wellsfargo

27

September

2016

Wells Fargo’s Discount UK Deal is the New Normal

‘Re-trades’ make up large portion of transactions following the Brexit referendum

In the tumultuous weeks following Britain’s vote to leave the European Union, Wells Fargo & Co restarted talks on a deal to buy an office-building development. Wells sought to do what several other big property purchasers have done since the historic Brexit vote and negotiate a “re-trade.”

On July 18, Wells said it would spend nearly £300 million ($399.1 million) to buy the property, slightly below what was in the works before the vote, according to a person familiar with the matter.

Wells Fargo will be using the building to house its London operations, which consist primarily of 850 employees who serve the bank’s corporate, commercial and financial institution customers as they do business in Europe, the Middle East and Africa.

“We’re making a long-term commitment here,” said Frank Pizzo, regional president for Europe, Mideast and Africa region at Wells Fargo. Brexit didn’t have “any impact on that position.”

The deal happened at a time when the UK real-estate market was in chaos, with landlords’ stocks tumbling and redemptions halted on some property funds. London office values have suffered the most thus far, according to experts but some analysts have predicted a broad swathe of UK commercial real-estate prices could fall further over the next 12 months.

Re-trades have made up a large portion of the transactions that have taken place since the June 23 vote, according to market participants.

But the discounts, as reflected by the Wells Fargo deal, have been less than those suffered by sellers in the UK and other real-estate markets in previous shocks, most recently the 2008 global financial collapse. Back then markets essentially ground to a halt, said Anne Breen, head of real-estate research and strategy at asset manager Standard Life Investments, one of the fund managers that have halted redemptions.

“Today in the UK the backdrop is quite different. There remains liquidity,” Ms. Breen said. “The banks are still open for business. Investors are still looking at property yield and think it’s attractive.

The REITs [real-estate investment trusts] are very well financed and structured relative to previous cycles.”

Wells Fargo, for example, benefited from the steep drop in the sterling compared with dollars following the referendum, which essentially knocked another 12% off the sticker price.

Such bargains are prompting some investors to sniff for buying opportunities. Norwegian sovereign-wealth fund manager Norges Bank Investment Management purchased a high profile Oxford Street commercial building in mid-July for £124 million from Aberdeen Asset Management PLC, one of the asset managers that has continued making redemption’s.

Other buyers also are re-trading deals. German property investor Deka Immobilien GmbH bought a 14-story office building in Manchester in August for £164 million, less than the price that had been settled on before the referendum, according to a statement from the firm.