The AFIAA Foundation for International Real Estate Investment is buying a Melbourne office tower from its Singapore owner.

The Zurich-based pension fund manager, one of 10 mainly offshore bidders, is investing AUD170m (€118.7m) in the prime office block in Melbourne.

The deal will close next month.

The AFIAA met the top end of the pricing range – AUD160m–  sought by vendor Straits Real Estate.

Australia is the third-largest investment destination for the AFIAA after Germany and the US.

As of 30 June, 17% of its direct and indirect investment was located there.

The William Street office tower in central Melbourne is the largest purchase yet for the Swiss manager, which is owned by 44 Swiss pension funds.

It owns three office buildings with a collective value of AUD247m in Sydney, Canberra and Melbourne.

Straits Real Estate paid AUD125.1m for the tower last year.

Michael Hua, fund manager at CorVal Partners, mandated by Straits Real Estate to source and later manage the building, said the asset had required some capital expenditure, including upgrades to the foyer, plant and equipment, and refurbishments.

There was also 20% vacancy in the building.

Hua told IPE Real Estate that Straits Real Estate and CorVal refurbished four floors and the lobby.

They also increased occupancy to 98%, including the retention of two anchor tenants – Host Plus, an industry super fund, and Cornwalls Lawyers.

“There was no pressure to sell the building,” he said.

Straits Real Estate decided to test the market, he said, with the owners approaching an agent to assess interest in an off-market sale with a small group of potential buyers.

The AFIAA has agreed to pay a gross price of AUD170m.

Stripped of incentives paid to tenants, the net value of the building is “closer to AUD162m”, Hua said.