Starwood, Arrow Capital snap up Sydney’s Zenith tower for US$306m

Starwood Capital and private property firm Arrow Capital Partners have acquired the Zenith office complex on Sydney’s North Shore from fund manager Blackrock and Australian fund manager Centuria for A$438.2m (US$306.7m).

The grade-A office complex features two 21-storey towers and comprises 44,102 sq.m. of net lettable area in Chatswood, 12km from the CBD, according to announcements.

“Starwood Capital Group is pleased to continue its targeted investment strategy in Australia, an economy we believe is underpinned by strong fundamentals that drive further strength in the Greater Sydney office market,” said James Fogarty, vice president of Starwood Capital Group.

The Zenith complex (image: Centuria)

“We like the North Shore office market, and Chatswood in particular given the limited supply, robust demand and transformative infrastructure improvements that are underway.”

The metro office market has a prime vacancy rate below 4% and prime office yields ranging between 5.5%-6.25%, according to advisor JLL.

The $8.3bn Sydney Metro Northwest rail project has just opened, connecting Chatswood and Sydney’s booming north-western suburbs with trains running every four minutes at peak times.

The new rail project is the first stage of the larger Sydney Metro project, which will link up Chatswood to underground stations throughout the CBD and beyond to the southwest by 2024.

Kurt Wilkinson, partner at Arrow Capital Partners, said they planned to invest further capital and asset management expertise into the Zenith to enhance its offering for tenants and make sure the property remains a standout office asset in the Chatswood office market.

The vendors had intended to hold on to the property over a longer period, but they received 10 offers on the asset.

Blackrock and the Centuria Zenith fund bought the Zenith in 2016 and held half-shares in the asset.

“Income returns from the Centuria Zenith Fund have been excellent, on average 7.7% p.a., which is very attractive in the current low interest rate environment,” said Jason Huljich, head of real estate and funds management at Centuria.

“In the time we have owned the Zenith with BlackRock, our asset management teams have worked extremely hard on the property – they have closed 58 leasing deals to take the occupancy to 100% and increase the WALE from 2.5 to 4.3 years.”

Huljich said they recently completed a leasing deal at $685 per sqm net per annum, the highest rate ever recorded in Chatswood and significantly higher than average market rents of $490 per sq.m. recorded in 2016.

Blackrock is an investment manager with circa US$6.52 trillion in assets under management.

Miami-headquartered Starwood Capital is an investment firm focused on real estate, energy infrastructure and oil & gas invest, with more than US$60bn of AUM.

Australian-listed Centuria is a property fund manager with A$5.6bn in AUM.

Arrow Capital Partners, which has more than A$2bn in office and logistics AUM, specialises in commercial property value add and repositioning opportunities investing equity and debt.

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