Abbey National has confirmed that it is negotiating the sale of its entire property portfolio to a third party. The two bidders for the sale and leaseback deal are Morgan Stanley Real Estate Fund with property company London & Regional and Mapeley, backed by Fortress Investment Group and Soros Real Estate Partners.

Abbey National is not releasing details until the winning bid is announced in the Autumn but says the deal, which goes under the project name Columbus, will guarantee the bank operational and strategic flexibility without the future risk of uncertainty over the cost of reconfiguring its property portfolio. "We are in the banking business, not the property business," said Mark Pain, Group Finance Director.

The bank says the sale could generate significant proceeds but is keen to stress that it is not merely cashing in on its bricks and mortar for short-term gain. Abbey National says that it will be entering into a de facto partnership with the winning bidder via an innovative sale and leaseback structure which combines both freehold and leasehold properties. This deal will be the first significant transaction of its kind in the private sector.

Abbey national has 750 branches across the UK but the portfolio numbers 1400 sites in total. As well as major office sites, call centres and IT sites, many of these are offices above branches and are counted separately from the retail sites below. The bank has already announced plans to trial a limited form of franchising in its branches and says the sale and leaseback deal is consistent with this initiative: "It can be seen as another example of centrally procured services of which the franchisees can take advantage."

A spokesman for Abbey National told i-FM that facilities management is not included in the current negotiations. FM will remain the responsibility of the Group Property Department and will be delivered either property by property or through a central contract.

Mapeley is also on the shortlists for both the BBC property deal (along with the Morgan Stanley backed consortium) and the Customs & Excise/Inland Revenue PFI project, STEPS. Both these opportunities involve the delivery of accommodation services rather than simply the transfer of property.

Mark Pain, Group Finance Director at Abbey National, says: "This deal is not about Abbey National unlocking cash from its assets for short-term gain. It is about a sustainable approach to property management over the long term - we are in the banking business, not the property business. This is about the management of risk: it means that we will limit a substantial area of liability from the start of the deal without losing the flexibility that our business strategy requires."

Abbey National's Group Property Department is being advised by Ernst & Young's Real Estate Group, chartered surveyors Nelson Bakewell, and lawyers Lovells. Ernst & Young Real Estate consultant, Paul Vernham, says that Abbey National has set new standards in property management: "The bank is aligning its property strategy to that of the business, rather than, as in so many firms, looking at a property portfolio and its liabilities in isolation from its business strategy. Abbey National has also refused to accept that embarking on a 25-year lease is a given. Along with many substantial businesses, their business planning cycle is around three years. It can shrink to months, of course, when it comes to new economy enterprises. That's why we are delighted to help Abbey National engineer a deal which will achieve the high level of flexibility their business requires from the UK's by-and-large inflexible property environment."

Richard Byatt