In mid-2006, 200 Queen Street was owned by a stand-alone property fund managed by the now-defunct MFS Group. Due to a succession of tenants vacating the building, the manager was unable to meet forecast distributions to investors from income and was topping up distributions out of debt funding – a situation that quickly became unsustainable and necessitated MFS finding a means to exit the investment.
Recognising the opportunity this presented to one of the Macquarie investment funds which was then searching for investment properties, we were able to work with MFS on an innovative “stapling” structure whereby the investors in MFS became investors in Macquarie Direct Property Fund and at the same time allowing the Macquarie fund to take over the existing loan on the property which had been agreed on terms which were exceptionally favourable to MFS.
Utilising this structure, the property was effectively absorbed into the Macquarie fund at a price of $90 million in a manner which avoided payment of stamp duty and without the need for equity contributions from investors in the Macquarie fund.
Importantly too despite the anchor tenant electing to vacate approximately 30% of the property prior to completion of the transaction, we were able to replace them within 2 months with another tenant on more favourable terms, therefore adding immediate value to investors.
In mid 2009, Australian interest rates hit what were then long-term lows and the Australian dollar had retreated against major currencies such as the Euro. At the same time, however, property prices had decreased significantly from late 2007 levels due to a seizing up of funding caused by the Global Financial Crisis.
This set of circumstances had led to increasing investor interest from German-based investors looking to acquire good quality assets in Australia.
Working in tandem with Macquarie Group's Munich office, we identified and secured an option over a building in the Adelaide CBD which was securely leased to the South Australian government for 12 years, with a view to capitalizing on the investor appetite in Germany and establishing a retail investment fund for the building.
The transaction proved to be exceptionally complex due to both the unique nature of the building, which had a lot of complicated title issues that needed to be first understood by the team in Germany and by a range of external extenuating circumstances, the most significant of which was the sale of the Macquarie Property Funds platform in the middle of the transaction, which meant that Macquarie was no longer in a position to complete the transaction.
However, through our excellent working relationship with the vendor, we were able to overcome these difficulties and eventually complete the purchase on behalf of the Atlantic Group, a Hamburg-based asset origination company, who have subsequently sold down the equity to German retail investors as originally envisaged.
By taking advantage of favourable buyer conditions in purchasing the property and renewing a number of smaller tenancies in the property at higher than forecast rents, we were able to raise the value of the property by 15% within one year, delivering our German clients an exceptional outcome on their investment.
In early 2014, the consortium owning the World Trade Centre complex
in Melbourne (Asset1) wished to sell down a majority interest in the property
while retaining a level of management control.
Investment market conditions were still fairly difficult at
that time due to the world economy emerging from the Global Financial Crisis
and various Eurozone sovereign debt defaults. This was particularly the case
for a “niche” asset like the World Trade Centre with its secondary location,
unconventional land title and a heavy dependence on Victoria Police for its
income.
After a protracted negotiation, Abacus Group were
successfully secured as a 75% partner for the site, in an intricate arrangement
that involved not only a contract for the partial sale of the property but also
a joint venture agreement, a share sale agreement for different operating
entities and a detailed business plan governing the future management of the
site.
Working closely with Asset1 management over a 4 month
period, Killila Property Group was able to conclude the transactions
successfully and position the asset for future success, whereby the property
was able to be re-sold by the joint venture for a 55% profit less than 3 years
later.
