Telereal Trillium/Blackstone buy Network Rail's £1.46bn Project Condor commercial real estate portfolio

By Paul Norman - Monday, September 10, 2018 15:17

Network Rail has agreed terms with Telereal Trillium and Blackstone Property Partners for the £1.46bn sale of its commercial estate portfolio

The national rail operator said the sale of around 5,200 properties, principally railway arches covering 17m sq ft, will "help fund the railway upgrade plan, bringing major improvements for passengers and reducing the need for taxpayers to fund the railway".

Telereal and Blackstone will hold equal ownership stakes and intend to be long-term owners of the estate, it said.

The duo is understood to have seen off a shortlist that included CK Asset Holdings, Terra Firma and Kildare Partners.

Network Rail added that both parties have "adopted a ‘tenants first’ approach, cemented in a tenants’ charter, which offers a commitment to engage with all tenants and communities in an open and honest manner".

Telereal will oversee the day-to-day property management of the portfolio.

Telereal and Blackstone separately have released an open letter to Network Rail tenants outlining their ‘tenants first’ approach, which is codified in a Tenants’ Charter. The Tenants’ Charter provides a set of principles to which the new owners will adhere in the management of the portfolio. Further details can be seen below.

Network Rail launched the sale of its commercial estate last November. The portfolio is made up of around 5,200 properties, the majority of which are converted railway arches. The sites are being sold on a leasehold basis, with Network Rail retaining access rights for the future operation of the railway.

Sir Peter Hendy CBE, Network Rail chair, said: “This has been a very thorough, detailed and complex process and we are pleased we’re now in a position to announce Telereal Trillium and Blackstone Property Partners as the new owners of the commercial estate.

“This deal is great news – for tenants it will mean significant commitment and investment, and for passengers and taxpayers it will mean massive, essential improvements without an extra burden on the public purse.”

David Biggs, managing director, Network Rail Property, said: “We are proud to have fostered so many small, independent, diverse businesses and communities across the country and we are confident that these will continue to thrive under the new owners.

“Ultimately our role is to run, improve and grow the railway, and managing these properties isn’t essential to that. The new owners will invest in and grow the estate, and we can focus on our core business of running the railway.”

Graham Edwards, co-founder and chairman of Telereal, said: “The arches portfolio is a unique and vital part of the UK economy. We are tremendously excited by the prospect of working with its entrepreneurial tenant base – made up of car mechanics, bakeries, micro-breweries, restaurants, and just about every type of business you can think of. These tenants are a vibrant part of many local economies and communities.

“As a long-standing real estate investor in the United Kingdom, we and our partner Blackstone believe that our ownership of the portfolio will provide the supportive environment in which these businesses can flourish on a long-term basis. For example, our business plan anticipates investing in several hundred currently disused arches so that they can provide space for more local businesses.

“With our permanent capital structures, we will be investing in the portfolio for many years. We believe that the long term success of this portfolio rests on strong relationships with our tenants, as well as with local communities and local government. We intend to remain particularly sensitive to the small businesses that have been long-term tenants of the Network Rail estate, and look forward to a long term partnership with Network Rail.”

James Seppala, head of European Real Estate at Blackstone, said: “We are honoured to have been chosen as the new owners of Network Rail’s commercial estate. The portfolio is unique in its character and function, and we are excited by the tremendous opportunity for us to contribute to the continued revitalisation of the railway arches in the UK, always recognising the role that they play in stimulating economic activity, growth and prosperity, in particular amongst SMEs and local communities.”

The entire Network Rail commercial estate is made up of around 7,500 properties. Around 5,200 were included in the sale, with properties in Scotland and those that have an ongoing requirement to support the running of the railway not included.

Proceeds from the sale will help fund the railway upgrade plan, which is bringing 170,000 seats into major cities, 6,400 extra train services and 5,500 new train carriages – a 30% increase in capacity, Network Rail said.

Rothschild & Co acted as sole financial advisor to Network Rail on the sale. Clifford Chance and Eversheds Sutherland acted as legal advisors to Network Rail.

Cushman & Wakefield, Grant Mills Wood, Kirkland & Ellis and Gowling WLG acted as advisors to Telereal and Blackstone on the transaction.

In an open letter to Network Rail tenants today Blackstone and Telereal Trillium outlined four commitments:


  • 1. We will launch a Comprehensive Tenant Consultation to better understand your considerations and concerns. We will contact every tenant directly to ensure everyone has the opportunity to share their thoughts for the future of this estate.
  • 2. Following the Consultation, we will publish an Enhanced Tenants’ Charter. This will provide clear principles and a Code of Conduct for the management of the estate going forward. Your feedback will inform the commitments we make on various matters, including the timeliness of communications and methods of engagement.
  • 3. We will establish an Engagement Team to support you going forward. We will create a website and a hotline to provide you with a direct line of communication, and we will establish regular meetings with tenant groups.
  • 4. We are developing ways to provide financial and other support for long-tenured small business tenants who are facing, or may face, financial pressure. Further details will be announced following the conclusion of the Consultation.

The duo added: "We are honoured to have been chosen as the new owners of these unique premises. We are excited by the tremendous opportunity we have to contribute to the continued revitalisation of the railway arches, and look forward to working with you to maintain and enhance these unique premises for the future."

Simpson Thacher is advising Blackstone and Telereal Trillium in connection with the £777m debt financing.

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