Investa seeks partners on $2bn-plus prime office portfolio
The local group’s move shows that offices and big deals are moving ahead in the face of the pandemic.
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The final chapter of the Investa saga is playing out with the local manager moving to bring in fresh capital alongside Canadian giant Oxford Properties Group that would see new investors take a slice of the blue-chip property trust that was taken private in a fierce takeover battle three years ago.
Investa has kicked off a global process to find either a partner or a small club of investors to hold a stake of up to 75 per cent in the $2bn-plus premium portfolio that is billed as one of the country’s best collections of office assets.
Investa as manager for Oxford is making move after the Canadian house saw off interest from US private equity house Blackstone and took the Investa Office Fund (IOF) private in a $3.4bn deal after a long-running battle that also drew a merger proposal from Dexus and an incomplete takeover proposal from Cromwell.
The takeover capped a three-year battle for the trust and its prized $4.4bn portfolio of office towers, which the Investa and Oxford then restructured.
By mid-2019 the freshly minted Oxford Investa Property Partnership (OIPP) had completed a $2.8bn asset selldown of lower-quality assets in the former IOF portfolio.
The partnership sold 13 major towers in Brisbane, Sydney, Melbourne and Canberra. The move was well-timed as it rode the wave of local and international capital keen to buy into Australian cities to profitably carve up key assets.
Investa has now tapped real estate agency CBRE to seek out a partner to take an interest alongside it in the remaining premium and A-grade buildings in the partnership. The offer is being handled by CBRE’s Stuart McCann and Flint Davidson but they were not contactable.
The assets on offer are some of the best towers in the country and the portfolio includes a share of Deutsche Bank Place in the Sydney CBD and a stake in Melbourne’s 567 Collins Street.
Investa’s move indicates that the competition at the very top end of the office market for the best assets is expected to continue unabated through the coronavirus crisis, despite the lockdowns that have blighted eastern seaboard cities and forced workers to stay away from their desks.
The Investa offer also indicates the top class of office buildings are breaking away from lower-grade assets with the best buildings holding up even as the smaller end comes under pressure.
Top city sublease space is falling and property experts predict that most pain will fall in the B and C-grade buildings as tenants shift to higher quality, healthier towers.
Tenants are also seeking top operators like Investa who can run assets in line with the latest Covid-19 protocols and accommodate hybrid styles of working, and investors are following suit.
The offer would likely bring out international bidders keen for exposure to the top end of Australia’s office market. It might also attract local superannuation funds, some of whom also back its sister vehicle, the Investa Commercial Property Fund.
Oxford remains committed to the Investa platform, which controls an overall $12bn empire, and it bought a half stake in the business for about $50m from Macquarie Capital last year. It owns the management business alongside the Investa wholesale fund.
Investa also wants to grow and in June elevated long-serving Peter Menegazzo as its new chief executive, replacing former head Jonathan Callaghan, who has since joined Cromwell. The company declined to comment.
Oxford has committed to a new range of developments and is ramping up its build-to-rent operations. It has lodged plans for a 39-storey, build-to-rent residential building, as part of the Sydney Metro Pitt Street over station development and also has sites in Melbourne.
Oxford is also developing a separate 39-storey office building at the Pitt Street north metro station entrance, and is proposing a major new office tower in North Sydney.
While the offer is only for passive towers, incoming investors could have the opportunity in future to invest in the North Sydney redevelopment and the Oxford project above Pitt Street station. Offering a stake in the partnership could help the Canadian group to potentially fund the next leg of its operations in Australia.
Prospective buyers will be punting that Australia can come out of lockdown, with the Delta variant under control, and landlords can get their buildings occupied again as people return to CBDs.
Interest could come from offshore institutions which have already seen workers get back to their desks in global capitals, where occupancy is rising in offshore centres freed from coronavirus restrictions and where employers are pushing staff to get vaccinated and back to the office.
The OIPP portfolio comprised more than $2.3bn worth of investment-grade office buildings in June 2020 according to Investa’s website and rising values may push this higher.
The largest asset is Deutsche Bank Place at 126 Phillip Street in Sydney and the other buildings in the city are Barrack Place at 151 Clarence Street, 347 Kent Street, and a half stake in 388 George Street, which is held alongside Canada’s Brookfield.
The portfolio in which a stake is on offer also includes 567 Collins Street in Melbourne that is owned alongside Investa’s wholesale fund. But it does not include the MLC Building at 105-151 Miller Street in North Sydney, where Oxford’s proposed redevelopment was initially thwarted by the proposed heritage listing of the building in June.
Deutsche Bank Place is among the country’s most prized assets with stunning views across Sydney Harbour and the Royal Botanic Gardens.
The iconic Norman Foster-designed tower has a net lettable area of about 42,313sq m and major tenants include Deutsche Bank and law firm Allens.
The OIPP fund has a quarter stake in it, alongside Investa’s wholesale fund at 50 per cent alongside a one quarter interest held by Chinese fund CIC.
The Collins Street tower is a premium-grade office building located at the western end of the premium strip. At the juncture of the Melbourne CBD, Southbank and Docklands, it is well placed as the city goes through tough leasing conditions.
The 55,051sq m building has panoramic city skyline views and large floor plates ranging from 2000-2500sq m. Major tenants are Corrs Chambers Westgarth, Jemena, CPB Contractors and the Virgin Active Health Club.
The building at 347 Kent Street was designed by acclaimed architecture firm Woods Bagot and sits in Sydney‘s western corridor. The A-grade building spans 26,818sq m and houses law firm Hall and Wilcox, Zurich Financial Services Australia Limited, and IOOF Services Co.
The overhauled 388 George is another key part of the portfolio after the owners poured $200m into overhauling the 28-level office and retail complex near Pitt Street mall. Oxford and Brookfield transformed the 1970s office tower into a state-of-the-art A-grade commercial tower with a new retail pavilion. It spans 38,364sq m of A-grade office space and 2680sq m of retail space.
Originally published as Investa seeks partners on $2bn-plus prime office portfolio
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