Lendlease faces a $10bn funds challenger in Mirvac as super funds rumble

In a move which could shape the management of some of the country’s best office towers, Mirvac tops a field of property managers keen on Lendlease’s Australian property funds empire.

Lendlease Group CEO Tony Lombardo has said the APPF funds are not for sale. Picture: Arsineh Houspian

Real estate giant Mirvac is leading a field of rival property managers eyeing off Lendlease’s flagship Australian property funds empire, which could be in play if disgruntled investors defect to new management.

The campaign could decide not only the management of some of the country’s top office towers and shopping centres but also the fate of Lendlease’s turnaround.

Losing all or part of the $10bn Australian Prime Property Funds empire would hurt Lendlease as it hopes to pour fresh capital into these funds and diversify them after a tough period in which it sold billions of dollars’ worth of retail assets to meet redemption requests.

Winning the platform would bolster Mirvac by broadening its development focus and giving it greater scale to take on new projects in the commercial property scene.

The company picked up the management of a $7bn office fund in 2022 as the AMP Capital empire was picked off, and it is hoping for a repeat at Lendlease.

Mirvac is regarded as the top contender after being approached by dissatisfied investors who have been scouting for alternatives. Other groups including Charter Hall and GPT Group may also chase the management rights or key assets in the APPF empire, meaning a break-up is also a potential outcome.

The behind-the-scenes jostling for the $10bn pie, run as separate retail, office and industrial vehicles, has already drawn comparisons to the messy AMP Capital real estate and infrastructure carve-up.

But Lendlease, which is refocusing on its Australian business as it brings back capital from offshore, has rejected suggestions that governance of the funds is below par and has insisted it remains committed to their future.

The company had a testy relationship with key super funds during its boom years, when it was focused on development-driven profits, and the drawn-out five-year period in meeting redemptions soured some ties.

Losing all or part of the $10bn Australian Prime Property Funds empire would hurt Lendlease. Picture: Justin Lloyd

Lendlease chief executive Tony Lombardo has sought to stabilise the Australian business and get it growing again, partly by refreshing the APPF offering.

But large super funds, led by UniSuper and Hostplus, are believed to be keen for change and have canvassed getting new management; other funds have been receptive to staying put even if unhappy with Lendlease. The super funds declined to comment.

The push for possible change is emerging as the trusts inch toward liquidity events when investors can redeem their holdings in coming years. This could see the underlying investors head for the exit, shrinking the funds’ asset bases and making them riskier.

Some investors also have been unnerved by Lendlease’s fall from corporate grace as it retreats from its global development ambitions.

While a formal proposal has not been made, property groups are sharpening their pitch ahead of the next unit holder redemption window starting in November.

The retail fund has about $2.8bn of assets even after an extensive selldown, the commercial vehicle about $5.7bn and the industrial fund around $2bn.

They own stakes in high-profile developments ranging from towers at Sydney’s Barangaroo South and Melbourne Quarter to regional shopping centres such as NSW’s Erina Fair and Sunshine Plaza in Queensland, as well as industrial assets around Australia.

Lendlease roadshows communicating to investors its urban growth strategy indicate the retail fund will diversify by overhauling centres into mixed-use assets, with sources saying it has won a hearing despite some dissent.

The company has put investment management at the heart of its rescue, and this month rejected suggestions the funds were available or for sale. It has picked up mandates from Asian pension funds and insisted that local funds are equally critical to its ambitions.

Lendlease Investment Management managing director Vanessa Orth said the platform was a “core pillar” for future growth.

She said APPF vehicles in Australia were among the top performing funds given the quality of their underlying portfolios, performance and ability to unlock embedded value.

“We listen to our investors and are focused on ensuring their interests are prioritised, and with circa $750m invested across the series, we remain committed to ongoing strong performance,” Ms Orth said.

Mirvac declined to comment. It could provide a co-investment into the retail trust, and that might encourage them to back a switch of managers.

The company also could offer interests in some of its existing or under-development centres to APPF investors if it won control, property players speculated.

This would allow it to also pour the capital released into high-returning projects.

Originally published as Lendlease faces a $10bn funds challenger in Mirvac as super funds rumble