NPS tipped to buy Goldman Sachs’ new Europe HQ for over $1 bn

The National Pension Service (NPS) has been recently picked as the preferred buyer of Goldman Sachs’ new European headquarters in London, a deal expected to be worth about £1 billion to £1.5 billion ($1.3 billion to $2 billion) to mark the South Korean pension fund’s single biggest investment in overseas real estate.

The $570 billion pension scheme has made the best offer among the three shortlisted bidders for the transaction which is expected to close within this month, a source with knowledge of the matter told the Korean Investors on August 2.

NPS alone will fund the acquisition without financial sponsors. The source declined to disclose financial terms of the expected transaction.

The other two shortlisted bidders are Hong Kong’s CK Asset Holdings Ltd., founded by billionaire Li Ka-shing, and Pontegadea Inversiones SL, a property company owned by Spanish billionaire and Zara owner Amancio Ortega.

The deal, once closed, will be the fourth transaction sealed for £1 billion or above in London since last year. All the four landmark London buildings will have been bought by Asian investors, including CK Asset’s £1 billion purchase in June of UBS London headquarters, 5 Broadgate.

Goldman Sachs has been seeking a sales and a leaseback for the building under construction on Farringdon Street since early this year. It is moving into the new head office early next year and will take responsibility of finding tenants for empty space.

Now Goldman and NPS are in final stages of negotiation over the price tag and the rent to be paid by Goldman.

A long-term lease agreement with Goldman will produce a stable stream of income for NPS from the property which has about 78,000 square meters of office space.

The financial terms of the transaction are likely to reflect an expected yield of the lease in the 4% range, considering the recent spike in London office building prices, according to industry sources. A higher rent means an increase in the building price.

Strong demand from Asian investors has been pushing office investments in the City of London to a record high in the second quarter of this year.

The weak pound drove South Korean institutional investors into high-end office buildings in the City of London recently, in hunt for undervalued alternative assets abroad.

NPS had earned handsome returns from real estate investments in Europe in the wake of the 2008 global financial crisis.

Its major investments in Europe included HSBC’s London headquarters in 2009; Sony Center in Berlin, Germany in 2010; and 49% stake in Helmsley building in New York in 2011. It exited from the three deals and reaped profits of 1.5 times, or nearly double the original investment.

NPS’ global alternative investments came to 45.4 trillion won ($40 billion) at end-April. It accounted for 7.2% of its total assets under management, just shy of its end-year target of 7.6%.

By Chang Jae Yoo

yoocool@hankyung.com