Published on March 13th, 2017
A £1bn portfolio of retail and commercial units in railway arches owned by a branch of the UK government is to be sold.
The sale of the commercial estate of Network Rail – the renationalised government body that manages Britain’s rail infrastructure – is due to commence imminently, and is one of the largest and most unique portfolios to come to the UK market in recent years.
The government appointed investment bank Rothschild to review a sale or redevelopment of the estate. A sale has been decided upon, and Network Rail will now seek approval from the Treasury to proceed with the disposal. If successful, the sale would commence around the middle of the year.
The portfolio comprises more than 5,000 commercial units mainly in railway arches owned by Network Rail, occupied by small and medium-sized enterprises (SMEs) such as retailers, cafes and bars and manufacturers. It is concentrated in London and the south-east.
Network Rail has publicly said its commercial estate generates £266m in income a year, but this figure is not directly applicable to this portfolio.
The estate will appeal to a variety of bidders because of its size and scale, and the opportunity it presents to buy into the growth of the SME sector in London and the south- east. It will appeal in particular to private equity firms because the granular nature of the portfolio is
not dissimilar to the loan portfolios bought by such firms as Lone Star or Cerberus.
However, buyers will have to address the fact Network Rail will need access to some properties to undertake maintenance works, which could limit asset management opportunities.
Network Rail is selling the assets to try and raise cash to bridge a funding gap. One sale that has been shelved, however, is a disposal of railway sidings, on which PWC was advising.
A Network Rail spokesperson said: “We are looking at the potential sale of the commercial estate (including railway arches), freight estate and car parks. At this point in time we are still considering all options and no firm decisions have been made.”