CLS Holdings (CLI) has bought a portfolio of 34 offices, most of which are leased to the government, for £119m. The portfolio, which belonged to over-leveraged property vehicle Wichford before being nudged into bankruptcy by Wichford's South African acquirer Redefine International, generates rental income of £15.1m, giving a yield on cost of about 12 per cent - high even by the standards of distressed property.
Chief executive Richard Tice says the very high yield reflects other investors' concerns about public-sector austerity, which makes them unwilling to take on the risk associated with short leases. On average, less than five years remain on the leases, and the rents are also slightly higher than current market rates. Yet over 21 different government departments figure on the leases, he also stresses, while most of the services the offices provide are customer-facing, making them harder to axe. "We'll extend the majority of the leases, and we have a plan for those that we can't extent," he explains. That plan may well involve conversion to housing.
