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Monday, August 19th, 2019

Fully occupied Melbourne CBD building sells on sub-1 per cent yield

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by July 27, 2017 General

Melbourne’s Theosophical Society will need to find a new spiritual home after selling its Russell Street headquarters for about $23 million on a yield below 1 per cent, one of the lowest recorded for a fully occupied city building.

The sale of 124-130 Russell Street to an Australian-Chinese investor brings to a dozen the number of CBD freehold buildings sold below $50 million this year.

Robust demand among smaller investors for lower-value city assets has not been met with supply, significantly boosting the city’s land values.

The Theosophical Society building sold at a land rate above $40,000 a square metre, well beyond the typical rate of $20,000-$25,000 a square metre seen by investors just two to three years ago.

The purchaser has no plans to redevelop the 1923 building, despite it having no heritage protections, selling agent Savills Australia’s Clinton Baxter says.

Parts of Russell Street are covered by a 40-metre height limitation.

Mr Baxter transacted the five-storey concrete office with colleagues Nick Peden and Benson Zhou in conjunction with David O’Callaghan from O’Callaghan Commercial.

The Theosophical Society purchased the building for $810,000 in 1972, when it was originally used as a motorcar showroom by Olympia Motors, which sold Durant, Wolseley and Rugby-branded cars.

The building, now leased to 10 businesses and four shops on the ground floor, was sold under a two-year leaseback arrangement to the Theosophical Society, which is looking to buy another, smaller city-based headquarters.

Mr Baxter said the property attracted an enormous amount of investor and developer interest, with buyers flying in from interstate, China and southeast Asia to view it.

The sale closely follows another heated transaction, which saw the former home of Kozminsky jewellers, a three-storey Victorian building in Melbourne’s Bourke Street, change hands for $7.6 million at auction last week.

Melbourne’s Gianarelli family splashed out on the well-known jewellery store at 421 Bourke, paying a benchmark land rate for the vacant building of $25,600 a square metre.

Earlier in April, the heritage Collins Street building with a glittering mural mosaic on its facade, Newspaper House, sold for $35 million.

Singapore developer and builder Lian Beng took a significant risk buying the building when it was vacant, flipping it just two years later, making a $12 million gain after re-leasing it with new tenants.

The Theosophical Society building was fully leased, with short-term tenancies on passing net income of about $159,566 per annum.

The dozen transactions of buildings under $50 million so far this year have generated $183 million, well below a higher threshold set last year.

In 2016, 25 similar deals in Melbourne’s CBD generated $498 million.

Mr O’Callaghan said the sale in Russell Street was not a “yield play”.

“It was always going to be about getting a freehold in the city’s east end, in an area that’s undergoing significant rejuvenation,” he said.

Mr O’Callaghan, one of the city’s most prominent commercial auctioneers for hire, said investors were taking more regard of property fundamentals than last year.

“It feels different to the past, where it was more of a gladiatorial sport. It’s now far more measured,” he said.

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Fully occupied Melbourne CBD building sells on sub-1 per cent yield

Closed
by July 27, 2017 General

Melbourne’s Theosophical Society will need to find a new spiritual home after selling its Russell Street headquarters for about $23 million on a yield below 1 per cent, one of the lowest recorded for a fully occupied city building.

The sale of 124-130 Russell Street to an Australian-Chinese investor brings to a dozen the number of CBD freehold buildings sold below $50 million this year.

Robust demand among smaller investors for lower-value city assets has not been met with supply, significantly boosting the city’s land values.

The Theosophical Society building sold at a land rate above $40,000 a square metre, well beyond the typical rate of $20,000-$25,000 a square metre seen by investors just two to three years ago.

The purchaser has no plans to redevelop the 1923 building, despite it having no heritage protections, selling agent Savills Australia’s Clinton Baxter says.

Parts of Russell Street are covered by a 40-metre height limitation.

Mr Baxter transacted the five-storey concrete office with colleagues Nick Peden and Benson Zhou in conjunction with David O’Callaghan from O’Callaghan Commercial.

The Theosophical Society purchased the building for $810,000 in 1972, when it was originally used as a motorcar showroom by Olympia Motors, which sold Durant, Wolseley and Rugby-branded cars.

The building, now leased to 10 businesses and four shops on the ground floor, was sold under a two-year leaseback arrangement to the Theosophical Society, which is looking to buy another, smaller city-based headquarters.

Mr Baxter said the property attracted an enormous amount of investor and developer interest, with buyers flying in from interstate, China and southeast Asia to view it.

The sale closely follows another heated transaction, which saw the former home of Kozminsky jewellers, a three-storey Victorian building in Melbourne’s Bourke Street, change hands for $7.6 million at auction last week.

Melbourne’s Gianarelli family splashed out on the well-known jewellery store at 421 Bourke, paying a benchmark land rate for the vacant building of $25,600 a square metre.

Earlier in April, the heritage Collins Street building with a glittering mural mosaic on its facade, Newspaper House, sold for $35 million.

Singapore developer and builder Lian Beng took a significant risk buying the building when it was vacant, flipping it just two years later, making a $12 million gain after re-leasing it with new tenants.

The Theosophical Society building was fully leased, with short-term tenancies on passing net income of about $159,566 per annum.

The dozen transactions of buildings under $50 million so far this year have generated $183 million, well below a higher threshold set last year.

In 2016, 25 similar deals in Melbourne’s CBD generated $498 million.

Mr O’Callaghan said the sale in Russell Street was not a “yield play”.

“It was always going to be about getting a freehold in the city’s east end, in an area that’s undergoing significant rejuvenation,” he said.

Mr O’Callaghan, one of the city’s most prominent commercial auctioneers for hire, said investors were taking more regard of property fundamentals than last year.

“It feels different to the past, where it was more of a gladiatorial sport. It’s now far more measured,” he said.

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