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.
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, delivering an excellent 18 month return for investors.
In 2017, we acted for an SIV fund to acquire the Novotel
Hotel at Glen Waverley, Melbourne for $73.66m, and shortly thereafter, the
adjoining entertainment complex Century City Walk became available for purchase.
When the complex was initially developed, the two properties
were interlinked with a complex and unwieldy title structure which made future
redevelopment of the site impossible unless the two properties were in common
ownership. However given the prime Glen Waverley location, we recognised that eventually, redevelopment of the
site would be an attractive proposition given the strong demand for housing in
the area.
Accordingly, we negotiated to acquire Century City Walk
on behalf of a related fund for $45m, and then after the hotel management
agreement was renegotiated with Accor Group at a significantly higher income
and the anchor cinema lease to Village Roadshow at Century City Walk was
extended, the property was placed back on the market in 2019 for sale “in one
line”.
This process resulted in a sale to an offshore
developer for $145m, resulting in a 22% capital gain for investors in just
under 2 years.
