Morgan Stanley Real Estate Investing announced today that it has agreed to sell the real estate portfolio belonging to its Australian subsidiary, Investa Property Group, to China Investment Corporation (CIC) for A$2.45 billion ($1.79 billion). The deal instantly makes the Chinese sovereign wealth fund one of Australia’s biggest commercial landlords.
With the acquisition, CIC, which controls more than $746 billion in assets, will now own stakes in nine office properties across Sydney, Melbourne and Brisbane. The deal also underlines the growing importance of the sovereign wealth fund as China’s biggest cross-border buyer of real estate, after having made major asset purchases this year in Japan, Europe and Australia.
CIC beat out a field of more than 50 rivals, including private Chinese investment firm Fosun, to enter the Australian market by purchasing Investa.
CIC Buys into Booming Aussie Property Market
The Investa portfolio has a passing, fully let income of approximately $105.7 million, and the acquisition will have an initial investment yield of five percent, according to figures published in the Australian Financial Review.
The assets acquired include prime office properties such as 120 Collins Street in Melbourne and 126 Phillip Street in Sydney. The deal is still subject to approval by Australia’s Foreign Investment Review Board.
Morgan Stanley Real Estate Investing said in a statement that Investa Office will maintain rights to management of the properties. LaSalle Investment Management and Mirvac Group are said to still be bidding to win those management rights from Morgan Stanley.
Investa, which Morgan Stanley Real Estate acquired in 2007 for A$4.7 billion (then US$3.9 billion) is Australia’s third-largest owner of downtown offices, and also manages more than $6.48 billion in office properties in the country’s commercial centres. In addition to its property investment and management businesses, Investa also has a development division which is said to be valued at $2.19 billion.
Morgan Stanley Real Estate Investing was advised on the sale by UBS AG and Morgan Stanley Australia. The sale comes as Australia’s plummeting currency has piqued interest by foreign investors in real estate assets there, at the same time that rising office rents have been providing investment yields in Sydney and Melbourne that surpass returns currently available in New York or London.
In addition to Fosun, which failed to make the shortlist of candidates bidding for the property group, CIC is also understood to have edged out private equity giant Blackstone in the race for Investa, as well as Canada’s Brookfield. Three local Australian property investment firms were also said to have made the shortlist of candidates bidding for Investa.
CIC Already Behind $5.52B in Cross-Border Deals
CIC’s successful courtship of Investa only serves to underline the growing importance of the Chinese government fund as a global real estate player. With this latest deal, according to data compiled by Mingtiandi, since 2013 CIC has led more than $5.52 billion in property investments outside of China, and this year alone has acquired assets in Japan, France and Belgium, as well as picking up its Aussie target.
Earlier this month CIC teamed with investment manager AEW Europe to acquire a fleet of 10 malls in France and Belgium from CBRE Global Investors for €1.3 billion ($1.44 billion), in what was then the fund manager’s biggest acquisition to date.
That European acquisition was preceded in February this year by CIC teaming with LaSalle Investment Management to buy the Meguro Gajoen commercial complex in Japan for ¥140 billion ($1.2 billion).
CIC has also invested in the UK, having purchased an office park in London from Blackstone for $1.28 billion in late 2013.
Another Chinese sovereign wealth fund, Gingko Tree Investment has also been active internationally, scooping up more than a dozen properties in the UK and Europe since 2012.