Blackstone, Mirvac Sell Sydney Commercial Complex to Mitsubishi Venture for $494M

Japan’s Mitsubishi Estate has teamed up with a local investment firm to acquire a Sydney commercial tower equally owned by Blackstone and Mirvac for about A$777 million ($494 million), making Australia’s largest office buy so far this year.

Mirvac has exchanged contracts for the sale of its half stake in the 60 Margaret Street office tower and its MetCentre retail podium to Sydney-based AsheMorgan and Mitsubishi’s MEC Global Partners Asia unit, for A$388.6 million, according to a press statement on Monday.

“The sale of 60 Margaret Street and MetCentre forms part of our strategic asset sales program, helping to further strengthen our balance sheet and improve cash flow resilience of our investment portfolio in a challenging operating environment,” said Campbell Hanan, the group chief executive officer and managing director at Mirvac.

Blackstone is also offloading its 50 percent interest in the central business district complex at the same price as Mirvac, according to sources familiar with the transaction, as the US private equity titan continues to trim down office holdings globally, including selling off an office project in San Francisco earlier this month.

Backing Away From the Office

Once the acquisition closes by the end of the month, Mitsubishi and AsheMorgan will take ownership of the complex, which spans 40,000 square metres (430,556 square feet) of office space across 36 levels and 6,400 square metres of retail in the three-storey MetCentre section.

For Blackstone, the deal marks the company’s first major Australian office divestment this year as it reduces its holdings in the sector globally.

During April, the US fund management giant walked away from an attempted A$1 billion sale of the JP Morgan headquarters at 85 Castlereagh Street in Sydney, after failing to find a buyer.

In an appearance in Australia during June of this year, Blackstone president Jon Gray underlined the company’s shift away from being an office landlord, noting that traditional desk space now makes up just 2 percent of its portfolio.

“The outlook for commercial real estate is more nuanced than you will read, it remains quite challenged in the traditional office market,” Gray was reported as saying by The Australian. “Certain cities are different, Asia is generally healthier than Europe, Europe generally is healthier than the United States, newer buildings are better than older. But in general, office markets are under a lot of pressure.”

Earlier this month Gray’s firm sold its North Park office project in San Francisco’s Embarcadero area to Gaw Capital for two-thirds less than they had paid to acquire it in 2018. And in March, Blackstone sold its St Katharine Docks office complex in London to Singapore’s City Developments Ltd for £395 million (then $468.2 million), which was 21 percent less than the New York firm was reported to have been asking for the asset when it was put on the market in early 2020.

Turning to Beds, Sheds

The agreed price for 60 Margaret Street and the MetCentre is equivalent to about A$16,746 per square metre of net lettable area, or about 12 percent more than the property’s book value of A$694.4 million as of end June.

Built in the 1980s, 60 Margaret Street has undergone a series of refurbishments with Mirvac having invested in the building in 1998, with Hong Kong’s PAG having been an early equity partner in the building. PAG sold its half-stake in the building to Blackstone in 2018 at a price reported to be around A$400 million, or about A$11.6 million more than the price reported by Mirvac this week.

Located in Sydney’s central business district, 60 Margaret Street is connected to the Wynyard Train Station via MetCentre, which also has shop frontage along George Street.

Amsterdam-based lender ING Bank and corporate event specialist Cliftons are among the largest tenants in the building, occupying about 13,330 square metres in total, which is equivalent to nearly a third of the building.

Based on valuation data from 30 June, the building has a 2.4 percent vacancy rate and a weighted average lease expiry term of 3.7 years. Gross office rent stood at A$1,245 per square metre.

Mirvac said that, after holding the asset for 25 years, it is selling its stake to unlock cash and pursue other opportunities.

“The sale is in line with our strategy to focus our exposure in the office sector to premium assets and grow our exposure to the living sectors and industrial over time,” Hanan said.

JLL and Cushman and Wakefield represented Blackstone and Mirvac as vendors. Blackstone declined to comment on the deal, while both Mitsubishi and AsheMorgan had not responded to inquiries from Mingtiandi by the time of publication.

Asian Investors Boost Aussie Market

Mitsubishi joins a wave of Asian investors picking up assets Down Under, following PAG’s purchase of an office tower at 44 Market Street in central Sydney from Dexus in August.

JLL data showed offshore groups accounted for nearly a fifth of Australia’s real estate investment across all sectors in the first nine months of the year, with the most active investors coming from Japan and Singapore.

Last week, Singapore’s Keppel Corp announced its purchase of a pair of school campuses in Sydney for a total of A$198 million, on behalf of its Keppel Education Asset Fund.

“The outlook for Q4 is a robust transaction environment that should see momentum build into 2024, as local and offshore investors re-enter the markets,” Luke Billiau, JLL’s head of capital markets for Australia and New Zealand, said.