Sydney market ends 2018 with $804 million bang

The transaction, which occurred quietly just before Christmas, turned out to be one of the biggest deals of 2018 and brings Charter Hall’s total office assets to just under $13 billion.

The two towers, at 10 and 12 Shelley Street, are leased to Suncorp and Amex and are the only two freehold office buildings in the precinct. Canadian giant Brookfield was the owner.

Combined, they have a net leasable area of 42,000 square metres and a weighted average lease expiry of 9.5 years. The blended yield is estimated to be about 4.5 per cent.

The A-grade building 12 Shelley Street. Photo: Supplied

The sale, which was negotiated by Josh Cullen of Cushman and Wakefield and JLL’s Paul Noonan, Rob Sewell and Simon Storry, gives Charter Hall control of most of the precinct, following its purchase of the 11-storey building at 1 Shelley Street from Brookfield Office Properties in 2016 for $525 million.

The two A-Grade commercial buildings are on the doorstep of the new mixed-use Barangaroo precinct, the ferry terminal and the new entrance to Wynyard train station.

“These assets are a good fit for Charter Hall’s investment funds, providing quality rental income from strong tenant covenants with long term leases,” Charter Hall Office chief executive Adrian Taylor said. “These assets also have the potential to deliver future development upside.

“The City of Sydney’s draft planning strategy is supportive of a floor space ratio uplift for this precinct. As a result, we see potential long-term opportunity to add further density to the sites, notably at 12 Shelley Street, which we estimate could accommodate an additional 30,000-40,000 square metres of space.”

10 Shelley Street. Photo: Supplied

Charter Hall acquired the two properties through a partnership structure involving three of its wholesale office and direct office investment funds.

The property at 10 Shelley Street was purchased jointly by the Charter Hall Prime Office Fund (CPOF) and Charter Hall Direct Office Fund.

The neighbouring building was a 50-50 acquisition between CPOF and the Charter Hall Direct PFA Fund.

The head of Charter Hall Direct, Steven Bennett, said the structure of the fund gave retail investors access to prime Sydney CBD assets otherwise reserved for major institutional investors.

“These acquisitions extend our partnership with CPOF and demonstrates the strength of the Group’s breadth of capital and capacity to leverage our investment capability to secure outstanding transactions for our investors,” Mr Bennett said.

The biggest commercial deal in Sydney’s CBD last year was Rest’s $912 million stake in AMP Capital’s 50-storey Quay Quarter Tower, currently under construction in Circular Quay and due for completion in 2021.

Charter Hall bought 1 Shelley Street for $525m in 2016. Photo: Supplied

In another large deal, unlisted property fund manager ISPT acquired 50 per cent of Westpac Place on 275 Kent Street through Mirvac in a deal worth more than $850 million.