This article originally appeared in Australian Financial Review.
Real Asset Management chief executive Scott Kelly said the fund manager had capitalised on a short “window of opportunity” before commercial property values rise again after acquiring a fully leased Brisbane office tower from ASX-listed Growthpoint Properties for $141.1 million on a yield of 7 per cent.
The 23-storey A-grade tower at 333 Ann Street, in the heart of the Brisbane CBD, was acquired for RAM’s unlisted diversified property fund at slightly above its June book value of $140 million.
Offered with a shortish weighted average lease expiry of just over four years, the 2008-built tower provides 16,302 sq m of lettable space and is leased to tenants including Federation University, Brighter Super and the federal government. CBRE’s Bruce Baker and Peter Chapple brokered the transaction.
“We think there is a window of opportunity [to buy well] in certain sectors of commercial real estate,” Mr Kelly told The Australian Financial Review.
Based on the view that interest rates will top out in early 2023 and then start to fall towards the end of that year, Mr Kelly said next year would be a great time to hold “risk assets” such as equity and property.
“We think valuations will start firming next year. We don’t see capitalisation rates [or investment yields] expanding materially from this point,” he said.
The Ann Street office tower is the fifth and largest asset acquired to date by the RAM Australia Diversified Property Fund, taking its total portfolio value to $439 million.
The fund, which launched last year, is backed by RAM’s client base of wealthy Asian investors and family offices.
Despite being a diversified fund with a mandate to invest across the commercial property spectrum, four of its five investments so far have been office buildings in Brisbane, Sydney and Canberra. The fifth asset is a healthcare precinct in Perth.
RAM director of funds management Mike Nguyen said the fund was pursuing a number of opportunities in other sectors including childcare.
“There are multiple deals in the pipeline,” he said.
Commenting on the acquisition of 333 Ann Street, Mr Nguyen said securing an A-grade office building in any capital city on a yield above 7 per cent was unheard of especially given the prime location of the Brisbane building, just 150 metres from the city’s main transportation hub, Central railway station.
A WALE of 4.15 years, he said, provides the opportunity to renew leases at higher market rents. Mr Nguyen noted that average rents in the building were the mid-$600s per sq m while across the Brisbane CBD, they averaged in the early $700s.
In addition, RAM will invest in improving the building’s green credentials, including using proptech to monitor energy use.
For Growthpoint, the divestment of 333 Ann Street follows its move into funds management in August after buying boutique operator Fortius for an initial $45 million in August.
Growthpoint, led by Tim Collyer, has been active on both sides of the office market register this year. In May, it paid $165 million for an eight-level office building in Dandenong in Melbourne’s south-east offered by the Grollo family. That deal was struck on a 5.3 per cent yield.