Land Securities to buy Dundee shopping centre

Land Securities will make its largest acquisition since the property crash after agreeing terms to purchase one of Scotland’s biggest shopping centres.

The UK’s largest property company is in exclusive talks to buy the Overgate shopping centre in Dundee for about £140m ($224m) from a consortium of investors led by Lend Lease, the Australian developer.

The 420,000 sq ft mall, which will be sold at a yield of about 6.8 per cent, will be Land Securities’ biggest acquisition since the big fall in property values in 2007. The company had previously stated that it would look to acquire investment property in the retail sector, where Francis Salway, chief executive, has predicted a wave of sales, in part predicated by the large number of distressed shopping centre owners.

Ellandi, the investment group, has estimated there are 186 shopping centres across the UK, valued at about £9bn, in trouble with their banks after the sharp fall in property prices caused breaches to their debt covenants.

There has already been a number of sales of shopping centres, some of malls in administration and some prompted by banks asking for debt, which was originally used to buy the centres, to be repaid.

Land Securities is one of a number of real estate investment trusts to consider bidding for Drake Circus in Plymouth, which was put on the market by David Ross’s Kandahar after the bank that lent for the centre asked for repayment.

However, the Overgate shopping centre is not a distressed purchase.

It is being sold following the natural expiration of the property vehicle that owned the centre, the Lend Lease Overgate Partnership, which comprised Lend Lease, Barclays Property Investment, the BG Group pension fund, Equitable Life, Aviva Investors and NFU Mutual.

The shopping centre, seen as dominant in its market, offers potentially accretive asset management opportunities.

Plans to extend the Scottish centre by 215,000 sq ft were halted in the credit crunch. Lend Lease bought Overgate in 1997, redeveloped the mall and reopened it in 2000.

The deal, one of the largest in the retail sector this year, comes during the British Council of Shopping Centres conference in Manchester.