Investa Property Group ("IPG or Investa") has acquired a 75% interest in 420 George Street, Sydney (the “Building”) from Fortius for $442.5 million on a core yield of 5.3%.

The transaction secures a highly sought-after asset for the Fund, reinforcing its position as one of the highest quality office portfolios in Australia.  

420 George Street – A landmark Australian office building

The A Grade, 31-level building comprises 37,688m2 of net lettable area with floorplates averaging 1,200m² and a 5-Star, Green Star Design and As-Built Rating. The Building is 100% occupied, with a WALE of approximately 6 years and a mix of premium, multi-national tenants which include AECOM, State Street and JLL. Constructed in 2010, its large side core configuration provides maximum efficiency when subdivided and abundant natural light to the south, east and west.

Group Executive and Fund Manager, Peter Menegazzo said: “We are very pleased to have secured an interest in an asset of this calibre. The Building has many of the fundamentals we look for, being well located with limited ability to be built-out, leading sustainability credentials and a high quality tenant mix. Its large floor plates can split efficiently, thereby providing flexibility in leasing.”

The Building is situated in a prime location, adjacent to the Pitt Street Mall retail precinct and the Mid City Shopping Centre. It is walking distance to extensive transport, hotel and entertainment amenities with direct access to the proposed Sydney CBD Light Rail, which will provide a direct connection to Circular Quay to the north and Central Station to the south.

Assistant Fund Manager, Micah Schulz said: “The strengthening value and appeal of this location cannot be overstated. The City of Sydney has committed more than $220 million to public domain enhancements as part of the $2.1 billion light rail project. As a result, George Street is set to be transformed into a low traffic, pedestrian hub, with improved street-level activation and outdoor dining options.

In addition, the light rail will enable Sydneysiders to easily travel between key CBD attractions from the Rocks and Circular Quay to the city centre and south to Chinatown, which is great news for retailers along George Street and for those businesses who have secured office space in this thriving precinct,” said Mr Schulz.  

Market conditions well placed

Commenting on current market conditions, Pete Carstairs, General Manager Research at Investa said: “We have a positive investment outlook for the Sydney CBD office market. Leasing conditions continue to strengthen and we are seeing momentum build in net effective rents and low prime vacancy rates. With continued stock withdrawals and constrained supply expected in the short-medium term, coupled with accelerating demand for office space, the outlook for Sydney and this asset is attractive.”

Acquisition In line with strategy

Mr Menegazzo said: “The Building is a good fit with the Fund’s long term portfolio strategy, delivering further diversity in investment exposure, income stream and tenancy base, while bolstering its exposure to Sydney, within our strategic range.

Going forward, we will continue to enhance value across the portfolio through active investment and a continued focus on delivering strategic priorities.”

The acquisition of 420 George Street follows ICPF’s recent purchase of a further interest in 1 Market Street, Sydney, taking its ownership to 100%.

Investa Wholesale Funds Management Limited, the responsible entity of IPG, recently finalised its purchase of Investa Office Management (IOM). The acquisition includes IOM’s funds and property management rights of circa $8.5 billion of assets, across a portfolio of 39 prime grade office buildings in Australia’s major office markets and nearly 200 employees nationally. The transaction resolves the ownership of IOM while ensuring continuity of management, delivering certainty and stability to the Platform’s key clients.

The Vendor

420 George Street was the largest asset in the Fortius Active Property Trust No.1.

Fortius CEO, Nicholas Sproats said: “We are pleased to be selling the interest in 420 George Street to Investa. The exit price far exceeds our underwriting and expectations, crystallising profits for our investors and achieving a high teen’s IRR on the re-development of 416 George Street into 420 George Street.

The re-development of 420 George Street was well conceived in 2006 and successfully delivered into a market with very low supply, at a time when the majority of Australian REITs and wholesale funds were focused on offshore investment. Fortius has a long track record of contrarian investing and selling assets into the Core Funds market, 420 George Street was another example of this,” said Mr Sproats.

Fortius is currently capital raising for the successor fund to the Fortius Active Property Trust No.1.

Fund Manager Rob Dening commented that this was another successful project and investment for Fortius: “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.”

The sale of 420 George Street follows Fortius' purchase late last year of a Brisbane CBD office building at 201 Charlotte Street from a private family. Mr Sproats said Fortius is now looking at several other Sydney and Melbourne opportunities.

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