M&G picks up further stake in $1.2bn Sydney CBD tower as city recovers

M&G already owns a quarter of the building, and the pending purchase of another stake in the building that houses tenants including Telstra is yet another sign that prime offices have come through the coronavirus crisis relatively unscathed, despite rising vacancy levels.

The building, on the corner of George and King Streets, is the latest A-grade office building to trade at or above book value in recent weeks.

In the biggest play, the Chinese sovereign wealth fund swooped on a half stake in Sydney’s landmark Grosvenor Place, in a deal worth $925m, although it’s awaiting FIRB approval.

While values were clipped in the early part of the pandemic and the heat that was driving prices ever higher has dissipated, particularly for lower grade buildings, premium office towers have held in the crisis.

Landlords are now pressing for a faster return to work with corporate Australia and governments urged to take steps to get workers back to the CBD, as occupancy levels are sitting well below pre-COVID pandemic levels. No change is expected until work fully resumes in February.

The building stake was sold by top tier landlord Investa Property Group as part of a broader move to secure offshore capital partners on a series of towers owned by its wholesale fund.

M&G’s purchase of the Investa fund’s stake in 400 George will show a passing yield of about 4.6 per cent and a market rate, once rent increases come through, of close to 5 per cent.

This values the tower at close to $1.2bn.

Further deals on the Investa fund’s half stakes in both 135 King Street and 1 Market Street are underway.

The billions of dollars worth of office property that hit the block in 2020 have mainly sold, as overseas investors chase top-end buildings, even as lower-grade leasing markets stumble.

Property traders are a mix of local players, including Dexus and Charter Hall, which have each bought and sold assets, while sellers include Telstra and offshore players like funds manager Nuveen.

M&G’s move on George Street means that it will have a half-stake in the tower and Mirvac, which manages for a mandate, will own the other half.

The process is being run by Flint Davidson, Stuart McCann and Simon Rooney of CBRE and Josh Cullen and Mark Hansen of Cushman & Wakefield.

The initiative by the Investa Commercial Property Fund follows the group raising $800m in fresh equity this year. The fund’s development pipeline includes a site in the Brisbane CBD, another in Sydney’s Clarence Street and 522 Flinders Lane in Melbourne.

“The asset sale is a very positive outcome for the fund and aligns with ICPF’s strategy to recycle capital into its development pipeline to continue to enhance the quality of the portfolio with new generation assets that are attractive to tenants to occupy,” fund manager Brendan Looby said.

“The asset sale has crystallised another attractive return to unit holders over the hold period and continues to demonstrate ICPF’s proactive approach to both capital and portfolio management to ensure the balance sheet and portfolio are well positioned,” Investa group executive Penny Ransom said.

With more than $6bn in assets under management, ICPF is well-diversified by market, tenant and industry type, with an active capital management approach and a conservative gearing profile.

The fund’s portfolio of 15 office assets is 94 per cent occupied, with a weighted average lease expiry of about five years and gearing of 12.5 per cent.

Selling the building interests would also leave Investa cashed up in the event that corporate activity threw up the opportunities next year.