40 Bernard Street
London

A Prime Midtown London Location

40 Bernard Street is a freehold island site spanning 1.75 acres in London’s Midtown area, directly opposite the entrance to Russell Square Underground Station. It is in close proximity to the British Museum, Kings Cross/St Pancras, and adjacent to the recently refurbished Brunswick Shopping Centre. During Targetfollow’s ownership the site comprised of a multi-let office building of 60,000 sq ft with 131 car parking spaces and a 313 bedroom hotel let to Holiday Inn.

The property was 96% occupied by strong tenants, including LRG Hotels Ltd, Tesco, ATOC, Great Ormond Street Hospital, The UK Sports Council and Teleno (UK), generating a total current income of £3.5 million per annum. 70% of the investment value was underpinned by secure bond-style income from the hotel, with 59 years remaining on the lease, offering underlying capital growth potential.

Conveniently Located Business and Hospitality Space

Opportunities existed to increase income by approximately £600,000 per annum through the letting of the 5th floor, construction of a restaurant on Coram Street, and current rent reviews. There was also potential to extend the asset by adding one or two additional stories to the existing office building. The hotel’s income, providing £813,000 per annum for the next 58 years, supports an estimated IRR of 6% per annum over the life of the investment. The hotel valuation as of 31/03/09 was £156 million (£498,000 per bedroom).

This type of income stream is expected to attract life and pension funds and international investors seeking UK hedging products. This is due to its income security, significant reversionary potential and long unexpired term.

The asset features a rare “bond-style” lease structure, well secured to a single tenant, with a 25-yearly rent review pattern. This freehold asset offered a unique income profile with substantial reversionary potential for the hotel element, and upon expiry of the hotel lease in 2068, or earlier if desired, the owner could either continue to manage the income or advance a major redevelopment of the entire island site. This income stream represents an excellent bond-style investment opportunity.