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Weekly Transaction Update - 12th April


This week we recorded 20 major transactions worth $596m

Far East lands Melbourne deal

The Far East Consortium acquired a 68-level apartment project in Melbourne in a $90 million deal from investor, Besgate Group.

The project, at 640 Bourke Street was acquired in 2013 by Besgate from Australia Post with a development permit in place for a 42-level 560 apartment complex for $23.9m ($42,678 per apartment). Besgate subsequent re-designed the tower and obtained approval for a further 26 levels accommodating 813 apartments.

At $90m, the purchase price now represents $110,701 per apartment site and is the same rate Meriton paid last week for Besgate's other divestment at 170 King Street.

Far East started investing in Australia in 1994 and was initially heavily concentrated in Melbourne with projects including Regency Towers, Flinders Wharf Apartments, Royal Domain Plaza, Royal Domain Tower, Northbank Place, Upper West Side, The Fifth and West Side Place. More recently, their national expansion over recent years has seen its portfolio include Queens Wharf Brisbane, The Star Residences Gold Coast, The Towers Elizabeth Quay Perth, Perth Hub and The Star Residences Sydney.

The latest acquisition in Melbourne sets up the group for the next development phase for the Melbourne market.

The off-market deal was brokered by Colliers.

Challenger offloads Another Asset

Challenger continues to exit some of its direct real estate assets with the sale of 31 Queen Street to US based AEW Group in a deal worth approx $200m.

31 Queen St is located on the corner of Flinders Lane within the Western Core financial precinct of the Melbourne CBD. The 1976, B Grade building comprises 27 levels of offices, ground floor retail and five levels of parking for 172 cars with a net lettable area of 19,213 sqm.

Challenger held the asset on their books at $164.5M in July 2018 based on a cap rate of 5.25%. The current sale at $200m was reported to have been based on a yield of circa 5%.

Challenger acquired the asset in 2011 for $81M on a equivalent yield of 8.1% and rode the compression in yield whilst generating solid returns. The sale comes after Challenger have sold several other assets over the past 12 months including The Barracks in Brisbane for $162M and 53 Albert St Brisbane for $250M. As at June 2018, Challenger held $2.6Bn in directly held assets in Australia with a further $741M held offshore.

The acquisition by AEW follows their acquisition of 19 Harris St Pyrmont in August last year for $143M at a sharp yield of 4.8%.

The sale to AEW was brokered by JLL.

EG Buys for Future Cycle

Walker Corporation has offloaded a site in Fortitude Valley for $27.7M to EG Funds Management.

Walkers previously obtained a DA on the 3,582sqm site at 801 Ann Street for a 433 apartments or a 26 level 44,000sqm office building, which was likely put together to pursue Origin energy.

The proposed commercial tower featured large floor plates of up to 2,132 sqm per level in the highrise section, an extensive ground level lobby with cafe and retail facilities along McLachlan Street. Storage for 350 bikes as well as 506 lockers is planned within the proposed end of trip facilities on basement level one.

Large floor plate buildings are attractive to large tenants however there are few tenants of significant scale who would seek to position themselves in this market.

This precinct has seen the greatest activity amongst the fringe markets with WSP Brinkerhoff relocating from the CBD into 5,685sqm of sub-lease space at 900 Ann St and DXC to consolidate from a number of locations into 4,700sqm at 100 Brookes St being the two largest relocations into the precinct. Additionally Macquarie Bank has expanded and resigned over 4,301sqm at 825 Ann St. The Urban Renewal precinct (which includes Fortitude Valley & Newstead) recorded positive absorption of 17,612sqm in H1 2018, taking the overall vacancy to 13.7%.

The precinct also has considerable new supply of commercial space with over 230,000sqm of approved commercial space across 8 projects all competing with the CBD for major tenant pre-commitments.

Walker Corp paid $22m for the site on a 3 year delayed settlement from AP Eagers and has effectively flipped the deal to EG at or around the time of their settlement, pocketing a gain of $5.5M (before transaction costs, & DA costs).

The Ann Street site is currently occupied by a Volvo dealership with a lease expiry of 5 years generating a net yield of 4.7%. The property will be acquired for EG's Yield Plus Infrastructure No.2 fund which was launched in August 2016 and is the eighth asset in the fund which has now acquired approximately $330 million of FUM. The fund strategy is to acquire yield producing real estate with repositioning potential, near new or upgraded infrastructure.

The site remains an attractive re-development site if positioned correctly for the market.

The sale was negotiated by JLL.

Growthpoint sells 2 Non Core Assets

Growthpoint Properties have confirmed the sale of two of their non core assets this week for $45.2M.

The two assets were earmarked for disposal to allow Growthpoint to focus on core metropolitan office markets.

The first asset, 10 mins from Hobart is located at 89 Cambridge Park Drive, Cambridge, and comprised a single level 'A' grade office building (approx. 5,825 sqm) constructed circa 2008 plus a separate warehouse/store (approx. 1051 sqm) and approximately 163 car parking bays. The property has a strong lease covenant with a 16 year lease from April 2008 to Tasmanian Government Business Enterprise (GBE), the Hydro Electric Corporation with a WALE of 5.5 years. The current net income of the property is approx $2,852,119 pa. Growthpoint reported the sale of the asset at $25M suggesting a net yield of 11.4%.

The second asset in the sale was 7 Laffer Drive, Bedford Park is 12km south west of Adelaide CBD. Originally constructed in 2001, the building was extended in 2003 with improvements comprising a 6,639sqm, purpose-built call centre with open plan design and amenities across two wings and 520 car spaces. The property is leased to Westpac on a new 7 year lease generating a net income of $1,752,143 pa. Growthpoint reported the sale of the asset at $20.2M suggesting a net yield of 8.67%.

Both transactions were in line with Growthpoint's bookvalue.

JLL and Knight conducted the sale process.

Review our other transaction data at ReSourceData.

* indicates unconfirmed price or apportionment of a portfolio sale

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