Subdivide and conquer strategy on track to net Melbourne syndicate c$15m profit

A syndicate is on track for a multi-million dollar windfall after spending the last three years subdividing one of Melbourne’s most unique retail holdings into 15 strata titled assets and offering them for sale individually this year, targeting smaller syndicates and “mum and dad” investors.

Led by high profile former commercial property agent, ex-Savills director, Anthony “Pod” Wilson, the Melbourne investors paid Australia’s honorary consul of Monaco, Andrew Cannon, $27.5 million for Emerald Hill Terraces (pictured, top), a row of historic shops forming the east side block of South Melbourne’s Clarendon Street retail strip – between Bank and Park streets – in the heart of a popular retail strip.

The owners subsequently subdivided the property into 15 retail assets with upper levels configured as commercial and residential space.

The third and latest shop offered, at 350-352 Clarendon Street – also the largest and potentially most valuable on a 340 square metre block and configured with two retail areas and four apartments – sold at auction last week for $3.91 million, a 4.1 per cent yield.

In March, another part of the Emerald Hill Terrace portfolio, 338-340 Clarendon Street, which is leased to Bendigo Bank, sold at auction for $3.95 million. This sale was followed by another- the neighbouring asset, at number 342, which traded off-market for $2.2 million, a price which reflected a low 3.8 per cent yield.

Agency sources familiar with the area expect the portfolio sell-down to reap a total of around $50 million, but this would not be confirmed with the vendors or agents who handled the latest Clarendon Street sale. The brokers for the most recent sale were CBRE’s Rorey James, Nic Hage, Mark Wizel and Jing Jun Heng with Dixon Kestle’s John Pratt and Simon Regan.

Mr Wilson, who runs investment house PodCo, and boutique fund manager, Terraplex – which is coincidentally headquartered in South Melbourne, near to Emerald Hill Terraces – are the vendors.

The remaining assets are expected to be listed for sale over the next two years.

“Investors are seeing the upside in the South Melbourne location, effectively viewing it as a gateway to the CBD and some of Melbourne’s highest density residential locations,” Mr Hage said. “Southbank, Docklands and the Melbourne CBD are expected to see an increase in population of over 50 per cent by 2027, this is no doubt going to have a positive effect on all markets, notably retail”.

CBRE research analyst Verity Jenkins agrees. “South Melbourne and Clarendon Street has seen a positive transformation in recent years, retail vacancy rates have declined from 6.2 per cent in Q1 2015 to 0.7 per cent in Q2 2018. During the same period, yields have compressed by about 60 basis points”.

Mr Hage said the suburb has a construction pipeline of 1800 apartments and 90,000 sq m of new office space, more than double what is currently available.

The retail complex was built in 1887 when the suburb of South Melbourne was known as Emerald Hill. It was for decades last century owned by the state government as an income producing asset until it sold for $5.7 million in 1997 to the Cannon family.

PodCo and Terraplex acquired the asset on a 4.2 per cent yield in 2015.

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Marc Pallisco

A freelance property writer and experienced analyst, Marc is the co-founder of realestatesource.com.au

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