10/08/2011 - 10:22

Syndicators grow portfolios in soft sector

10/08/2011 - 10:22

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Syndicators grow portfolios in soft sector

PERTH property syndicator Primewest is understood to be close to buying the former Clough building at 251 St Georges Terrace in a deal industry sources suggest could be worth at least $60 million.

It’s the latest in a steady stream of acquisitions by Perth’s major commercial property syndicators, which are making the most of the soft property prices and distressed sales to build their portfolios.

Fledgling syndicator Kingslane Property bought an office building at 432 Murray Street in June and Peter Hughes’ API Hughes paid $50 million for 30 The Esplanade in March.

Primewest would not comment on 251 St Georges Terrace, but director John Bond said the current market conditions suited the business’s counter-cyclical investment strategy.

It’s a sentiment that was echoed by Primewest’s fellow syndicators in Perth, including API Hughes, Scope Properties and Vicus Group’s Vanilla Property Investments. 

A number of the acquisition opportunities in this market are different types of distressed sales and Vicus Group managing director Joseph Rapanaro said the syndicates were taking advantage of these forced sales, and reduced competition from institutional investors.

“In the current market prices are still depressed and the yields ... are historically higher,” Mr Rapanaro told WA Business News.

 “The only people selling are those who really need to, who have some strong motivation to sell; the long-term investor, who isn’t getting squeezed by his bank or anything like that, why would he sell now when in two years he can achieve a much better price?”

The building at 251 St Georges Terrace is an example of the forced sales that are supporting the pipeline of acquisition opportunities. The office building is owned by Luke Saraceni’s business partner Hossean Pourzand and his wife, Jenny, and was put on the market as a result of the appointment of receivers to the Raine Square project.

Set up by Mr Bond and his partners Jim Litis and David Schwartz in 1994, Primewest has amassed a national portfolio of properties under syndication of $1.4 billion.

The business does not have any growth targets but its -three most recent acquisitions were in the Brisbane CBD, which was languishing under high office vacancy forecasts but has since significantly rebounded.

“We probably favour office at the moment in Brisbane and Perth because of the resources sector, that has been our reason for chasing Brisbane in particular the last 18 months,” Mr Bond said.

Property Bank Australia has adopted a very different investment strategy, eschewing the resource-rich states of WA and Queensland in favour of the Sydney and Melbourne office markets.

Director Sandy MacKellar said the business saw better value in the eastern states markets and consequently had not been active in WA.

API Hughes managing director Peter Hughes plans to double the size of his WA portfolio of syndicated properties in the next five years as well as his staff numbers, currently at 10.

The business won’t be relaxing its stringent investment parameters to get from $450 million to $1 billion, however.

Mr Hughes said the group’s two most recent syndicate acquisitions had been bought on yields of 9 per cent and 9.5 per cent respectively.

He said a 9 per cent yield was about as low as he was prepared to go and it was also important to understand what investors were looking for, both the real and perceived advantages of properties.

Participants in API Hughes syndicates typically invest about $500,000, and in its 10 years of operation it has built up a client base of about 220 investors.

Tighter lending markets as well as negative sentiment have reduced competition for properties valued above $20 million, a price point too high for most individual investors.

This is working to the advantage of the property syndicators and spurring the development of new businesses such as Kingslane Property, which paid $30.3 million for 432 Murray Street in June.

Scope Property Group is one of the niche operators in the syndication sector, focused on commercial and industrial properties priced between $5 million and $25 million.

“What we realised pretty early on in the piece was if you were operating under the $5 million mark there was too much competition from private investors, owner-occupiers and people who were emerging from the residential market into the commercial market,” Scope director Robert Engelhard said.

Scope has $45 million in properties under syndication and the group manages all its own assets.

 

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