Perth group grabs stake in four Adelaide office buildings

Perth funds manager Realside is moving into Adelaide. Picture: Matt Loxton.
Perth funds manager Realside is moving into Adelaide. Picture: Matt Loxton.

Perth funds manager Realside is making a major play in Adelaide’s office market in which it will pick up a half-stake in four buildings worth $200 million from Pep Rocca’s private funds business.

The company is joining a host of investors in the Adelaide office market, including local firm Centuria Capital and Singapore’s Soilbuild REIT and Suntec REIT.

The South Australian capital has risen as an investment destin­ation partially because prices in eastern seaboard cities have skyrocketed.

Realside, led by former Primewest chief investment officer Mark Vonic, last year acquired the mixed-use retail and office complex The Colonnade in Perth’s Subiaco for $37.85 million.

The freshly launched Realside Adelaide Office Fund will take the interests in four A-grade buildings in Adelaide’s CBD and city fringe. They are leased to tenants including the SA government, Nine Network, Kellogg Brown Root, Viterra, Nike and Romeo’s Foodland. The portfolio has a weighted average lease ­expiry of about 5.7 years.

The fund is raising $50 million to help it in acquiring the interests from Adelaide-based Mr Rocca’s Australasian Property Developments Pty Ltd.

APD will retain the other half-interest and will jointly manage the assets, some of which could be refurbished.

The fund will have initial gearing of 55% and will target a yield of 8.4% in its first year. It is aiming for a total return of 11.5% over its anticipated five-year initial term. The properties being acquired are 100 Pirie Street, 169 Pirie St and 141 Rundle Mall, all in Adelaide, and 186 Greenhill Rd in Parkside.

Realside already has holdings in property, asset finance and structured equity. Its principals have a two-decade record and have undertaken more than $2bn of deals.

The 169 Pirie St building sits on the southern side of Hindmarsh Square and sports southern views from upper levels over the Frame precinct.

Rundle Square, formerly the Citi Centre, is on the southern boundary of Hindmarsh Square with additional frontages to Pulteney Street and Adelaide’s premier retail thoroughfare, Rundle Mall.

The building at 100 Pirie St is an imposing tower in the heart of the CBD.

It is surrounded by ­office, retail and hotel developments.

The 186 Greenhill Rd site includes a two-storey office building 2km south of the CBD.

Relative to the larger markets of Sydney and Melbourne, Adelaide offers yield premiums that Realside said appeared excessive, even after taking into account the stronger growth profile of the eastern seaboard cities.

The portfolio is being acquired at a 7.26% capitalisation rate while yields at the tighter end of the prime-grade range in Sydney CBD and Melbourne CBD are currently below 5%.

Realside said the Adelaide ­office market had the potential to deliver rental growth and yield compression and it would position the assets to take advantage of market movements.

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