a partner to undertake any redevelopment of the building.

River Court, the former office of the Daily Express, was bought in 2011 by Hong Kong-listed Chinese Estates, founded by billionaire Joseph Lau, which paid £280M for the building at the bottom of the London market. In spite of the excellent timing of the purchase, it now looks like the acquisition will not be as straightforward as the company anticipated.

In an interview in 2011 the company’s vice chairman and Lau’s son Ming-Wai Lau said the building was “relatively simple to manage, as there are only two tenants, Goldman Sachs and [retailer] Boots”.

At that point Goldman was just about to start buying the buildings that would form its new HQ site, and lead to it vacating River Court.

Hong Kong-based billionaire Hui Wing Mau bought Christ Church Court in 2015 for £270M, at which point construction of Goldman’s HQ was already underway.

Neither Hui Wing Man nor Chinese Estates have provided any indication of their plans for their assets when Goldman vacates. Neither responded to a request for comment and the owners of Peterborough Court could not be reached for comment.

In terms of the prospects for the area in the medium term, investors had been buying assets for redevelopment to try to capitalise on the opening of Crossrail in 2019, but that was before the Brexit vote. Broker Carter Jonas predicts rents in the area will fall by around 5% to 10% in the area by mid-2019, but predictions do not run further out than this, and do not take into account the amount of space that now seems certain to be coming on to the market at the same time from 2020.

As for Goldman and its new HQ, to what extent is Brexit going to affect a big investment for the bank? It paid around £150M to buy the buildings that make up the Midtown site, and is paying more than £500M to build and fit the new development out. It is due to move into the building in summer 2019 — straight after Britain leaves the EU.

Goldman is leasing 100K SF of extra space in Frankfurt to account for staff moving out of London, but it is not as simple as subtracting this from its London needs.

Attention in the London office market has been focused on the design of the new HQ (the large atrium of the building does not lend itself to subletting), and the fact Goldman does not typically sublease space in any of its regional HQs.

But Goldman has always insisted it has the option of subleasing space, and plans indicate the design offers the possibility of adding a second entrance on the north west corner of the site, which would allow the famously secretive Goldman the chance to lease out space but keep any tenant away from its own business.