SC Capital Partners is set to make another purchase in Australia under its RECAP fund series, just one month after buying a retail portfolio in Sydney.
The Singapore-based private equity firm has entered a binding agreement to buy the former St Kilda Road police complex in Melbourne for A$107 million ($73 million) with the fund manager helmed by Thai financier Suchad Chiaranussati planning to reposition the property for commercial office use.
Malaysian developer UEM Sunrise sold the 1984-vintage building at 412 St Kilda Road to SC Capital’s fund after plans to convert the property into a Zaha Hadid-designed luxury apartment fell through following the death of the architect in 2016. UEM Sunrise had acquired the property in 2015 for A$58 million.
SC Capital’s acquisition comes just over five months after the firm reached a final close of $850 million on its latest RECAP fund.
Spending A$40M On Major Refurb
“This acquisition confirms our belief in the St Kilda Road office market,” said Suchad Chiaranussati, chairman of SC Capital Partners. “With vacancy at sub-six percent, the lowest since July 2001, supported by limited supply and robust tenant demand, the property is very well positioned to deliver strong performance.”
Based on the 19-storey property’s net leaseable area of 16,285 square metres (175,291 square feet), the private equity firm is paying the equivalent of A$6,576 per square metre for the asset.
Currently empty, SC Capital has retained local investment manager Artifex Property Group to undertake a A$40 million refurbishment, with the building due to be available for occupation in the first quarter of 2021.
“This will be the most significant office regeneration project the St Kilda Road precinct has witnessed in the past 20 years,” said Artifex Property Group’s director, Mark Frinsdorf.
A September report by Knight Frank noted that office vacancy levels in the St Kilda Road area halved from 2009 to 2019. This trend helped net face rents for prime office space in the district rise by 14.3 percent to an average A$440 per square metre per year in the 12 months ending 30 June of 2019.
Located on the corner of St Kilda Road and Bowen Crescent, the property overlooks the Royal Botanic Gardens and is three kilometres from Melbourne’s central business district.
The planned Anzac railway station, which will be built under Kilda Road and is due for completion in 2025, will connect the area to the central business district.
“The building has exceptional fundamentals and our planned refurbishment will provide future tenants with the highest quality accommodation and amenities in St Kilda Road,” added Khun Suchad.
Investors Rush into Aussie Office Market
The purchase comes as transaction volumes for office space in Australia reached A$17.9 billion over the first three quarters of 2019 — up 50 percent from the corresponding period last year — according to CBRE’s latest quarterly report on the Australian office sector.
“This level is the highest on record as investors continue to target office acquisitions with gusto,” the authors of the report noted.
The property was sold in an off-market transaction by Colliers International, with UEM deciding to divest the asset as Melbourne’s residential market hits a downturn.
Building Up A Portfolio Down Under
SC Capital’s acquisition of the former police station is the firm’s second purchase of an Australian property in just over a month after SC teamed up with Sydney-based Fortius Funds Management to buy three shopping centres in the capital of New South Wales state.
Khun Suchad’s firm, which has over $7 billion in assets under management across five discretionary closed-end opportunistic funds, bought the trio of retail centres from a joint venture between Frasers Property Australia and Sekisui House for A$174.5 million through its RECAP fund.
The firm also teamed up with Fortius in 2015 to acquire a commercial development in Sydney from Cromwell Property Group for A$68 million, which the partners are now developing as a 59-storey commercial building with a 421-room hotel and 5,810 square metres of grade A offices.
Due to be completed in 2022, the private equity firm launched pre-sales of space in the A$700 million project this past September.
In May, SC Capital paid A$62 million for a 28,519 square metre office complex in Canberra, which it is spending an additional A$50 million to refurbish with the help of asset manager Artifex Property.