Scentre tosses up interest in Westfield Sydney towers

Scentre chief executive Peter Allen. Picture: Hollie Adams

Scentre Group, owner of the local Westfield mall empire, is weighing up interest in the landmark office towers that sit over and around its Westfield Sydney complex, with private equity group Blackstone believed to be most advanced in negotiations.

The US group is chasing major office assets in capital cities and has been drawn to the trio of towers in what could become one of the largest deals in this property cycle if it is struck at the mooted price of close to $1.4 billion.

However, rival players could seek a position in the behind-the-scenes dealmaking that is being conducted directly between heavyweight property groups.

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Scentre is thought to have engaged with a small number of office landlords, testing interest in the office towers either as a whole or for a stake in that element of the overall $5.4 billion property complex.

The move comes amid a surge in high-value office tower transactions that may mark a peak in the current cycle, although buyers have insisted office rents are rising and interest rates will stay lower for an extended period, supporting their investments.

Big buyers include Dexus, which has splashed out close to $1.5 billion on buying 80 Collins St in Melbourne, and $800 million in taking full control of the MLC Centre in the heart of Sydney.

Charter Hall is in talks with Singapore’s GIC Real Estate about taking an interest in Sydney’s $1.8bn Chifley Tower and it has also been linked to Melbourne’s Telstra headquarters.

Scentre, meanwhile, has been selectively introducing partners into major assets while also retaining management control over their future retail developments.

Scentre won’t sell the retail as it is a strong-performing flagship asset. Scentre could potentially sell part or all of the office

It also has a long history of partnerships with the likes of AMP Capital, Lendlease, GIC, ISPT and the Perron Group.

Scentre last month offloaded a half share in Westfield Burwood shopping centre in Sydney to WA-based Perron in a $575 million deal.

A JPMorgan analysis in March says Scentre is highly unlikely to sell down a stake in the retail part of Westfield Sydney and will expand with the development of the David Jones building.

Scentre owns three office buildings spanning 74,700sqm as part of the complex.

The office component is valued on a cap rate of 4.92%, but more recent deals have been struck at tighter levels.

“Scentre won’t sell the retail as it is a strong-performing flagship asset. Scentre could potentially sell part or all of the office,” JPMorgan says. It argues Scentre is more likely to sell retail assets in general.

The key tower is 85 Castle­reagh St, designed by John Wardle Architect, with the building starting on level 7 with a distinctive “sky lobby”.

Buildings at 77 Castlereagh Street and 100 Market St are also part of the complex.

Blackstone’s interest is likely to be driven by its core vehicles which have garnered substantial funds and have already been active in recent plays.

The US outfit last December bought a half interest in the A-grade tower at 60 Margaret St in the Sydney CBD from Hong Kong firm PAG for $420 million.

Blackstone last year made a play for listed landlord the Investa Office Fund but was pipped by Oxford Properties Group. The two groups declined to comment.

This article originally appeared on www.theaustralian.com.au/property.