Qatar Investment Authority’s surprise move on Lend Lease’s final $2 billion Barangaroo tower on Sydney Harbour has set a new benchmark for premium-grade property assets and demonstrated the hunger of international capital for local trophies.
Lend Lease yesterday spun off its Tower 1 at Barangaroo — the nation’s largest ever office deal — in a move that further frees up the company’s balance sheet as it prepares to sell a $300 million skyscraper site at Sydney’s Circular Quay.
The 49-storey tower is the largest commercial tower in the Barangaroo precinct, comprising more than 101,000sq m of office space. It is anchored by global accounting firm PwC and investment bank HSBC, with US insurance and investment group Marsh & McLennan Companies saying it would shift in yesterday.
QIA and Lend Lease have each taken a 37.5 per cent stake in the trust holding the tower.
Lend Lease’s flagship fund, APPF Commercial, will hold a 25 per cent stake.
“We are introducing a new investor, QIA, alongside investors in the Lend Lease-managed APPF Commercial,” Lend Lease chief executive Steve McCann said. “International Towers Sydney is on track to become Sydney’s pre-eminent new financial services hub.”
Analysts and property executives estimate the tower transacted on a yield of between 5.5 per cent and 6 per cent, and have called the deal a marker of the depth of global appetite for Australian property by the world’s largest investors.
Lend Lease in July 2012 created a first fund for the precinct’s Towers 2 and 3 valued at $1.4bn.
The second fund brings the total equity raised across the precinct to $3.4bn.
“It’s not so much a sign of confidence in the local office market, it’s more confirmation that there’s a lot of large-scale groups chasing high-quality assets,” one analyst told The Australian.
“And I don’t think that will change soon.”
Portfolio offers, including towers that are part of Morgan Stanley’s $8.9bn Investa Office business, have ignited more international interest in the local property sector at a time when opportunities for large-scale investment in Europe and the US are drying up.
Some of the world’s largest investment groups including Blackstone, the Canadian Pension Plan Investment Board, LaSalle Investment Management and Singapore sovereign fund GIC have cut a sharp profile in recent months scouting local properties including Brisbane’s Waterfront Place.
“On a global scale, assets like these are comparatively affordably priced and, while some analysts worry about the outlook for office vacancies, the Australian market fundamentals for premium office assets look very attractive, especially for offshore groups,” one unnamed analyst told The Australian.
This is QIA’s first large-scale play in Australian commercial property. The sovereign fund has spent more than $150m since 2009 buying up agricultural properties in NSW’s central west and beyond, under the group’s food security program, known as Hassad Food.
A deal signed in 2014 with UBS injected another $200m into Hassad’s Australian and New Zealand operations, with a specific focus on the sheep, meat and grain markets.
Worldwide, the group has built up a reputation since 2005 for having one of the most voracious investment appetites in the world.
In 2008, the group committed to funding the £1.5bn ($3bn) construction bill for London skyscraper The Shard. In January, the group paid £2.6bn with Canadian giant Brookfield for a half stake in London’s Canary Wharf office precinct. Pundits are tipping more Australian transactions for QIA.
In the past month, the fund reportedly unveiled an investment strategy to broaden exposure to Asia and the US. Last year, the fund said it had set aside between $US15bn and $US20bn for investments in Asian healthcare, infrastructure and real estate assets.
Lend Lease yesterday announced Tower 1 was 48 per cent pre-leased, adding to total leasing commitments of 177,000sq m secured across the entire precinct.
Australia’s office market is regarded as one of the property industry’s toughest sectors.
This article first appeared in The Australian Business Review.