Azerbaijani Fund Buys £177m Property in Central London

on Dec 18, 2012

**SOFAZ Makes Real Estate Debut with London Office Purchase**

The State Oil Fund of Azerbaijan (SOFAZ), the country’s sovereign wealth fund, has bought an office building in the heart of London’s business district as the oil-rich state makes its debut in a planned £1 billion spending spree on luxury real estate assets across Europe, The Financial Times reported on 17 December 2012.
SOFAZ confirmed on Monday that it had acquired an 188,600-square-foot office block on St James’s Street in London’s upmarket area in the City of Westminster. Azerbaijan’s $33 billion state oil fund bought the building from RREEF Real Estate (MUTF:RRRRX), the property arm of Deutsche Bank, for £177.35 million. According to official figures, the property, which is let to banking group HSBC until 2023, collects £9.65 million in rent per year from the bank, which represents a net initial yield of 4.5 per cent. Real estate agency firms Clifford Chance and Jones Lang LaSalle (NYSE:JLL) were the advisors to SOFAZ on this deal.

Head of capital markets at Jones Lang LaSalle, Damian Corbett, said that the property had the right combination of a good, financially stable tenant and long-term rental income to attract overseas investors. The Financial Times quoted Mr Corbett as saying: “It is yet another good sign for London as a place that can attract capital from around the world at the moment.”

**Azerbaijan to Build European Real Estate Portfolio**
Commenting on the sovereign wealth fund’s plan to invest about £1 billon in high-end properties across Europe, SOFAZ Executive Director Shahmar Movsumov told Bloomberg: “This newly acquired office building in London is the first in a series of planned property acquisitions in prime business districts of major cities around the world. The secure income that this type of investment will generate over the years coupled with strong fundamentals of prime office spaces in major world capitals are the determining factors in our investment rationale.”

The oil-producing nation of Azerbaijan is also working on finalising another acquisition in Europe, the Actor Gallery shopping complex in Moscow, a transaction valued at $102.5 million (£63.2 million), according to data from research company Real Capital Analytics (RCA).
!m[SOFAZ Acquires Westminster Office Building as Part of £1bn Investment Plan in European Property ](/uploads/story/1050/thumbs/pic1_inline.png)

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Before switching to buying real estate in Europe, Azerbaijan has invested millions of dollars in skyscrapers in the country’s capital city, Baku, as it focuses on modernising it — a goal that the country has been working towards since 1991, when Azerbaijan became independent.
**Other State Funds Also in London Property Buying Spree**
Azerbaijan is not the only country whose state funds have recently invested in London. Sovereign wealth funds from Qatar, Malaysia and Norway have spend billions of pounds on offices and shops in central London in recent years, as Britain is generally viewed as a safe property market due to is relatively stable political and legal climate.
The St James’s area of Central London, in particular, is popular with hedge funds and private wealth managers and its office rents of 100 pounds-plus per square foot are among the highest in the world. So far, the bulk of sovereign wealth funds, including China Investment Corp, have also focused on the office markets of the City and Canary Wharf. As iNVEZZ reported earlier this month, the real estate fund of the Kuwaiti government has also joined the London property buying spree by entering exclusive negotiations to acquire Bank of America’s headquarters in the Canary Wharf Office Tower.

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