BGO seals Sydney tower deal, marking its entry into the office sector

Global investment manager BGO has paid about $580m for a Sydney CBD office tower as it bets on the top end of the market.

Investa chief executive Peter Menegazzo. Picture: Josh Hill

Global investment manager BGO has pushed into the Australia’s office market with the purchase of a tower in Sydney’s central business district for about $580m.

The move marks BGO’s entry into the office sector here and also signals the return of US capital to the sector. The company as part of SLC Management, the institutional alternatives and traditional asset management business of Sun Life.

The group bought the prestigious 10-20 Bond St from joint owners Mirvac and Morgan Stanley Real ­Estate Investing, and the deal was finalised last week at about the listed group’s book value. It had held its 50 per cent stake at $291m at the end of June but the parties declined to comment.

The deal shows the market is rebalancing, with Mirvac’s stake valued on a capitalisation rate of about 6.25 per cent.

BGO’s move builds on its existing holdings in developed markets of the Asia Pacific, such as Japan and Korea. The latest play is a bet on the revival of CBD offices as more firms instruct workers to return to their desks.

The building is viewed as attractive partly due to transport links, including the opening of the city’s new Metro train system.

The new links have made city towers more accessible, even at the expense of some suburban markets, and tenants are vying for space in towers like the multi-tenanted 10-20 Bond St.

The move is significant as it signals that core office investors, who were once shunning the sector, now believe it is attractive again, particularly as returns are higher than on logistics and residential property.

BGO is buying the city tower as the property cycle troughs in Sydney, and Mirvac turns its attention to projects like developing the nearby 55 Pitt complex and Harbourside Shopping Centre.

The move shows that large institutional investors are keen to benefit from Australia’s population surge, which will drive white-collar growth at a time when there is a lack of large new office buildings due to a spike in costs.

Sydney-based Cliffbrook Capital is working with BGO on its Australian investment strategy and advised it on the acquisition of 10-20 Bond St. Cliffbrook Capital, founded by Paul Heller who was formerly head of Blackstone Australia, declined to comment.

McVay Real Estate head of office Rob Sewell worked with the US firm on identifying the high-quality office complex as one of the few undervalued core Sydney CBD opportunities available. He expects economic rents in the city core will provide Bond St with significant tailwinds for rental growth over the medium term.

The deal is a coup for the Investa office platform which will take an ongoing role as investment manager of the complex.

Investa knows the asset well. Mirvac five years ago ­introduced Morgan Stanley’s real estate arm to a half stake in the tower when it was carved out of the former Investa Office Fund portfolio. That resulted in Mirvac taking full control of the block.

Investa will now again take control of the Bond St tower. It has also been offering stock in this period, and is selling a 50 per cent stake in 135 King St.

The group, led by Peter Menegazzo, has been an early mover in the office cycle’s recovery and has taken full control of another tower – 388 George St – in a $460m deal alongside Singapore-listed Singapore Land and UOL Group.

The 38,318sq m Bond St property consists of neighbouring A-grade buildings and a ground floor retail plaza. 10 Bond Street has seven levels of ­office space, while 20 Bond St offers 31 levels of office space, with the upper floors having views of Sydney Harbour.