HSBC Mulls $4 Billion Sale Leaseback of Properties in New York, London and Paris

Bloomberg - April 12, 2009

HSBC Holdings Plc, Europe’s biggest bank, may sell three of its landmark office buildings, including the Canary Wharf world headquarters in London, to raise cash as it tries to avoid a bailout from the British government.

HSBC is gauging interest in its 45-story tower at 8 Canada Square in London, its Fifth Avenue skyscraper in New York, and its Paris offices on the Avenue des Champs Elysees, said Ruth Lavelle, a London-based spokeswoman for HSBC. The Sunday Times of London reported the potential sales earlier today at a combined asking price of 2.7 billion pounds ($3.96 billion). The newspaper didn’t include the source of its information and Lavelle, in an e-mail, said she couldn’t confirm a price.

The London-based bank is seeking to sell at a time when financing for commercial real estate is difficult and values are falling. In New York, transactions dropped 40 percent in the first quarter compared with a year earlier, according to broker Cushman & Wakefield Inc., and U.K. values fell 29 percent in the 12 months through February, Investment Property Databank Ltd. said in a March 13 report.

“Despite the challenging environment, the properties can be moved if HSBC is willing to offer attractive lease-back and seller-financing terms to a prospective buyer,” Dan Fasulo, managing director of New York-based research firm Real Capital Analytics Inc., said in an e-mail message.

HSBC would probably lease the offices back from any buyer, the Times reported.

“The sale price will be predicated on the lease terms HSBC is willing to accept” to rent back the space, Fasulo said.

Share Sale

HSBC raised 12.5 billion pounds in the U.K.’s largest rights offer earlier this month. The bank needs cash to help counter the $15.5 billion pretax loss of its North American operation for 2008 and to add to the $53 billion it set aside during the past three years to cover bad loans. It has so far avoided taking U.K. government funding, unlike rivals Royal Bank of Scotland Group Plc and Lloyds Banking Group Plc.

“As part of managing a significant global real estate portfolio HSBC is testing the market with three of its landmark property assets,” HSBC said in a statement. “HSBC constantly monitors the commercial property market carefully, making decisions based on what is most appropriate for the business and our stakeholders.”

Two years ago HSBC sold the Canary Wharf headquarters to Spanish developer Metrovacesa SA for 1.09 billion pounds in the first sale of a U.K. office building to top 1 billion pounds.

Bought It Back

HSBC then rented offices there at an annual rate of 43.5 million pounds. In December, it bought the building back from Metrovacesa for 838 million pounds, a profit of 250 million pounds. The bank built the tower in 2002.

The New York Times Co. struck a similar deal last month, agreeing to sell the space it occupies in its Manhattan headquarters for $225 million to W.P. Carey & Co., a New York- based real estate investment bank. The newspaper company will rent the building for 15 years from the new owner with an option to buy back its stake in 2019 for $250 million.

Manhattan office vacancy rates in March rose to their highest in more than five years, according to Los Angeles-based real estate services firm CB Richard Ellis Group Inc.

In London’s financial district, empty office space is also at a five-year high, according to NB Real Estate.

HSBC’s London headquarters accommodates about 8,000 workers and was designed by Norman Foster. The 29-story New York property, built in 1985, is at 452 Fifth Ave. between 39th and 40th streets and has 500,000 square feet, according to the Web site MrOfficeSpace.com. Sphere: Related Content