How to collect a 10pc investment yield from a Brisbane office tower
Sophisticated investors can expect to collect a handsome 10 per cent distribution yield from a Brisbane CBD office tower, courtesy of a bargain deal struck by fund manager Elanor.
The ASX-listed fund manager has acquired the 19,250 square metre tower at 55 Elizabeth Street at almost the same price its owner, a struggling global property fund run by Credit Suisse, had paid in 2011. The Credit Suisse fund had paid $169.5 million through a fund-through style deal with developer Grocon.
The building at 55 Elizabeth Street in Brisbane.
With office markets battered by falling values and weaker sentiment, Elanor and its wholesale and sophisticated investors have seized on the counter-cyclical opportunity provided by Credit Suisse’s exit. A $109 million capital raising for the fund which will hold the Brisbane asset has closed, oversubscribed.
The $6.7 billion Credit Suisse Real Estate Fund International, a flagship fund which holds 54 commercial properties around the world, has been under pressure this year from falling valuations and a struggle to meet investors’ redemptions requests.
The fund cut the value of its portfolio by 9 per cent in October, Bloomberg reported. Withdrawals have been limited this year, as the fund looks to sell assets and reduce its exposure to the office sector.
Elanor’s co-head of real estate, David Burgess described the acquisition as a high return investment opportunity “in the right market at the right time”. The building, was purpose-built for the Australian Taxation Office, whose lease does not expire for another four-and-a-half years. It was bought at 50 per cent below its replacement value, according to Elanor.
Mr Burgess said the healthy 10 per cent yield was simply a function of rental growth locked into the lease and the bargain deal Elanor had struck to acquire the asset. JLL’s Seb Turnbull and Paul Noonan handled the sale.
Leasing risk is another key consideration for investors in the Elanor-run fund, given that the ATO is the building’s sole office occupant, generating 97 per cent of its income. Any such risk was significantly offset by the fact there were limited opportunities for the ATO to move in the Brisbane market, Mr Burgess said.
The Elizabeth Street tower is certified as carbon neutral, and a 6-star NABERS energy rating, a big drawcard for government tenants which require high sustainability criteria.
“Right now, you can buy really well. The inability to build new product for that [Brisbane] market means there won’t be much supply going forward, We can see rental growth that keeps going,” Mr Burgess told The Australian Financial Review.
“Even if the ATO were to leave, there’s not that many buildings they can go to. Especially now, in this construction market with all the issues, you can’t build for anywhere near the price [we paid], for the rents at which we’ve underwritten the deal.”
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