Melbourne-based property investor Quintessential is poised to pump an extra $90 million into revamping a Sydney CBD office tower to revamp it to a higher A-grade level after forking out $293 million to buy the asset.
The 18-level building, One Margaret Street, is located between the redeveloped Wynyard Station to the east and the Barangaroo precinct to the west, situated above Sydney's primary subterranean pedestrian connection from the Barangaroo Wharf to Pitt Street.
Quintessential, an investment group founded in 2010 by Shane Quinn and Harry Rosenberg, is seeking to create a 10,000sqm podium for the building, while improving interiors with quality finishes and upgrading amenities and technology to elevate the tenant appeal of the asset.
Work on the upper floors is expected to begin in 2024, with the new podium planned for delivery in 2026-27, pending council approvals.
The refurbishments to One Margaret Street will include a co-working facility providing flexible spaces for tenants and third-party external users.
Quinn, the executive chairman of Quintessential, describes the acquisition as a countercyclical opportunity that offers sound value for the group.
"We have waited a long time to be able to acquire quality assets such as this at such attractive pricing and below replacement cost,” Quinn says.
“We think now is the time for creating intergenerational wealth and returns for investors at this point of the cycle."
One Margaret Street is the largest asset Quintessential has purchased and the fifth in the last five years for a 100 per cent freehold acquisition within the Sydney CBD.
“I never thought we could find an A-Grade asset in a location such as this over Wynyard Station in the Sydney CBD and still be able to provide our projected desired returns for investors,” Quinn says.
"We think the market is overpricing risk in well-located, A-Grade assets, which provides an opportunity for our investors to capitalise on.
"Comparatively, B- Grade and secondary assets are struggling to attract tenants, which has not yet been reflected in pricing, so we think the market is mispricing this."
Quinn says once the Margaret Street building is repositioned, it will become ‘a very attractive asset, particularly to institutional and foreign capital, seeking a 100 per cent freehold interest’.
The sale was negotiated by the CBRE’s Flint Davidson, James Parry, Andrew Hunter and Michael Andrews, and Adam Woodward, and Colliers’ James Mitchell.
Davidson, the Pacific head of capital markets at CBRE, says opportunistic buying in this sector is gathering pace.
"The opportunity to find value in secondary assets in Sydney that are capable of being repositioned to prime is gaining traction with capital off the back of some solid prime leasing data,” he says.
One Margaret Street was acquired for $14,240 per square metre of net lettable area, with Quintessential planning to increase the net lettable area by 20 per cent with the addition of 4,000sqm.
"With recent inflationary pressure, new developments in Sydney will be challenging and repositioning key strategic assets is something we will see more of in the medium to long term," says Andrew Borger, Quintessential's CIO.
"In a challenging market, we are pleased to have raised more than $200 million of equity and a senior debt facility via the Commonwealth Bank of Australia.
"We look forward to collaborating with our new tenants and all relevant stakeholders to reimagine this outstanding property with a high ESG focus, building upon the strong tenant and investment demand for repositioned assets."
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