Nomura's Canary Wharf exit triggers payout
LONDON (Reuters) - Nomura's (8604.T) decision to quit the Canary Wharf offices it inherited from Lehman Brothers by 2011 triggers a rental insurance payout of up to 224 million pounds for the owner of Britain's second largest business hub, sources familiar with the matter said.
The Japanese bank agreed on Friday to rent the new 525,000 square foot Watermark Place development on the banks of the River Thames, one source said, declining to give details on rental terms.
It will vacate about 350,000 square feet of space at 25 Bank Street -- the former Lehman European headquarters -- by March 2011, meaning Canary Wharf Group can collect on the AIG (AIG.N) insurance policy, a second source close to the situation said.
AIG has pledged to pay 53 pounds per square foot from the date of Nomura's lease expiry until 2015. This is about 10 pounds per square foot more than Nomura's current rent.
"The money was posted in December 2008 so is now ringfenced," the source said, when asked about the insurer's capacity to pay after a massive bailout which left the U.S. government holding 80 percent of its stock last year.
If it chooses, Canary Wharf Group can continue to draw down on the policy until an incoming tenant agrees to pay more, an unlikely scenario while office rents plunge and developers compete strongly to sign a smaller pool of prospective tenants.
The 97-acre Canary Wharf estate is famed for its dramatic, high-rise skyline, although in recent months it has become a symbol for Britain's financial sector turmoil.
While a wave of job-cuts among some of its key bank occupiers has sent shockwaves around the district, it remains close to full occupancy, according to Songbird Estates SBDb.L, Canary Wharf's AIM-listed majority owner.
The second source said insurance payout had offset the disappointment of Nomura's planned departure from Canary Wharf, which was preparing for an influx of a further 7,000 workers in the coming months as Fitch, State Street Global Advisors and KPMG moved more operations in.
RECLOCATION PLAN
News of the Watermark Place agreement kills off months of speculation Nomura could make its presence in Canary Wharf permanent to remain close to rivals Morgan Stanley (MS.N), Barclays (BARC.L), HSBC (HSBA.L) and Citigroup (C.N).
"The property market was well aware Nomura wanted to move; it was either going to be to Watermark Place or Walbrook," another source said.
"(Watermark Place) is going to complete on July 29 and that was seen as a major advantage as the Canary Wharf lease expires in March 2011. It takes well over a year to fit out a new building of that size," a source said.
The bank will retain its current base at 1 St. Martins le Grand in the City, the source said.
Watermark Place has been developed by UBS Global Asset Management in a joint venture with Oxford Properties, the real estate arm of the Ontario Municipal Employees Retirement System (OMERS) and Core. Property services firms Knight Frank and CB Richard Ellis (CBG.N) are the letting agents for the project. Continued...
