This article is from the Australian Property Journal archive
PARRAMATTA’S hot office market has helped deliver Centuria Property Funds Limited a windfall from its $105.3 million sale of the A-grade office tower at 2-10 Wentworth St.
A subsidiary of Centuria Capital Group, CPFL paid just over $45 million in late 2014 for the building, which was the sole asset in the closed-end, unlisted Centuria 2 Wentworth Street Fund, and has been divested at the completion of the fund’s five year term.
Centuria joint chief executive officer, Jason Huljich said that investors will receive a total return of 186% from the fund, including an average distribution return of 9.2% per annum.
The internal rate of return from the fund over its five year term is about 25%, and Centuria expects to generate a performance fee of about $9 million from the fund.
“When we purchased Wentworth Street in December 2014, our view was that the Parramatta office market was poised to benefit from a number of positive factors, including improving infrastructure links, the decentralisation of NSW government departments, and the overall gentrification of the area,” Huljich said.
“At the same time, A grade office vacancy was below 1%, which we believed could support stronger tenant appetite for quality office properties, which in turn would mean upward pressure on rents – which the Parramatta market has seen in recent years,” he said.
According to the Property Council, Parramatta’s total office vacancy rate stands at 2.7%, tighter than the ultra-competitive Sydney CBD at 3.7%. By the end of 2020 more than 136,000 sqm is expected of newly constructed office space will come online. A substantial component of this space already pre-committed.
Huljich said that while improving market fundamentals in Parramatta were a contributor to performance, it was “Centuria’s active approach to asset management and the team’s ability to maximise returns from the property which ultimately led to strong returns for investors”.
Centuria completed leasing transactions over 90% of the property – 9,807 sqm – during the life of the fund, and achieved rental growth of 34%, from an average of approximately $497 per sqm gross at acquisition to $617 per sqm gross at sale.
Settlement is expected to occur in Q1 CY2020. Steve Kearney, Simon Fenn, Mark Hansen and Claire Zouroudis from Cushman & Wakefield, and Bevan Kenny and Andrew Hunter from CI Australia brokered the deal.
Centuria has experienced success with single asset funds holding Sydney commercial properties. The recently completed Centuria 8 Central Avenue 1 Fund and Centuria Zenith Fund delivered IRRs of 20% and 23% respectively. The Zenith in Chatswood was recently sold for $438.2 million in a record non-CBD office transaction, and the sale of a half share in 8 Central Ave, Australian Technology Park netted $191 million.
The Wentworth St sale quickly follows the Charter Hall Direct PFA Fund having just offloaded a federal government-anchored office building close by at 9 Wentworth St for $62.6 million, at a 16% premium to its June valuation, and Charter Hall Group partnered up with Singapore’s sovereign wealth fund GIC to acquire the Jessie Street Centre in Parramatta in a deal worth more than $400 million.
Sydney’s second CBD has attracted large-scale new projects and big name players. The City of Parramatta Council has just given the green light for Australian Unity Office Fund’s 28,000 sqm Valentine Ave office building. Last summer, Walker Corporation received approval to develop the two remaining commercial buildings within its $3.2 billion three-hectare Parramatta project, including its repositioned hotel and residential Aspire Tower, which will add a combined 125,000 sqm of space to the suburb’s booming office market. Towers 3 and 4 on the site are fully pre-committed and are under construction.
Around the same time, GPT secured QBE as the anchor tenant for its $300 million 32 Smith Street development, and offloaded its $800 million share of the MLC Centre in the Sydney CBD in part to fund its Parramatta presence.
