

Acquisition financing mandates are relatively rare in the UK real estate market currently, and alternative asset manager Cheyne Capital was therefore keen to compete to lend against one of the largest purchases in the London market so far this year.
This week, the manager announced it had provided a £150 million (€171 million) senior loan to part-fund the acquisition of Winchester House, the 317,000 square foot London headquarters of German lender Deutsche Bank, which is in line for a major overhaul once its current tenant vacates.
Last month, UK-based private real estate investor Castleforge and Malaysian engineering, infrastructure and property company Gamuda Berhad completed the acquisition of Winchester House. The purchase, from China Investment Corporation, was reported to have been for £257 million (€293 million).
Deutsche Bank is due to leave by October 2024, when the joint venture partners plan to embark on a project to transform the island site into a high-specification, sustainable office scheme, with a project development value of more than £1 billion – making it one of the most ambitious office upgrade projects in the UK capital.
In a bid to attract blue-chip occupiers to the scheme, which is scheduled for completion in 2027, the joint venture partners are targeting sustainability accreditations including BREEAM ‘Outstanding’, WELL Core Platinum and NABERS UK Five Star. Sustainable features are planned to include improved airflow quality, energy efficiency and smart building technology.
The office sector is a challenging part of the market for lenders due to a growing polarisation between the performance of prime and secondary stock. However, according to Cheyne’s Andreas Dimitriou, the Winchester House transaction represented a highly attractive financing opportunity.
“The asset combines many different attractive characteristics,” he told Real Estate Capital Europe. “It is a rare, island property in a prime location in the heart of the City of London. It also benefits from a variety of key transport links being next to Liverpool Street Station and, most notably, only a few minutes’ walk from the new Elizabeth Line.”
The current design, when the building was purpose-built for Deutsche Bank in the 1990s, already incorporates flexible floor configuration and natural lighting, Dimitriou said. “Most importantly, the refurbishment project will place the asset as a top-tier ESG office building… which is expected to attract strong demand from institutional tenants who want to reside in an office they know is in line with best-in-class corporate ESG policies.”
Cheyne sees evidence of a bifurcated office market, where occupier demand will be strong for best-in-class assets that comply with environmental, sustainability and governance requirements, and offer high-quality amenities, Dimitriou explained.
“Any asset that fails to meet these criteria will face serious challenges with occupancy and tenant demand,” he said. The majority of current London office stock won’t meet the expected minimum energy efficiency requirements by the end of the decade. But even for refurbished buildings, only one in seven in London achieve the highest rating of BREEAM ‘Outstanding’. This significant lack of office space with the necessary characteristics to make it through the next 20 years renders projects like Winchester House excellent opportunities to capitalise on these market dynamics.”
The joint-venture owners of Winchester House are in the process of seeking planning consent for the building’s transformation. Dimitriou said Cheyne is enthusiastic about the overall project and is “keen to support the sponsor in the execution of their business plan at any stage necessary”.
It is understood alternative lenders were particularly keen to compete for the acquisition financing of Winchester House. “It is noticeable that in the past 12 months, the current market conditions and turmoil in the banking sector, as accentuated by the reversal of the monetary policies among other things, have led to a contraction in activity from the traditional high street banks and have created space for alternative lenders to pursue these opportunities, as they benefit from more flexible mandates,” Dimitriou added.