You are currently viewing Did Deka pay good price for Booking.com headquarters?

Did Deka pay good price for Booking.com headquarters?

Even before Booking.com moves into its new headquarters in Amsterdam, the internet company is making a sales profit of more than 100 percent on the building. A successful sales transaction?

Commercial real estate is not a core business of Booking.com. Nevertheless, the internet company made an interesting ride in the office market. At the end of 2018, the purchase of its future head office on Oosterdokseiland in Amsterdam from ODE Beheer involved an amount of 270.4 million euros. A total of 2.8 million euros was added to this in canon and a lump sum payment for the bicycle shed.

Fast forward to December 2022. Booking.com will receive double the amount for its head office. German real estate asset manager Deka Immobilien Investment paid 566.3 million euros for the complex in a sale-and-lease-back transaction. It is the largest single office investment transaction of 2022 in the Netherlands.

Value Strawinskylaan 10 increased sixfold

Prices of office buildings double in a short period: they are more common in Amsterdam. For example, the FOZ building on the Zuidas came into the hands of Aviva Investors on March 31, 2022, for 130 million euros. A Rockspring fund acquired that building in 2017 for 89.6 million euros. The previous owner, MCAP Global Finance, paid 68 million euros for the same property in 2016 in a portfolio transaction with Credit Suisse.

 

Measured over a longer period, the price developments of Amsterdam offices are sometimes even spectacular. For example, the price of the office building at Strawinskylaan 10 has increased almost sixfold in 32 years. Aviva Investors bought that office with 8,113 m2 for 85 million euros from Deka Immobilien. Upon completion in 1988, the total investment amounted to 15 million euros.

Long-term cash flow

Thus, only a price doubling does not make a particularly successful transaction. The sales profit is also related to the rent that Booking.com will pay to Deka’s funds. According to the purchase agreement, the total annual rent is 24.3 million euros. Of that annual rent, 22,524,052 euros is for the 53,000 m2 of office space. Booking.com also pays 373,000 euros annually for 1,435 m2 of commercial space, 1,278,000 euros for 213 parking spaces and 109,811 euros for a bicycle shed with 2,196 spaces.

The cash flow that Deka bought like this has quite a long duration. The first lease term is 16.5 years. After that, there are five more opportunities to extend the lease, each time for five years. The rent indexation is capped at 5 percent per year, plus half of the excess at the first moment of rent indexation.

Since Booking.com will have to pay for its head office for at least 16.5 years, the question is: is the rent in line with the market? For the office part, the internet company will initially pay 425 euros per square meter of office per year. Not an unusual amount for an office in the center of Amsterdam that meets today’s requirements. For the 5 Keizers on the Keizersgracht, owned by the German investor Union Investment, the asking rent is also 425 euros, according to Funda in Business.

A large building with only one office tenant

How deep has Deka Immobilien dug for cash flow? A benchmark for this is the gross initial yield (BAR). The lower the BAR, the better the price Booking.com got. For the future head office including commercial spaces and a parking garage, the BAR was 4.0 percent.

There have been office investment transactions in Amsterdam in the second half of 2022 with lower BARs. According to real estate advisor Savills, the return on offices in the top segment in the third quarter of last year was 3.75 percent. The initial yield on the future home of Booking.com is therefore 25 basis points higher than that on top offices. In other words: the price per euro of annual rental income was slightly lower.

But the future home of Booking.com is therefore a large building with only one office user. The risk of vacancy and redevelopment costs in such a complex is greater than with a smaller office or an office with more users. Seen in this way, 4.0 percent is a decent gross initial yield.

The purchase price per square meter

Another measure of the success of an investment transaction is the purchase price per lettable square metre. The Booking.com office has a usable area of approximately 54,000 m2. The purchase price per square meter is approximately 10,500 euros. Recent and comparable sales of large office buildings are rare. ABN Amro’s head office has an even larger size with a usable area of an estimated 75,000 m2. In December 2021, a consortium around Victory Group bought that complex for 765 million euros. The price per square meter was 10,200 euros.

Difficult stars

That price is not far from what Deka paid for the Booking.com building. But behind the amounts, there is a world of difference. The office of the internet company is on leasehold land, and the office of ABN Amro is on private land with a value of several hundred million euros. And although the bank’s office no longer meets today’s requirements, the location offers considerable expansion potentialAll this is included in the price for the ABN Amro office and not in the price for the accommodation of Booking.com.

The star under which Booking.com sold its head office was not favourable. The marketing of the building has been going on since at least 2021. Since then, war has broken out in Ukraine, inflation and interest rates have risen and property values have come under pressure. Whether you look at the value development, the BAR or the price per square meter: given the difficult market conditions, the future headquarters of Booking.com has delivered an excellent price.