In 1999, the Melbourne CBD office market was starting to recover strongly from a decade of high vacancy rates and poor investor sentiment. An opportunity was therefore identified to acquire some properties at historically low prices in a market which was ideally poised for strong rental and capital growth.

 

Delivering on this strategy, the State Revenue Office was purchased from a Japan-based company looking to exit its Australian investments at a net price of $27.5 million. The building was 30% vacant at the time of purchase but by completion of the sale, Zurich Insurance had agreed to lease the remaining vacancy, thereby delivering immediate upside to the Trust’s investors.

 

The property remained close to fully let during the 8 years of ownership and despite its inferior location relative to Melbourne’s main business thoroughfares of Collins and Bourke Streets, at one point became the corporate headquarters of high-profile toll road operator, Transurban Limited.

 

The timing of the building’s divestment also proved ideal with it being sold in March 2008 at a price of $83 million, 16% above the current book value despite a rapidly deteriorating market and delivering a stellar 28% annual return to investors over the 8 years of ownership.

 

: : EXAMPLE 1

505 Little Collins St, Melbourne

 

In 2002, Orica Limited elected to sell its iconic headquarters at 1 Nicholson Street, Melbourne which it had owned since its completion in 1961.

 

As part of the sale offering, Orica agreed to take a lease back over approximately 50% of the building, meaning that 8 floors would be vacant on completion of the sale.

 

While leasing demand for tenants for office space was exceptionally weak during 2001-2 due to the “dot.com” bust, we recognized that the unique location and features offered by the Orica building would be of great appeal to potential occupiers and so proceeded to acquire the building from Orica for $30 million.

 

Almost immediately, 2 tenants were found to lease the 8 vacant floors on long-term leases and after a $6 million refurbishment program, the building was on-sold one year later to a Macquarie investment fund for $46.15 million, again delivering an exceptional return.

 

: : EXAMPLE 2

Orica Building,

1 Nicholson Street, Melbourne

 

In mid 2006, leasing demand in Canberra was exceptionally strong due to a high level of growth across the Commonwealth public service. At the same time, vacancy levels had dropped significantly but developers had not yet commenced enough new buildings to cater for the demand.

 

Recognising the strong fundamentals of the market, and despite strong investor competition for property, we were able to acquire a prominent corner building in the CBD “off market” which was occupied short term at a premium rent to the Australian Tax Office pending their relocation to their new national headquarters.

 

Prior to the ATO’s physical relocation we were able to secure an replacement government tenant on a long-term lease at a higher than budgeted rent, thereby adding immediate value to the asset.

 

Ultimately the building was sold by Macquarie at the bottom of the market in 2011 as part of their exit from the real estate funds management business, but despite the distressed nature of the sale, due to astute purchasing of the asset and skilled asset management, the property still delivered a profit on the original investment.

 

: : EXAMPLE 3

17 Moore Street, Canberra