Middle Eastern fund selling out of O’Connell precinct for $500m
Charter Hall is targeting 50 per cent interest in the 1 O’Connell Street building in Sydney.
Property funds manager Charter Hall is showing its faith in Sydney’s office market as it goes into due diligence to buy a 50 per cent interest in the O’Connell precinct that is one of the largest development sites in the central business district.
The company is looking to pick up the stake from Middle Eastern sovereign fund the Abu Dhabi Investment Authority for around $500m, with the move giving it the option to back a development of a next-generation skyscraper in future or to undertake a shorter term repositioning.
The transaction is still in train and the site’s co-owner, Lendlease’s Australian Prime Property Fund Commercial, which controls the remaining interests in the precinct, still holds rights to match Charter Hall’s offer.
But it is viewed as unlikely to do so as the Lendlease funds stable has been under pressure from redemptions and its initial bid for the interest in the precinct was edged out by Charter Hall in a sale process.
JLL’s Luke Billiau, Kate Low and Verity Wyatt-Budd and CBRE’s Flint Davidson, Stuart McCann and James Parry marketed the property but they and the parties declined to comment.
The O’Connell precinct comprises a near decade-long amalgamation in the heart of the Sydney CBD. Anchored by the iconic 1 O’Connell Street premium office tower, it occupies a combined freehold site area of 6,177sq m. The offer comprises interests in five separate assets, that spin off over $50m of annual income.
The site is billed as a strategic land-bank and Charter Hall, alongside the Lendlease fund, has options ranging from value-add repositioning of the existing assets through to forging ahead on the already advanced planning process for the city’s tallest premium office tower.
ADIA’s stake in the O’Connell precinct includes a number of land holdings that are bounded by O’Connell, Bent and Spring streets. ADIA co-owns these land holdings with APPF Commercial.
In 2024, Lendlease and its Middle Eastern fund partner proposed a 309.2m building with 72 storeys on a block on O’Connell St. It would include the existing 1 O’Connell Street tower and conserve and adapt the historic 19-21 O’Connell St.
The scale of that scheme has prompted caution as it may be difficult to finance and secure sufficient precommitments for such a large tower. It has been named as a potential home for Westpac headquarters but that is not well-progressed.
Having a foothold would give Charter Hall a say in the project and it could even alter its format to encompass two still substantial towers rather than a single mega-tower, which could be easier to get off the ground either in this cycle or the next one.
Charter Hall has a long track record including developing the under-construction Chiefly South complex and also it has substantial office developments in Melbourne and Brisbane. The $5.8bn APPF Commercial has interests in some of the country’s top towers and Lendlease is a well-regarded office developer with projects including International Towers at Barangaroo South, Sydney Place, and Melbourne Quarter Tower.
ADIA’s decision to sell is not related to the funds battle but it has been shifting away from backing developments in Australia, and it also sold out of some other industrial and office holdings.
