The downturn in the residential apartment market has been the catalyst for the latest major transaction in Sydney with Dexus and Perron Group deciding to ditch their mixed use re-development at 201 Elizabeth Street in favour of a sale of the whole asset.
Charter Hall and Abacus have announced that they have agreed terms with Dexus for the acquisition of the asset for $630m, reflecting a rate of $16,000/sqm of NLA and an equivalent market yield of 5.0%.
The property comprises a prominent A-Grade commercial building with 34 levels of office accommodation over 36,983 sqm of net lettable area (NLA), above a lower ground food court (12 retail tenancy areas over 1,428 sqm of NLA) and two levels of basement parking for 169 cars.
The transaction is set to occur in two tranches, with 75% of the total purchase price payable by mid-November 2019 and the remaining 25% subject to a put and call option expiring at the end of October 2020.
As part of the acquisition announcement, Charter Hall confirmed that it had established a new partnership comprising two of its wholesale partnerships, the existing DVP partnership and a new partnership formed with one of Canada’s largest pension fund owned property groups Quadreal.
The partnership will acquire 68% of the freehold interest along with Abacus who will buy the remaining 32% interest.
The vendors, a 50/50 joint venture between Dexus and Perron Group, were seeking a funding partner earlier in the year an apartment and hotel re-development (as per artists impression above) following multiple approaches for the whole building during the residential boom.
The sale is expected to contribute $68 million to Dexus' trading profits over the course of the transaction.
Darren Steinberg, CEO of Dexus said: “We are pleased to have achieved an excellent outcome for our investors without taking on any development risk. We added significant value by securing approval for a State significant development application on the site and expect to recycle the capital realised from the divestment into higher return opportunities.”
The property is positioned on a large CBD north eastern corner site of 3,901sqm with three street frontages to Elizabeth Street, Park Street and Castlereagh Streets, providing excellent exposure to pedestrian and vehicular traffic.
The new Pitt Street metro station, anticipated to open in 2024, will be located diagonally opposite the property further improving public transport access.
The property is 99.9% occupied and benefits from average rent reviews of 3.99% per annum and a 4.5 star NABERS Energy rating.
Charter Hall and Abacus are likely to retain the office use for the tower given the downturn in the residential apartment market.