GPT Group ponders MLC Centre takeover

The GTP Tower in Sydney.
The GTP Tower in Sydney.

GPT Group is weighing a play to take full control of the $1.2 billion MLC Centre in the heart of Sydney after nearly completing a dramatic revamp of the historic tower at a time when the value of city skyscrapers is surging.

The move could be completed within weeks and would drive commercial property values in Australia by setting a new benchmark for premium towers.

City office blocks have leapt in value as foreign groups look to buy premium real estate, particularly in Sydney and Melbourne, where returns are high by global standards.

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Tenants are also paying more rent as vacancy rates fall and more office buildings are converted into apartments, forcing them into new premises.

The MLC Centre in the city’s commercial, legal and financial district is a prime target for offshore groups as the 67-level Harry Seidler-designed tower is almost fully occupied after its revamp by co-owners, the listed GPT and QIC Global Real Estate.

The parties declined to comment on their behind-closed-doors negotiations but GPT has only weeks to decide whether it will buy the half-interest it does not already own from QIC, which served notice of its intention to sell last December.

The skyscraper, which dominates the Sydney skyline, will boast a refurbished facade when works are complete, the food court has been revamped, and a new theatre is to open early next year.

The issue is if they don’t take it up, what happens? I expect they’ll come to the party

GPT has a right to purchase the interest in the tower ahead of any formal marketing of the stake and could hold the asset on balance sheet, in its wholesale funds, or on behalf of other investors.

The group may be reluctant to hold such a large tower on balance sheet in its entirety but it has a strategy of lifting its office holdings and may see an advantage in having full control. GPT’s wholesale office fund may also be interested after making major purchases in Melbourne and Brisbane.

QIC appears to be capitalising on the building’s successful overhaul and the prospect of the fleet of deep-pocketed offshore groups hunting for trophy assets in gateway cities chasing its stake, should GPT pass up the opportunity.

Any sale would test records for a single asset and highlight the dramatic rerating of office towers in Australian cities as they are now changing hands at prices close to the last market peak in 2007.

It would also mark a reversal of fortunes for the co-owners. GPT tried to sell its stake in the MLC Centre six years ago but ultimately decided to keep it and work with QIC on the upgrade, which could see a total of $330 million poured into the building.

GPT’s move to keep the office icon and restore it to a pre-eminent position appears to have been vindicated, as Martin Place has since been rejuvenated by a series of new projects.

Investors are keen for GPT to examine the purchase as they want it to keep control of the key asset and reap the benefit of it being repositioned.

“The issue is if they don’t take it up, what happens?” Folkestone Maxim Asset Management managing director Winston Sammut says. “I expect they’ll come to the party.”

However, if GPT does not buy the interest, global and domestic investors are tipped to tussle for the holding. An array of private equity groups and fund managers with ties to China, Singapore, South Korea and the US are aggressively expanding and would chase the stake if it came to the open market.

Real estate agency Colliers International says record low interest rates have spurred a global hunt for yield-producing assets.

CBRE estimates that $13.4 billion worth of office towers changed hands nationally last year and notes pricing is nearing peak levels.

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