Sentinel Keen to Mop Up CBD Office Assets

Though prices and values in the office market particularly in Melbourne’s CBD and fringe suburbs have dropped, some investors are taking advantage of the situation to increase their asset portfolios.

Sentinel Property Group has just bought two office buildings at Richmond for $80 million with an expected yield of 9.31 per cent.

The ASX-listed GARDA Property Group is the vendor. 

It is the first time that Sentinel has acquired an asset in Melbourne since it sold a retail asset at Bourke Street in the CBD for $33.96 million in 2017 after acquiring it for $20 million four years prior. 

That transaction had an investor internal rate of return of 33.1 per cent.

The real estate investment trust will now buy the Botanicca 7 and Botanicca 9 buildings at the Botanicca Corporate Park, which have a total of 13,457sq m of office space with 409 carparking spaces.

Located at 572 and 588A Swan Street at Richmond, the purchase prices for both buildings is almost 25 per cent below the replacement cost and represents a 39 per cent discount on their value at the end of the 2022 financial year. 

Both assets will be held in a five-year close-ended trust. 

▲ Botanicca 7 was listed by GARDA with Botanicca 9 in mid-2022.

GARDA expected a price of around $120 million when it listed the buildings in 2022.

When the buildings were first listed in 2022, GARDA Property Group’s managing director, Matthew Madsen, said they wanted to develop, sell and reinvest funds into other projects.

“GARDA, as it has done previously, is divesting these assets to recycle capital into the delivery of our 160,000sq m industrial pipeline in Brisbane,” Madsen said.

Sentinel chief executive Warren Ebert said that with market price corrections and businesses asking staff to return to the office, the acquisition would pay off.

“We have been fortunate to have the opportunity to pick up the Botanicca assets,” Ebert said.

“It shows you should never be frightened to submit an offer, as it may just get accepted.

“By March next year, we’re going to see a lot of assets on the market, an enormous amount of assets with very few buyers.”

Ebert said it was important to see what everyone else was doing in the market and take the opportunity.

“Next year there’s going to be some fantastic buying in the office area,” Ebert said.

“The big buyers over the last few years have been the large international fund managers and listed Australian REITs. 

“None of those are buying, they’re all selling, so if you have no buyers and all sellers, what does that do to any market?”

To work counter to the current cycle is a tactic that has paid off for Sentinel before who has also considered alternative assets. 

“We were acquiring large format retail assets post-GFC when it was an unwanted asset class, we started an industrial trust in 2016 well before it became the popular investment and recently purchased two large retail assets which are exceeding all expectations,” Ebert said.

“Our philosophy is only buying mis-priced assets from a motivated seller, with the majority of our acquisitions being from institutional and listed REITs where our nimble hands-on management and administration has had an immediate impact on the investment.”