Fortitude Valley block to be lifted by Olympic tide

The sale of the block that houses Brisbane City Council could spark a revival of the precinct which is located near key Olympic Games facilities.

Sentinel is buying Green Square South from AXA Investment Managers.

Warren Ebert’s Sentinel Property Group is buying an office tower in Brisbane’s Fortitude Valley for about $140m, betting that the Olympic Games in 2032 will bolster the area.

The company is buying Green Square South from AXA Investment Managers, which had bought the tower in 2019 from the South Korea’s Teachers Pension Fund for about $205.5m.

The dramatic fall in value is partly due to the effect of the coronavirus crisis and rising interest rates but the asset has also been hit by uncertainty about the intentions of its sole tenant, Brisbane City Council.

Sentinel believes that its active management style can turn the building around if the council leaves and it needs to be leased up again.

The funds manager is emerging as one of the biggest counter-cyclical buyers of offices in Brisbane, having already bought the RACQ headquarters on Edward St in the central business district for $72m.

Sentinel is billing its purchase as an opportunistic acquisition that is being struck at a $73m discount to its previous book value.

Sentinel Property Group chief Warren Ebert.

The manager and selling agent, Colliers’ Adam Woodward, declined to comment.

The block is fully leased to Brisbane City Council until 2027 but it has been considering a move to new premises. The manager said the tenancy provides substantial holding income above forecast distributions from the trust to support a repositioning of the asset.

Green Square South is a five level A-grade office building and the 18,000sq m asset was the first in Brisbane to receive a Green Star Built and Design rating. But the key to the play is its prime location.

The building is close to key Olympic venues, including the new Brisbane Athletes Village, which will host 10,000 athletes and officials, and the 22,000 seat RNA Showgrounds Arena, as well as the Victoria Park Stadium and National Aquatic Centre. It is well connected by the Fortitude Valley station and Cross River Rail.

Sentinel cited Brisbane’s strong GDP, population, and white-collar employment, and the infrastructure boom that will result in $184bn of major Queensland projects undertaken in the lead-up to the 2032 Olympic Games.

Sentinel will put the building into a newly-launched office fund, the Sentinel Games Precinct Trust. It will be Sentinel’s highest yielding active fund across its $2.2bn empire and will spin off a distribution of 8.5 per cent.

Sentinel is betting it will be able to capitalise on a coming squeeze for space in Brisbane’s fringe markets. A-grade office vacancy in the fringe is below the historic average of 9.5 per cent and overall vacancy is forecast to hit 4 per cent by 202, driving strong rental growth.

The next test for the market is superannuation fund-backed manager ISPT selling the Green Square North Tower. The expected price of less than $200m is likely to trigger a contest.

Large office players are chasing towers in the Queensland capital and managers are putting assets up for sale to meet the demand.

Charter Hall, acting for Singaporean government sovereign wealth fund GIC, has already put Brisbane’s landmark Santos Place on the market as demand for Queensland assets picks up.

Originally published as Fortitude Valley block to be lifted by Olympic tide