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CASE STUDIES
Prospect
Relocation Plus Redevelopment and Letting Of Former Prospect House, London SE1
Prospect is an independent Trade Union with more than 104,000 members in the public and private sectors. Members include engineers, scientists, managers and specialists in areas as diverse as agriculture, defence, energy, environment, heritage, shipbuilding and transport. It is the largest union in the UK representing professional engineers.
Prospect was formed following the merger of two separate unions, IPMS and EMA. This merger prompted a review of the combined property strategy and, specifically, its substantial freehold headquarters in York Road, Waterloo. Having advised IPMS for a number of years, HMC was asked to provide a strategic report.
The key issues identified were that the building, at some 50,000 sq ft, was far too large for current and future needs and that it was also nearing the end of its economic life, particularly as we had identified the presence of asbestos within the cladding system. we were also of the view however, that the building was capable of being comprehensively refurbished – effectively taking it back to its original frame – and that this route, as opposed to demolition and redevelopment, was the most viable solution in economic terms. It would also allow Prospect to meet its other aim of remaining in the Waterloo area. Having regard to the risk factors associated with the scale of the works and the fact that the refurbished building would still be too large, the preferred option was to relocate.
Via a targeted approach, but having also market tested the price achievable through a traditional sale to a developer, We identified Scottish Widows (SW) as a potential joint venture party. A deal was then negotiated whereby SW would purchase the building – at a price well in excess of a development sale – but lease it back to Prospect in the short term. The comprehensive refurbishment scheme would then be implemented by SW at their cost, following which SW would make a further payment to Prospect based an agreed share of the profit resulting from the sale or letting of the “new” building. This shielded Prospect from the construction and development risks, whilst providing a substantial capital sum for their freehold interest plus a share of the profit. The short lease back arrangement also provided time in which to identify a new headquarters.
Various options for a new headquarters were then investigated within the immediate vicinity of Prospect House. It was established that an adjoining building to Prospect House could possibly be acquired “off-market” but, whilst ideal in terms of location, it was clear that the building was too small and too dated to meet Prospect’s needs. An architectural study instigated by we however, established that a suitable new building could be constructed if the site could extend onto the car park of the existing Prospect House. Negotiations were therefore held with SW and we secured an option agreement whereby Prospect would be allowed to “buy back” part of the car park if a planning application was successful on the adjoining site for a larger building. Planning permission was obtained and a brand new 25,000 sq ft headquarters was constructed.
Prospect were aware that they owned a valuable asset, but as a non property organisation, they did not have the resources to make best use of it. The identification of SW provided a highly reputable joint venture party and allowed Prospect to share in the potential profit from a major refurbishment scheme without being exposed to any of the risk. In addition, the identification of the adjoining building and the supplementary option agreement allowed Prospect to commission the design and construction of a building specifically for its own needs.
After Prospect had relocated, we were instructed as joint letting agents by Scottish Widows in order to oversee Prospects “share” of the letting proceeds. We provided development advice as the scheme progressed and implemented a comprehensive marketing campaign including brochures, website, advertising and launch party. Despite difficult market conditions the entire 55,000 sq ft of offices were let to the NHS shortly after the building works completed at a rent in excess of the target figure.
The letting proved to be a superb end result for both Scottish Widows and Prospect, creating a secure investment for the fund and a healthy profit share for Prospect.
