Quadreal Backing ARA Acquisition of A$300M Melbourne Office Project

ARA Asset Management is said to be close to completing the acquisition of a Melbourne office development which is projected to be worth in excess of A$300 million ($201 million) once completed.

A source close to the transaction confirmed to Mingtiandi that the Warburg Pincus-backed asset manager had secured Quadreal Property Group, the property arm of British Columbia Investment Management, as an investor in a fund which is expected to complete an acquisition of the Victoria Place project during the first quarter of this year.

ARA has formed the partnership with the Canadian pension fund manager seven months after Melbourne-based development partners Golden Age and Time & Place put Victoria Place on the market following a decision not to proceed with the commercial development.

JLL is said to have represented the local development joint venture in marketing the project to investors, with the Quadreal-backed ARA fund having made the investment on a forward-funded basis, contingent on the completion of the development.

Financial terms of the reported acquisition have not been disclosed and ARA declined to comment on the proposed transaction when approached by Mingtiandi.

Getting into the Melbourne Office Market

Located at 200 Victoria Parade in East Melbourne, Victoria Place is an eleven-storey office complex planned as a business hub for the area. which, under the current designs, includes ground floor retail, a green lobby, and sky terraces.

With 25,250 square metres (271,789 square feet) of grade A office space across its top 10 storeys, the building has average floorplates of between 2,100 square metres and 2,750 square metres allowing for customisation as well as inter-floor tenancies.

The developers are selling the project, which Time & Place purchased in 2016 for A$60 million, just under a year after securing a construction permit, with an expected completion date of 2022.

Situated at the northwestern corner of Fitzroy Gardens, the development is within ten minutes of the boundary of the city’s Hoddle Grid central business district where Rio Tinto, BHP, and gaming group Crown have their corporate headquarters.

Following a Record Year of Office Transactions

ARA’s pursuit of the Melbourne office development comes after transaction volumes in Australia’s office sector reached A$22.5 billion last year — 13 percent more than the A$19.87 billion recorded in 2018 — according to JLL.

The property services firm noted in a report released just yesterday that, compared with other mature office markets, the Australian office market’s high level of transparency, fixed escalations in leases and stable returns make it an attractive prospect for investors.

Offshore investors accounted for 41 percent of office transactions by value, with Singapore buyers contributing the biggest slice of overseas capital at 14 percent of total volume, and Hong Kong players racking up 9 percent of deal value over the first nine months of 2019.

Buying into One of the Tightest Office Markets in the World

ARA’s deal for the Melbourne project comes as vacancy for prime office space in the city hit an 11 year low of 1.8 percent in the last quarter of 2019, making it one of the tightest office markets in the world according to JLL.

The property services firm said that while a range of global investors, including AEW and BlackRock have a buy mandate for Australia, the challenge in Melbourne is the limited supply of grade A offices.

Despite the scarcity, fund managers and other institutions have been finding ways to access office supply in Melbourne and other first-tier Aussie cities.

SC Capital Partners is repositioning a Melbourne police station for commercial use after entering a binding agreement to buy the former St Kilda Road cop shop for A$107 million just over two months ago.

For Quadreal, the Victoria Place investment, should it be finalised, would be the Canadian firm’s second major office investment in Australia since mid-2019, after the pension fund manager joined with local property investment firms Charter Hall and Abacus in August last year to purchase 201 Elizabeth Street in Sydney for A$630 million.