This article is from the Australian Property Journal archive
US fund manager Starwood Capital and Arrow Capital Partners have secured Chatswood’s dual tower Zenith Centre for $438.2 million in a record non-CBD office complex sale, and marking another major north shore purchase for the joint venture.
The A-grade complex was acquired by Centuria Zenith Fund and a private fund managed by BlackRock, which struck 58 leasing deals since taking ownership in 2016, achieving full occupancy and increasing the WALE from 2.5 to 4.3 years.
Centrally located in Sydney’s north shore office market close to Chatswood Station, the 821 Pacific Highway property has two 21-level towers with a combined net lettable area of 44,102 sqm and 785 parking spaces, on a 7,990 sqm site. Tenants include Property NSW, the federal government, Lendlease and Sage.
The deal was struck at a yield in the range of 6% and 6.5%. According to JLL’s recent Australian metropolitan office market Investment Review and Outlook 2019, prime yields in Chatswood come in between 5.50% and 6.25%.
The report also shows Chatswood’s prime vacancy rate is now just under 4% – behind only Parramatta and Norwest among Sydney’s metro office markets – well below its own long-term average of nearly 14%.
Centuria’s head of real estate and funds management, Jason Huljich said market rents were on average $490 per sqm net when the asset was acquired, and a recent lease was struck at $685 per sqm net, which he adds, is the highest rate ever recorded in Chatswood.
James Fogarty, vice president of Starwood Capital, said the group was pleased to continue its targeted investment strategy in Australia, “an economy we believe is underpinned by strong fundamentals that drive further strength in the greater Sydney office market.
“We like the north shore office market, and Chatswood in particular given the limited supply, robust demand and transformative infrastructure improvements that are underway. The Zenith is a landmark within the Chatswood market and has strong appeal to tenants across a range of sectors and provides high quality space to users at a competitive price point.”
Early last year, Starwood Capital, Arrow Property Investments and Pindan Capital completed their circa-$160 million purchase of the seven-level, 17,792 sqm A-grade St Leonards building at 29-57 Christie Street. Major tenants include Coca Cola Amatil, GHD and Fitness First, and the asset is located a short distance away from both the new Crows Nest Metro Station and St Leonards train station.
Kurt Wilkinson, partner Arrow Capital Partners said The Zenith is on a uniquely large landholding, underpinned by a high quality tenant base in a market with strong fundamentals.
“We intend to inject further capital and asset management expertise to enhance the offering to our tenants and ensure that the Zenith remains the standout office asset in the Chatswood office market.”
Last year, Starwood Capital launch a takeover bid for Australian Unity Office Fund, which has a $641 million portfolio of assets that includes 10 Valentine Avenue in Parramatta. After being granted due diligence, the Connecticut-based investment firm downgraded its offer late last year after a closer look at the books, and AOF backed away from the deal.
The vendors of the Zenith Centre sought to increase rental returns for the 1987-built complex through a refurbishment program, following on from an upgrade in 2011. Huljich that tenant requirements had evolved over the past 10 years, and that modern end-of-trip facilities are now seen as essential in any quality property in creating stronger tenant demand.
Originally intended to be held for a longer period, strong buyer interest prompted a quicker exit and ten offers were received for the asset.
Centuria’s 50% share of The Zenith is owned by investors in the single-asset unlisted fund, which will be wound up and proceeds distributed to investors on settlement. BlackRock’s interest was held in a private real estate fund that it manages on behalf of its investors.
Income returns from the Centuria Zenith Fund have averaged 7.7% per annum.
