SC Capital Partners has sold an office tower in Sydney’s central business district for A$270 million ($182 million), flipping the property at a mark-up of almost 71 percent just over two and a half years after acquiring the asset.
The Singapore-based private equity firm said in an announcement that it had exchanged sale and purchase agreements with Poly Australia, the local branch of state-owned Chinese developer Poly Developments and Holdings, for the trade of 59 Goulburn Street in Sydney on behalf of its RECAP Fund.
Thai financier Suchad Chiaranussati’s closed-ended, opportunistic vehicle sold the 26-storey asset after effective office rents in Sydney’s central business district had risen by 30 percent over the three years ending 31 December, according to a report released this month by JLL.
That rise in rents, combined with vacancy rates averaging 4 percent and record fund raising by asset managers, helped push transactions of office space across Australia to a new high of A$22.5 billion last year, up from $19.97 billion in 2018.
Repositioning in a Tight Market
“The underlying office occupier markets of Sydney, Melbourne and Canberra remain tight, so our investment strategy is to target short-lease buildings and reposition them into high quality assets delivering stable, long-term income streams,” said Khun Suchad.
Based on the property’s net leasable area of 19,470 square metres (209,573 square feet), Poly Australia is paying $13,867 per square metre for the office asset with the transaction taking place at an initial yield of 4.9 percent, according to SC Capital.
The firm said that, together with local operating partner Fortius Funds Management, it had carried out a targeted refurbishment and lease-up strategy to add value to the property. The partners upgraded the building’s common areas, as well as more than doubling the property’s weighted average lease expiry, from 1.6 years at the time of acquisition to its current four years.
With an average floor plate of 845 square metres, 59 Goulburn Street’s major tenant is the Government of New South Wales’ real estate department Property NSW, while other occupiers include the Australian Electoral Commission, corporate travel agency House of Travel, and government-funded housing agency Bridge Housing.
SC Capital’s RECAP had originally acquired the 1973-vintage building from Singapore-listed developer Roxy-Pacific Holdings in July 2017 for A$158 million.
Doubling Down on Australia
The office disposal comes amid an A$500 million wave of Aussie acquisitions by SC Capital, as the company steps up its exposure to the country’s commercial property market.
Just two months ago, the firm announced that it had inked a deal to purchase a grade A office tower just outside of Sydney for A$105.3 million.
That transaction saw the private equity firm’s open-ended SCORE+ Fund pay A$9,625 per square metre for the 10,940 square metre property at 2-10 Wentworth Street in Parramatta.
Just a month before that Sydney purchase, the company entered into a binding agreement to buy the former St Kilda Road police complex in Melbourne for A$107 million through its RECAP fund series. SC Capital said that it is planning to reposition the 1984-vintage government building for commercial office use.
Offshore Capital Chases Sydney Property
Poly Australia, which has acquired or developed a portfolio of 14 projects since entering the country in 2015, is buying the Sydney asset as offshore capital targets office opportunities in the New South Wales capital.
“Overseas investors continue to show strong demand for office assets within Sydney relative to other major states given the breadth of top-tier institutional stock on offer,” JLL’s head of office investments for Australia, Rob Sewell, said in a statement released last month.
Sewell added that Sydney’s status as a global city “ensures it remains easy to underwrite for international investors in search of high-yielding assets”.
The JLL chief pointed to Blackstone’s A$683 million sale in December of 100 Market Street in Sydney to Hong Kong’s Link REIT as an indication of demand among Asian in investors for office assets in the city.