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Win For Fortius

Monday, April 04, 2016

The Investa Commercial Property Fund (ICPF) has bought a majority stake in the landmark 420 George Street office tower for $442.5 million in one of the biggest-ever commercial deals for Sydney.

Just last month, ICPF purchased the Investa Management platform, which controls $8.5 billion in Australian office assets, and the move is a strong vote of confidence from ICPF's investors in the direction of the group.

The deal, first foreshadowed by The Australian Financial Review in January, is also significant because it was made by a local purchaser in an environment where the majority of buyers of core CBD office assets have been foreign.

"We see this as good value in the current market given the quality and location of the asset, the lease profile of the building and the ability to participate in market rental upside," ICPF fund manager Peter Menegazzo​ said.

ICPF, one of the country's most successful unlisted property funds, has been steadily increasing its exposure to Sydney, where the leasing market has continued to strengthen. In early March, ICPF took its ownership of 1 Market Street to 100 per cent, acquiring a half-stake for $167.5 million on a yield of 6.5 per cent. Once it buys 60 Martin Place, the fund will have a portfolio valued at more than $4 billion.

WIN FOR FORTIUS

The 75 per cent stake in 420 George Street was acquired from Fortius Funds Management, which has a strong track record of contrarian investing and selling during its 25-year history. The deal was struck on a yield of 5.3 per cent. It is a successful result for Fortius, which developed the tower during the depths of the global financial crisis.

The 31-level office building comprises 37,688 square metres of net lettable area. It is 100 per cent occupied, with a six-year weighted average lease expiry. It sits adjacent to Pitt Street Mall and is set to benefit from the new light rail project on George Street.

JLL's capital markets team, led by Rob Sewell, and Savills' capital markets team, led by Ian Hetherington, negotiated the deal.

Held in Fortius Active Property Trust No.1, 420 George Street was finished at a time when most Australian REITs and wholesale funds were focused on offshore investment. It is arguably the group's most significant project. Fortius said the sale price exceeded its underwriting and expectations, achieving strong profits for investors.

"The post-GFC period was a particularly difficult period for all asset owners, however our unwavering commitment to our strategy delivered results that largely speak for themselves," Fortius fund manager Rob Dening​ said.

The deal reinforces the pricing seen in the sale of the Investa Property Trust portfolio last year to China Investment Corporation for $2.5 billion. It foreshadows strong pricing in the forthcoming sales of 1 and 10 Shelley Street in Sydney, which are being sold by Brookfield.

Fortius put both the office and the retail component of 420 George St, known as the Mid-City Centre, on the market in mid-2015. As revealed by the Financial Review, interests associated with NGI Investments are buying the retail. The remaining 25 per cent of 420 George Street is owned by Lendlease funds.

Mercedes Ruehl

Australian Financial Review

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