MGPA pays $111m for Perth office building

The target property - Optima Centre - is a Grade A office building located in Herdsman Business Park in Perth and has a total net rentable area of 16,116 square meters over two buildings, including 500 car parking berths. MPGA purchased the asset through an off-market competitive process from a joint venture between the developer Alcock Brown Neaves Group and Macquarie-managed entities.

The deal souring process was not easy. As the EUR500 million property fund is regulated by the German Investment Act, it was designed to focus on high income yield from predominantly AAA- rated covenants and long weighted average lease expiry (WALE) - the average lease term remaining to expire across a portfolio weighted by rental income or square meters. The strategy is to buy into buildings that are already let and reposition them, generating rental and management income.

"The hardest thing is to find good quality deals. We had looked into 100 deals before finally finding the one that fits into our investment criteria," says John Saunders, Asia CEO for MGPA. "We have to be incredibly selective and patient. One may find a lot of transactions out there but only a handful of them are the ones that we want to do."

Herdsman Business Park in particular is attractive due to its proximity to the central business district. Besides, the two buildings were completed in 2009 and 2010 - still relatively new and immune from extra spending on capital expenditures. Both are fully let, with 83% leased to the Government of Western Australian, generating yield in excess of 8.6% and WALE of approximately 12 years.

"The fund is trying to achieve a distribution yield at the fund level at about 5% and it's very attractive especially to German insurance companies and pension funds," Saunders adds. "I think in Germany there is a desire to get exposure to Asian currencies and we are still seeing good interests in these high-yield products."

The fund is expected to reach a significant second close by the end of the first quarter, if not sooner. A few more transactions in Australia and Tokyo are in the pipeline. The firm's sweet spot typically consists of investments of $80-100 million for key cities in Australia, and $25-50 million for Tokyo.
"The yields in Australia are interest rate-driven and anything we are looking at will be in excess of 8%. What's interesting is that while we start to see a series of successive rate-cuts, the yields haven't been driven down much from the high level, representing pricing opportunities," Saunders says. "Australia is very interesting at the moment and there's certainly an increase in buying opportunities over the last 6-9 months."

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