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Grosvenor, the Duke of Westminster's property company, has sold a £306mn stake in its historic Mayfair in London to a Norwegian oil fund as the landlord looks to refinance development and borrowing.
Norway's 1.7tn sovereign wealth fund will take a 25 per cent stake in the new joint venture worth around £1.2bn, in addition to its bet on London's West End wealth.
Grosvenor will retain control and continue to manage a portfolio of 175 properties around Mount Street and Grosvenor Street, including the Connaught Hotel.
The deal is the largest ever sold to foreign investors from the Mayfair estate, which was developed under the control of the Grosvenor family beginning in the 1720s.
“It's very important to us,” said James Raynor, chief executive of Grosvenor's UK property division. “We have thought deeply about this. Continuous management and control was essential.”
It also marks the first major investment made by Norwegian oil fund in London from 2018. The fund already owns a stake in Regent Street next to the Crown Estate, and last year increased its ownership stake in the Pollen Estate, near Savile Row, where it first invested in 2014.
The fund last year also took full ownership of the Meadowhall shopping center in Sheffield, paying £360 million for a 50 percent British stake, and is a major investor in London-listed landlords such as Great Portland Estates.
“We are confident in the long-term value creation in the West End,” said Jayesh Patel, head of the UK real estate fund.
The £1.2bn joint venture is only part of Grosvenor's £4.8bn UK property portfolio, the bulk of which consists of its major properties in neighboring Mayfair and Belgravia. Grosvenor will retain free ownership of the buildings, while the joint venture holds the long-term lease.
Although prestigious and highly valued, the core portfolio generates lower returns than riskier businesses. Grosvenor, which has a large agribusiness and overseas investments, said it would invest its growing profits in the UK. residential development lending businesswhich provides financing for residential projects across the country.
“It gives us a different kind of return. It has a much higher yield than an heirloom. That's a good balance for us,” Raynor said.
He said Grosvenor made a strategic decision to bring in a partner to help “free up capital”, which was more attractive than other options such as borrowing. “We are a very long-term business. We always think in generations. So our approach to making cases is very strict,” Raynor added.
Grosvenor selected the portfolio to represent a mix of uses, with approximately 45 per cent office space, 30 per cent retail and 10 per cent residential.
Mount Street is known for its luxury shops and some of Mayfair's most famous restaurants, such as Scott's, while Grosvenor Street has many office buildings.
The company will use the money to help fund a £1.3bn 10-year development pipeline, which includes the redevelopment of Grosvenor Square and a £500mn development based on South Molton Street, near Bond Street station. Grosvenor has partnered with Mitsui Fudosan on the South Molton scheme.