Safe bet? Investors take savage haircuts in commercial real estate
Commercial property investors are taking savage haircuts as they sell buildings that seemed like a safe bet when purchased three years ago, with rising interest rates eating into values.
After paying developer Fawkner Property $20.3 million for the Westernport Service Centre in Cranbourne West, one investor last week flipped the property for $16.3 million on a yield of 5.44 per cent.
The Westernport Service Centre in Fawkner sold at a $4 million discount.Credit:
While the $4 million price differential represents a 20 per cent fall in value, the income yields were not too different. But that 20 per cent figure is cropping up in many deals, big and small across the sector.
Back in 2021, the sale of a BP servo on a two hectare site with two fast food outlets at 910 Thompsons Road in Cranbourne West was concluded on a yield of 5 per cent – not a long way off last week’s 5.44 per cent.
Despite the sharp fall in value, the Fawkner servo fetched a pretty strong yield compared with other recent convenience outlet transactions. Higher yields generally imply properties are selling at lower values.
A 7-Eleven in Melton South sold for $11.11 million, reflecting a 6.39 per cent yield, and the EG Fuel outlet in Oakleigh South fetched $4 million on a 6.25 per cent yield.
The deals were done by Stonebridge Property Group’s Justin Dowers, Kevin Tong and Rorey James.
“We have seen a real resurgence in confidence for convenience assets in the last few months, partly driven by the rare opportunity to purchase assets below their replacement costs,” James said.
Collins classic
Also selling is Greg Rosshandler’s Peachtree Capital, which is likely to bow out of owning 411 Collins Street after spending $6.2 million on a serious renovation – for the same price it paid four years ago.
411 Collins Street.
The classic Art Deco building, once the Roy Morgan Centre, is now home to six tenants including listed Chinese online retailer Alibaba. Fresh naming rights are available to any potential part-owner-occupier. The building returns $1.86 million in income.
Peachtree paid $40.5 million for the nine-storey tower in late 2020 and with values heading south since then, there is no price uplift on the current expectations. It’s expected to fetch $40 million again.
JLL agents Josh Rutman, Nick Peden and Mingxuan Li are handling the campaign. “The opportunity to buy 411 Collins Street is extremely rare, highlighted by the fact that only three Collins Street buildings (sub-$50 million) have changed hands in the past five years,” Peden said.
Peachtree owns another two buildings on Collins Street, between Elizabeth and Market streets – 410 Collins Street, the former Barclays Bank Building across the road which it acquired for $28.25 million in 2015, and No.356 which was also purchased for $28 million in 2010.
Sell down
Chinese-backed property developer APH Holding is off-loading two properties – an Elizabeth Street office building and a South Melbourne hotel – in a move which could raise a total $100-plus million.
It’s a bold fund-raising move for APH Holding which has a packed development slate: a $1 billion business park in East Burwood on the old Hewlett Packard site; a $320 million high-rise health facility in Box Hill, where it is also developing a hotel for Novotel; and a boutique apartment project at 61 Palmerston Crescent.
The Pinnacle office building at 440 Elizabeth Street, down the western end of the city near Queen Victoria Market, could fetch up to $80-85 million. The 11-storey office, leased to RMIT University among others, is now dwarfed by the precinct’s forest of towers, and sits on 2043 square metres of prime land.
440 Elizabeth Street, Melbourne.
APH is also selling the recently completed 69-room Choice Hotel at 51-59 Palmerston Street, which is expected to sell for around $24 million.
APH Holding, owned by James Zhang and run by Johnson Zhang (no relation), has also recently sold two shopping centres – the Pakington Strand in Geelong for about $30 million and the Arena shopping centre in Officer for $50 million.
All this activity comes as global aviation company TO70 Aviation lodged wind-up proceedings against APH Holding in the Federal Court over unpaid invoices.
The APH Holding website is currently down for maintenance and neither Zhang returned requests for comment.
Cushman & Wakefield agents Daniel Wolman, Oliver Hay and Leon Ma are handling the sale of 440 Elizabeth Street.
The Choice Hotel, which has a 10-year lease running to 2030, with options, returns $1.46 million a year. Burgess Rawson agents Zomart He, Beau Coulter, Sam Mercuri and Matthew Wright are running that campaign.
Ballarat Woolies
United Petroleum co-owner Eddie Hirsch has sold a Woolworths supermarket in Ballarat for about $13.5 million. The supermarket at 1203-1205 Howitt Street, Wendouree, is on a 6394 square metre site.
Woolworths has a 20-year lease expiring in 2030 with three more ten-year options. The retailer pays around $733,000 a year in rent.
Records show a company owned by Hirsch and his petrol-selling partner Avi Silver bought the supermarket directly from Woolworths in 1991 for $1.37 million.
JLL agents Jarrod Herscu, Stuart Taylor, Tom Noonan and MingXuan Li did the deal.
They declined to comment on the price, though indicated the yield was in the mid-5 per cent range and 10 bids were lodged for the property. Noonan said transaction volumes remain subdued in the retail sector but “there is significant demand from well capitalised private investors”.
Auction action
Apparently unfazed by the broader demise of commercial real estate, locals in Brighton snapped up two shops on blue-chip Church Street’s retail strip last week at prices last seen when interest rates were near zero.
Five bidders in a crowd of more than 120 people competed for 60 Church Street – where Gazman sells its gear – which sold for $4.71 million on a sharp yield of 3.2 per cent. The property was part of a portfolio of shops which a local family was selling after decades of investment.
The auction outside 60 Church Street, Brighton last week.
Stonebridge Property Group agent, Nic Hage, who handled the portfolio with Rorey James, Chao Zhang, Julian White, Dylan Kilner and Max Warren, said the yield rivalled those achieved on Church Street when the Reserve Bank held the cash rate at just 0.1 per cent.
Next up, the team sold the strata-titled Bendigo Bank branch at 5/50 Church Street for $4.15 million on a 4.01 per cent yield. “A separate local family outbid groups sourced via the Stonebridge Asia Practice team,” Hage said.
The third shop in the portfolio is located in the equally popular Kingsway, Glen Waverley retail precinct where the Bread King freehold at No.81 fetched $4.4 million, a price which reflected a super sharp yield of 1.8 per cent.
In a separate auction, they sold 1437-1443 Malvern Road, Glen Iris, a group of shops on the corner of Tooronga Road which was knocked down at $4 million and a yield of 5.5 per cent.
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