Charter Hall locks onto $2b Southern Cross in record office deal
Property fund manager Charter Hall has locked onto the country’s biggest direct office tower deal transaction, a $2.1 billion deal to acquire the two-tower Southern Cross complex in the Melbourne CBD, backed by Singapore’s powerful sovereign wealth fund, GIC.
While the sheer scale of the deal is historic, more focus will turn to the investment yield of about 4.5 per cent at which it is expected the transaction will be struck. That yield is a little softer than pricing on Sydney’s trophy towers but nevertheless represents a relatively tight return on capital invested into a city that experienced two years of rolling lockdowns.
The hefty vote of confidence in the Melbourne market was effectively upsized during the bidding process, which initially involved all of the larger of the two towers being offered, along with a half stake in the smaller tower.
However, if the deal goes through as expected, Charter Hall will take control of both Bourke Street towers in their entirety, managing the investment on behalf of GIC and the unlisted Charter Prime Office Fund.
The transaction eclipses other mega-deals such as Blackstone’s $1.52 billion acquisition of three office towers above Westfield Sydney three years ago. However, there have been portfolio-style deals written at larger prices such as China Investment Corporation’s $2.45 billion acquisition of Investa Property Group’s nine office towers in 2015.
The transaction, being brokered by Cushman & Wakefield and CBRE, involves all of the larger 41-level, 80,000-square-metre Southern Cross east tower. Its joint owners, Blackstone and Brookfield, had put both their stakes up for grabs. Blackstone initially put its half stake in the neighbouring 22-storey, 45,000-square-metre west tower on the market. But under the mooted deal now in due diligence, Brookfield will also divest its interest.
The Southern Cross offering attracted interest from major international investors such as British investment house giant M&G, which had teamed up with Lendlease, as well Singapore’s Keppel REIT and Hong Kong’s Link REIT. Singapore’s GIC is the single biggest offshore investor in Australian commercial property.
Such a deal generates its own premium, giving Charter Hall sway over a larger precinct running between Bourke Street and Little Collins Street.
Precinct-level investments are relatively rare in the Australian commercial market. Charter Hall controls a number of those already, such as the Wesley Place complex in Melbourne, the Kent and Market streets site in Sydney as well as complexes in Brisbane and Perth.
Other well-known and highly valuable office precincts include Brookfield Place in Perth, Lang Walker’s Collins Square in Melbourne and AMP Capital’s Collins Place.
In an interesting twist to the Southern Cross deal, Charter Hall last year snared one of the complex’s largest tenants, Australia Post, for a new building in inner-city Richmond, a move that may have helped spur the sell-down of the Bourke Street towers.
