Diplomat-Worthy Digs
May Soon Hit Market

A number of British embassies are expected to come on the block in the near future. The move could also result in ambassadors' residences being put up for sale.

Any embassies put up for sale would contribute to the United Kingdom's drive to dispose of £30 billion ($61.3 billion) of public assets, including real estate, by 2011. Since 2004, around £12.2 billion of assets has been sold, including some properties owned by the Foreign Office, according to a U.K. Treasury representative.

"Asset disposal is one part of the government's efficiency program, with the aim of releasing resources to invest in schools, hospitals and other vital front-line services. The program will save over £21 billion every year from 2008," the representative said.

Some analysts speculate that the potential sales could be related to the cost of financing the United Kingdom's involvement in the conflicts in Iraq and Afghanistan, which stands at £6.6 billion. But the Treasury representative said the asset-disposal program wasn't prompted by that spending.

The Foreign Office estimates that its embassies are collectively worth about £1.2 billion. Although Foreign Office spokeswoman Cherilyn Wilson declined to comment on which embassy buildings could come up for grabs first, the Foreign Office would likely sell some trophy buildings of historic interest, which would carry the highest prices.

"Sales are an important part of getting value for the taxpayer from our property portfolio," said Ms. Wilson. All potential sales will be considered on an individual basis, she said.

The idea of selling embassies has been floated before, said Peter Damesick, head of U.K. research at the real-estate advisory firm CB Richard Ellis in London. Certainly, the Foreign Office has a number of very prestigious buildings to choose from. "The government might consider straightforward sales as well as sale and leasebacks. If the objective is just to raise money, it would make sense to sell the more valuable properties first," Mr. Damesick said.

Selling the most prestigious properties would enable the government to capitalize on growing investor demand for high-quality properties, said Stephen Miles, Paris-based head of international investment in the French capital markets group at real-estate advisory firm Jones Lang LaSalle.

Still, historic buildings such as some embassies can be less effective workplaces because they are typically protected by national-heritage organizations, making any alterations or upgrades difficult, said Helen Shackleton, director of West End development at real-estate advisory firm DTZ Holdings PLC. Technological upgrades can be problematic, which can make such buildings less attractive to companies -- or government departments -- for whom this is crucial.

One of the most prestigious embassies on the U.K. government's books is its property in Paris. Situated on the fashionable rue du Faubourg Saint-Honore, it counts among its neighbors the Elysee Palace, the official residence of the French president.

"It's one of the most beautiful buildings in Paris, so I think it would attract a lot of investor interest if it came on the market," Mr. Miles said. "I think wealthy private individuals would be very interested in turning it into a private residence. Equally, as there are other embassies nearby, it could attract attention from other countries keen to have an embassy in this area, such as Middle Eastern countries. The French state might also consider acquiring it."

In addition, the property could attract interest if it were to be converted into upmarket apartments, says Ms. Shackleton, noting that it could be especially attractive to wealthy investors who want to have a base in the city, rather than check into a hotel each time they visit. According to her colleague, Peter Braithwaite, director of DTZ Residential in London "the upper end of the residential market in many capital cities is still one of the strongest sectors, so there are plenty of buyers about."

Prime office properties in Paris typically sell for about €15,000 (roughly $21,000) a square meter, Mr. Miles said. But a building in this location would be expected to fetch a higher price, likely around €20,000 a square meter, he said.

Putting embassies up for sale makes sense, says Chris Gillum, director of central London investment at real-estate advisory firm Savills PLC: "It wouldn't surprise me at all if the government did this because it's such an obvious way to make money," he said.

The U.S. State Department is also selling some properties, including embassies, as part of a wider global-security review. It is currently considering relocating from its 25,200-square-meter U.K. embassy on Grosvenor Square, in the heart of London's Mayfair district, according to William Jackson, head of Central London development at real-estate advisory firm Cushman & Wakefield Inc., who is advising the department.

Mr. Jackson said the State Department is looking for a property of around 22,500 square meters in Central London. The Grosvenor Square property will not be put up for sale until another site has been found, said Mr. Jackson.

The State Department is also in the process of selling its embassy in the Nicaraguan capital, Managua, according to a department spokesman. The embassies in Quito, Ecuador, and Katmandu, Nepal, also are up for sale, he said.

So far this year, the State Department has sold 17 properties in 16 countries. Among them is the U.S. Navy's former U.K. offices on Grosvenor Square, sold in June to an undisclosed buyer for £250 million. It has been speculated that entrepreneur Richard Caring -- owner of restaurant operator Caprice Holdings Ltd., which includes The Ivy -- purchased the property with a view to turning it into luxury apartments. He couldn't be reached for comment.

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