Friend or foe: Lendlease may be Wylie’s white knight in Sydney CBD
John Wylie’s investment firm Tanarra Capital may be running a full-frontal attack on Lendlease, but it is also quietly hoping the $4.4 billion listed property landlord will help it save face at another property bet.
Street Talk can reveal Tanarra is among lenders staring down potential losses after tipping into a $465 million debt stack that, last year, bankrolled Sydney developer Milligan Group’s acquisition of a site at the corner of the Hunter and Pitt streets.
The deal was announced with much fanfare, with non-bank lender Merricks Capital billing it as the “world’s tallest hybrid timber tower” that would win big from the Hunter Street Station due to open in 2032. But a year on from the victory lap, whispers about the lenders’ shaky position in the deal are starting to grow louder.
Sources said the mixed-use tower’s initial valuation estimate – on which the debt deal was based – is starting to look too rosy against soft leasing demand for offices and high construction costs. Peers such as Dexus and Mirvac have been marking down their office assets, and any sales have been getting through at hefty discounts to the book value.
Tanarra Capital, Tor and a handful of credit funds tipped into the deal alongside Merricks. Boutique advisory Mirimbah helped with the syndication.
Lendlease seeks partners
Documents sent to lenders last year show Lendlease’s influence over the debt deal. Some time in 2022, Lendlease signed a heads of agreement to acquire the property off Milligan Group. The documents stated the price as $685 million.
The agreement was non-binding, but lenders were told Lendlease was keen and would even help out with the leasing. Further, the pitch added that Lendlease’s interest in Milligan’s tower would hold even if it lost its joint bid with Justin Hemmes to develop twin towers above the planned Hunter Street metro station.
Street Talk can confirm Lendlease was still exclusive as of Wednesday afternoon, and expected to seek capital partners of its own. But you only have to look at the broader office market to know Lendlease – or its soon-to-be capital partners – won’t be paying anywhere near $685 million for the Milligan skyscraper.
Should the valuation tumble, there’s the question of what it would mean for the lenders, who were told to expect the 16-month loan to pay 8 per cent above the bank rate, plus deferred interest payments at expiry. The building has to be sold for the loan to be repaid. Needless to say, that 16 months is up soon.
Supporters were also pointing to the loan’s low LVR and decent cap rate to argue the site’s valuation would have to nose-dive significantly before lenders incur any losses. Demolition begins in July, leasing is already in the works and Lendlease is still committed, they said.
Street Talk can also reveal the loan included a six-month extension, which, if exercised, could kick the can down the road to January. However, Milligan and lenders would still have to face the valuation test eventually.
When contacted by this column, Tanarra said it expected to be repaid in full.
“The project continues to progress in line with the development timeframe set out by the sponsor and the syndicate remains supportive of the project,” Merricks said.
