ESR, Goldman Sachs Seeking Buyer for A$275M Brisbane Building

ESR Australia has put Brisbane’s State Law Building on the market with the sale expected to fetch upwards of A$275 million ($184 million), as the logistics specialist continues to offload non-core assets down under.

The Warburg Pincus-backed company, which has $20 billion in assets under management, is looking for a buyer for 50 Ann Street after acquiring the 25-storey office tower through its takeover of Australian real estate investment manager Propertylink fifteen months ago.

Known by locals as Gotham City or the Batman Building, Propertylink had jointly purchased the 1977-vintage tower with Goldman Sachs for A$145 million in 2017.

ESR’s holds a 25 percent interest in the building, while the New York investment bank owns the remainder, according to market sources familiar with the matter who spoke to Mingtiandi.

The move to sell the Brisbane landmark comes after investors piled into Australia’s office property market last year, spending A$23.4 billion – up 32 percent from 2018 and the highest on record, according to CBRE.

ESR declined to comment on the reported sale process when approached by Mingtiandi.

Selling a Fully Occupied Office Property

Based on the property’s 25,519 square metres (274,684 square feet) of gross floor area, the sale could achieve a price of A$10,776 per square metre at the expected transaction price.

The fully occupied building, which is located near the city’s law courts in the central business district, has been home to the Queensland state government’s legal services division for over 40 years.

The tower pulls in A$16.2 million in rent annually with a 4.7 year weighted average lease expiry, with 99.5 percent of the space on a long term lease to the Department of Justice and Attorney-General.

Tightening Market Expected to Draw International Buyers

CBRE, which is marketing the property with JLL, said that Brisbane’s tightening market is expected to attract significant buyer interest.

“It’s unusual to find high yielding, core CBD real estate which has government-backed income and potential for core plus returns,” noted CBRE’s head of capital markets in Australia, Flint Davidson.

Brisbane CBD net effective rents increased by 1.2 percent to A$390 per square metre in the fourth quarter of last year, compared with the same period in 2018, while the city recorded its highest ever level of transactions at A$3.5 billion for the year.

As investors sought out properties yielding higher returns than were on offer in Melbourne and Sydney, rental yields for prime assets in the Queensland capital compressed to 5.35 percent in the last three months of 2019, falling from 5.5 percent in the fourth quarter of 2018, according to CBRE.

Giving Gotham City a A$10M Upgrade

CBRE said that the property recently underwent a A$10 million refurbishment, including the introduction of end-of-trip facilities, mechanical and electrical upgrades to the building, and the installation of ten new lifts, modernising some of the older features of the 43-year-old property.

“Alternative options for the Department of Justice and Attorney-General to solely occupy more than 25,000 square metres are extremely rare, particularly within immediate proximity to Queensland’s Courts precinct, greatly improving the prospects for future long-term occupation,” Davidson noted.

With expressions of interest due to close on 19 March, ESR has made its move to offload 50 Ann Street after acquiring the property through the company’s A$723.4 million buyout of PropertyLink.

The Australian real estate investment manager had purchased the property through its Propertylink Enhanced Partnership (PEP) initiative with Goldman Sachs.

Offloading Non-core Assets

At the same time that ESR has been assembling a $1.3 billion portfolio of core logistics assets in Australia, the firm has also been offloading non-core properties in the country.

Just over two months ago, ESR seeded a newly established investment vehicle with a pair of office properties in a northeastern Sydney suburb worth A$138 million.

A week prior to that transfer of assets, the firm sold an industrial estate in Melbourne to Singapore’s Straits Trading Company for A$24 million.

In October last year, ESR’s joint venture with Frasers Property Australia disposed of a Melbourne-area office development project to Singapore’s Ascendas REIT for A$110.9 million.