Blackstone Australian office deal boosted by bank re-lease

A large office investment in Sydney by The Blackstone Group received a boost after its sole tenant entered into an agreement to renew its lease.

Last summer, the New York private equity real estate giant and Sydney-based developer Mirvac formed a joint venture via which it bought a half-share in 275 Kent Street, the 830,000 square foot Sydney headquarters of Australian bank Westpac in a transaction valued at A$435 million (€309.7 million; $346.83 million).

The investment was the biggest office acquired in a wider joint venture formed between Blackstone and Mirvac which saw Blackstone invest A$833 million in seven Mirvac office assets using equity from its first dedicated Asia property fund, Blackstone Real Estate Partners Asia.

The Kent Street deal however was originally met with some criticism after Blackstone beat several core investors to acquire the property, including Australian REITs and superannuation funds, using opportunity fund capital to secure it.

It was further scrutinized because Westpac’s lease was due to expire within just four years. With the building in need of refurbishment and with rival Lend Lease’s colossal Bangaroo office complex scheme close by, much depended on a lease renewal in tricky leasing market, and on the terms of that renewal.

Today, however, Mirvac announced that it and affiliates of Blackstone Real Estate Asia had entered into an exclusive dealing period to finalize documentation for a new lease agreement that would run for another 12 years following the expiry of the existing lease in 2018. No lease terms were divulged, but PERE was told by one source familiar with the transaction that they: “reflected market levels and incentives.”

As part of the agreement, the JV will enhance the property. Improvements will include upgrading of its retail and food and beverage offerings as well as an upgraded lobby and bike and changing facilities.

Mirvac’s chief executive officer and managing director, Susan Lloyd-Hurwitz, said: “We have worked closely with Westpac over a number of months to ensure we have provided them with a world-class workplace solution.”

PERE’s source added: “The value-add is obviously extending the weighted average lease length from three years to effectively 15 years.” Speaking about the Bangaroo area of Sydney, he said: “Cap rates obviously continue to move it…that part of town continues to improve and re-rate.”