Allianz Fund Buying Half-Stake in Sydney Complex From ADIA for $445M

Allianz Real Estate has agreed to acquire a 50 percent stake in Sydney’s Commonwealth Bank Place office complex for $445 million, as Australia’s commercial property market gets off to a hot start this year after a record-breaking 2021.

The real estate investment unit of European financial services giant Allianz insurance is purchasing the half-share in the central Sydney project better known as Darling Quarter on behalf of its $2.3 billion Allianz Real Estate Asia-Pacific Core I (AREAP I) fund, which it established together with South Korea’s National Pension Service in 2020, Allianz Real Estate said Monday in a release.

“On behalf of NPS and Allianz, we are very happy to be investing in this landmark office building in Sydney, providing long-term value and stable cash flow,” said Rushabh Desai, Asia Pacific CEO for Allianz Real Estate. “AREAP Core I is now 82 percent committed and this asset provides attractive diversification to the portfolio. We are also excited to establish a partnership with a best-in-class company like Lendlease.”

Local media identified the seller of the prime commercial project near Sydney’s Darling Harbour as the Abu Dhabi Investment Authority, which had backed the 2012-vintage project by Lendlease, with a fund managed by the Sydney-based developer holding the remaining half-stake.

Record Yield

Allianz’s selection of the Darling Quarter project follows early acquisitions in Shanghai and Singapore, where the firm has targeted high-end office assets that analysts see as holding their value in a market where commodity space has seen demand dented by the pandemic.

“Darling Quarter represents what core capital is seeking across income security and growth, outstanding ESG credentials and the ability to gain exposure to the exceptionally tightly held premium grade office sector in Sydney,” said Flint Davidson, head of office capital markets for the Pacific region at CBRE, which advised ADIA on the disposal. Without providing specifics, Davidson said the asset changed hands at a record yield for the Australian office market.

The property spans a net lettable area of 61,000 square metres (656,599 square feet) across two eight-storey towers with retail at the ground level, with the consideration paid valuing Darling Quarter at roughly $14,590 per square metre of NLA.

The 99-year leasehold asset has a 99.7 percent committed occupancy rate, and the entire office component is leased to the Commonwealth Bank of Australia with a weighted average lease expiry of more than 12 years. With the transaction subject to regulatory approvals, Allianz says it expects to achieve closing within this quarter.

Sustainability Matters

In line with Allianz’s focus on high-end office projects, Commonwealth Bank Place was awarded 6-Star Green Star Design and As-Built certification, with 6-Star NABERS Energy and 6-Star Water ratings, giving it top marks on Australia’s two competing standards for sustainable buildings.

“The pandemic has re-emphasised the importance of micro location, city density, asset quality and ESG when investing in an office asset,” said Danny Phuan, head of acquisitions for Asia Pacific at Allianz Real Estate. “Sydney is one of the most liveable cities in the world and the long-term outlook for the Sydney office market remains favourable, supported by robust economic fundamentals, an attractive labour market and strong infrastructure investments.”

Allianz Real Estate’s exposure in Asia Pacific amounted to $8.8 billion at the end of September 2021, with Australia accounting for 20 percent of the total.

Citing the strong fundamentals of Singapore’s core office market, Allianz one year ago made its largest investment to date on behalf of AREAP Core I when it acquired a half-stake in the OUE Bayfront tower on Collyer Quay from OUE Commercial REIT for close to $477 million.

That deal stood as the Lion City’s top office transaction of 2021 until December, when JP Morgan Asset Management and Nuveen Real Estate completed the acquisition of their respective half-stakes in One George Street in Raffles Place from CapitaLand Integrated Commercial Trust and FWD Insurance for a combined $944 million.

At the same time that it unveiled the OUE Bayfront investment, Allianz announced that it was purchasing a 90 percent stake in the Innov Star office complex in Shanghai’s Zhangjiang High Tech Park on behalf of the same fund. AREAP Core I paid approximately RMB 2.2 billion ($346 million) for that 61,506 square metre asset.

Aussie Heat

Real Capital Analytics reported Monday that Australian commercial property sales activity jumped 69 percent in 2021 to a record A$70.8 billion ($50 billion).

After a slow start to 2021, the Sydney office market ended the year as the top investment market in the country despite uncertainty surrounding the future of offices, according to the real estate data provider. Sydney office sales rose 48 percent on the year, with overseas investors accounting for about 60 percent of the total.

Big-ticket office deals involving offshore buyers included private equity giant Blackstone acquiring a 50 percent stake in Grosvenor Place for A$925 million and UK-based M&G Real Estate acquiring a 49.9 percent interest in 200 George Street for A$577 million.

“Investors have shown a lot of faith in the Sydney office market with some significant transactions over the year,” said Benjamin Martin-Henry, head of Pacific analytics at RCA Australia. “We also have another $2 billion worth of Sydney offices awaiting settlement, which is a promising sign.”