Bids sharpen for $2b Southern Cross office tower deal
Local fund managers are lining up against deep-pocketed offshore bidders to acquire stakes in Melbourne’s Southern Cross towers, a sell-down that could nudge close to $2 billion and become one of the largest such deals yet in the city’s CBD.
Along with the sheer scale of the potential investment in the two Bourke Street towers – a major vote of confidence in the long-term recovery of the city’s office market after two years of intermittent lockdowns – pricing on the deal will be just as closely watched, as a benchmark for office tower values. Competition for the assets is expected to push the yield to 4.5 per cent or below.
Showing interest locally are ASX-listed Charter Hall and Lendlease, both keen to expand their pool of assets under management, along with ISPT, which managers property investments for industry super funds. But there has been plenty of appetite from abroad as well, from the likes of Singapore’s Keppel, British investment house giant M&G and ARA Asset Management, now controlled by ESR, one of Asia’s biggest investment platforms.
Complicating the picture is what is on offer. All of the larger 41-level, 80,000-square-metre Southern Cross East Tower is up for grabs, with its joint owners, Blackstone and Brookfield, looking to divest their stakes.
Blackstone has also put its half stake in the neighbouring 22-storey, 45,000-square-metre west tower on the market, with Brookfield, for now at least, retaining its interest.
With six or so bidders in the race at this stage, a sell-down could be completed in various configurations, with total investment into the three stakes on offer expected to push past $1.8 billion, according to market sources. Those interests are being brokered by Cushman & Wakefield and CBRE.
A successful transaction will send a strong signal to the commercial property market. The resilience of returns from CBD office towers has been under scrutiny after the upheavals of the past two years, as city workers and their employers embrace increasing workplace flexibility.
Despite that disruption, investment confidence in trophy CBD office towers has remained strong with a run of megadeals over the past year in Sydney, such as Blackstone’s move into Grosvenor Tower.
But the focus of deal-making is likely to swing to the Melbourne and Brisbane CBDs this year, as investors chase better yields. As reported earlier this month, the first major institutional-grade transaction in Melbourne is firming up, with an Asia-based buyer in due diligence on 120 Spencer Street, opposite the Southern Cross station and home to a well-patronised WeWork hub, at about $325 million.
Around the corner along Collins Street, bidding is into second rounds for two substantial towers. In the midtown area, at least 10 offers are in for the Sunsuper-owned, 20-level building at 330 Collins Street, which could fetch $230 million or more.
Further west on the same street, where it extends into Docklands, a second round of bids is also under way for 850 Collins Street, which could push the price to $200 million. Its owner is MECGP Asia.
