ESR trade out of Liverpool Office26 February 2020
ESR have sold an Office asset acquired by Propertylink in Liverpool for $52.5m ($6,990/sqm of NLA).
The asset at 211 Northumberland Street Liverpool was tenanted by Centrelink on a lease which expires in December 2022 with a single 5 year option period thereafter. The building currently generates approx $3,458,927 ($461/sqm) in net income with 4% annual increases.
The asset is a modern 4 level, A Grade building which was likely constructed in the 1990s. The building is situated on a 3,050sqm parcel of land zoned Mixed Use with a 28 metre height limit and an FSR of 3:1. The existing building has a 4 star NABERS rating, is fully sprinklered and serviced by a central air conditioning system. Two lifts located at the southern end of the building services each of the occupied levels. On-site parking for approximately 179 cars is also provided in a basement level.
The total NLA of the asset is 7,510sqm and a GFA of 8,049sqm.
Western Sydney is undergoing a rapid transformation driven by the Western Sydney Airport in Badgery’s Creek. The creation of employment and residential lands in the region has increased the focus of the nearby major commercial business districts which are expected to continue to be in demand as the region further develops. Liverpool is the closest CBD of scale to the proposed airport with significant infrastructure already in place.
The asset was previously owned by a wholesale fund managed by ESR. The predominant investor in the fund is Goldman Sachs. The Fund acquired the asset in 2016 for $31.7M as part of a portfolio acquisition from Denison Funds Management.
The property was sold via an on market process run by Ray White Commercial Western Sydney and Colliers.
The purchaser of the asset is Stanley Xue and based on the purchase price, has acquired the asset on a passing yield of 6.6%. Comparable market rental rates for Liverpool are below $400/psm suggesting that the market yield for the asset is closer to 5.4%.
There is a reasonably high possibility that the tenant will be enticed to relocate to other potential development projects resulting in the building being vacated for a period of time and or the rental reverting to market in the short term. Whilst there are alternative uses for the site, the current FSR requirements would only permit an additional 1,000sqm of GFA to be added to the site. Other sites in Liverpool CBD which are in excess of 1,500sqm, are eligible for a bonus FSR of 10:1.
The opportunity therefore exists to seek approval for a major redevelopment of the site as a fall back to the potential loss of the tenant.
In july 2019, the adjoining 8 storey commercial property and an undeveloped car park was sold to Stirling Funds Management for $46m reflecting an equivalent fully leased market yield of 6.7% for the commercial component. The car park site covers 1,334sqm with a Development Application for 66 apartments and 2,508 sqm of commercial use. Stirling expect to sell the development site once the DA is approved.