Australian funds put AUD200m Sydney office tower on market

Australia’s Future Fund and two state pension funds are to sell an office tower in the keenly sought-after Sydney central business district, with an expected sale price of AUD200m (€136.6m).

Future Fund and its co-investors – Funds SA and Victorian Funds Management Corporation – are unitholders in a vehicle known as Value Active Fund, which owns the tower.

The closed-end fund, managed by Sydney-based boutique fund manager CorVal Partners, has come to the end of its five-year term.

CorVal’s managing director Ian O’Toole told IPE Real Estate that marketing would start in “three to four weeks”. CBRE and JLL have been appointed to handle the sale.

The agents have tipped the building, at 9 Hunter Street, to fetch up to AUD200m because of huge interest in Sydney office buildings from both onshore and offshore buyers.

“I have been in this business for 40 years and I have never seen such a weight of capital looking for investment,” said O’Toole.

CorVal acquired the office building in 2012 for the Value Active Fund for AUD79.3m, on an initial yield of 6.84%.

O’Toole said the building had since been updated and had achieved a 4.5-star Nabers (energy) rating. “It was nondescript when we bought it, but it now has a strong identity,” he said.

The property is part of a freehold stratum that sits above Sydney’s Hunter Connection retail complex, and is fully leased.

IPE Real Estate understands that a key attraction of the asset is that the new owners can potentially raise rents, which currently run from around AUD900 per square metre. Sydney office rents have been rising sharply on the back of a shortage of office space, and the rent of some nearby buildings has reached more than AUD1,200 per square metre.

The Hunter Street building is connected by underground pedestrian walkway to Wynyard train station, the focal point of Brookfield Asset Management’s AUD2bn redevelopment of the city block, and also provides direct pedestrian access to Lendlease’s huge new Barangaroo commercial and retail development. It is in close proximity to the Sydney light rail system, currently under construction.

Future Fund is a sovereign wealth fund run by the Australian government. Funds SA manages the pension assets of the South Australian state government, while Victorian Funds Management Corporation does the same for the state of Victoria.