Mirvac set to sell two office towers at discounts of more than 20pc

A deal to sell the Melbourne A-grade office tower at 367 Collins Street to Hong Kong private equity firm PAG for $340 million is close to completion after more than a year and a half of negotiations with various buyers. The $340 million deal was made at the latest December 2023 book value, but it is nearly at a 20 per cent discount from its peak value of $428 million at the end of 2021. It was brokered by CBRE and Cushman & Wakefield.

Mirvac had hoped to finalise the sale of 367 Collins Street – better known as the Optus centre – for about $365 million last year, but was unable to find a suitor willing to pay that price.

The Optus Centre acquisition adds to PAG’s growing commercial property portfolio in Australia. Since the start of last year, PAG has deployed more than $2 billion in capital to acquire Australian Venue Co, the operator of dozens of hotels and bars, the 44 Market St office tower and Perth’s Midland Gate mall.

Meanwhile, Mirvac is also finalising the sale of North Sydney’s A-grade 40 Miller Street for about $145 million from US global investment manager Barings – a near-14 per cent discount to its current book value of $168.3 million and a 24.9 per cent discount from its peak book value of $193 million in December 2022.

Eyes on capitalisation rates

The capitalisation rate – the industry jargon for an investment yield, which typically moves in the opposite direction to values – for the 367 Collins Street deal is thought to be in the 6.5 per cent range, significantly softer than its latest reported cap rate of 5.38 per cent in December 2022.

The cap rate for the 40 Miller Street deal is also thought to be in a similar range, softening further from the rate of 6.13 per cent recorded in December.

The cap rates reflected in the two transactions will be closely watched by fund managers, analysts and would-be investors, as they provide the latest benchmarks on the extent of writedowns in office values across the sector.

CBRE’s James Parry, who negotiated the sale of 40 Miller Street, said the impending launch of the Victoria Cross metro station in North Sydney had sparked buyer interest in the tower.

“As tenant demand continues to grow, North Sydney is poised to not only maintain its standing, but to further enhance it as one of Sydney’s most in-demand employment destinations,” Mr Parry said.

Other ASX-listed property groups such as Charter Hall and Dexus have also quietly tested the market with billions of dollars worth of CBD office towers, in a sign that more deals could be on the way.

The Australian Financial Review reported  this month that Charter Hall’s 231 Elizabeth Street and 333 George Street in Sydney, 200 Queen Street in Melbourne and 121 King William Street in Adelaide were undergoing off-market processes.