Vantage pays $58 million for St Kilda Road office with 35 per cent vacancy

Vantage Property Investments has acquired a largely vacant office at 574 St Kilda Road as a strategic play.

The off-market $58 million deal was struck with SHL Nominees, controlled by members of Melbourne’s Lederman family which owns a substantial local property portfolio.

Vantage PI managing director Matt Spring said its latest investment, acquired for a pooled fund of high net worth local and international individuals on a market 6.1 per cent yield, will be re positioned after a major refurbishment next year.

The purchase comes seven months after Vantage and KKR banked $98 million selling 420 St Kilda Road, which the consortium acquired for $68.9 million in 2017 then renovated.

‘The Bic Building’ at 574 St Kilda Road

Developed in 1988 by the late Floyd Podgornik, parts of 574 St Kilda Road have been renovated but others (including the ground floor foyer shown here) have not.

Developed from 1988 by colourful late entrepreneur Floyd Podgornik, 574 St Kilda Road was originally known as Unisys Centre and later Novell Building.

French global stationery supplier Bic has had naming rights since 2012 when it rented 916 sqm at level four, relocating locally from Keysborough.

The 10 storey building, in an area gazetted as Melbourne with postcode 3004, contains around 7700 sqm of area and a basement car park.

A rooftop balcony capturing views of Port Phillip Bay over Albert Park Lake. The neighbouring 20-storey Yve apartment complex (specifically, tennis star Lleyton Hewitt’s old double storey penthouse apartment) can be seen at the top, left.

On the south west corner of Moubray Street, it sits between Deague Group’s 19-level serviced apartment complex (572 St Kilda Road) and Sunland’s distinctive 20-storey Yve residential tower (576-578 St Kilda Road).

The site is opposite Wesley College Oval – a block to each of Fawkner Park and Albert Park Lake.

The office has been managed for years by Julliard Group – controlled by the Werdiger family.

The Werdiger and Lederman families acquired 574 St Kilda Road for $24 million in 1990. In 2011, the latter seized full control.

Earlier this year, the Lederman family sold its (speculated $900 million) stake in three Melbourne CBD commercial buildings to the Werdigers.

Office will now be renovated and let up

About 35 per cent of 574 St Kilda Road is vacant despite agents actively seeking tenants.

This figure will increase to about 50 per cent by the time it settles.

Next year, Vantage PI intends to undertake a major refurbishment, leaving it with a Prime-grade investment (this grade is used to describe a quality between Premium and A).

Works to the double-height foyer and lifts will start shortly.

Mr Spring said the group intends to undertake speculative fit-outs before re-offering the vacant office areas for lease – a strategy that worked with the group’s 420 St Kilda Road refurbishment.

The renovated space is expected to rent for an approximate 20 per cent premium.

The vendor recently completed some refurbishment works – employing prestige architect Gray Puksand to create new bathrooms in some of the tenancies.

End-of-trip facilities have also been upgraded by SHL Nominees.

History repeating for Vantage PI

In May Vantage PI and US-based private equity group KKR sold 420 St Kilda Road after two years and a refurbishment.

It also leased up most of the space (the building was 9 per cent vacant in 2017) – part to Vantage PI as its headquarters.

The rental it achieved was 58 per cent up on the pre-acquisition level.

The $98 million sale price represented a large capital gain for the consortium which paid CEL Australia $68.9 million.

Mr Spring said that high-quality office space in St Kilda Road rents for about $500 per sqm, per annum, which is less than the city-fringe markets it competes against – namely Cremorne, Richmond, South Melbourne and South Yarra.

Late last year Vantage PI paid News Limited $30.2 million for the media giant’s Leader Group headquarters at 1 Chapel Street, Blackburn, about 16 kilometres east of the Melbourne CBD.

Elsewhere on St Kilda Road this year

Mars Family Holdings, the Hong Kong-based investor which acquired 420 St Kilda Road from Vantage PI and KKR, also this year outlaid a speculated $70 million for the office across the road: 424-426 St Kilda Road, known as Iloura Plaza.

In November, Brendan Sullivan paid $17.8 million for a mostly vacant office at 1 Bowen Crescent, part of the St Kilda Road precinct.

A month earlier, Malaysia’s UEM Sunrise sold 412 St Kilda Road office to Singapore private equity group SC Capital Partners for $108 million.

In August, the last mansion on St Kilda Road to be occupied as a home – sold to another buyer which plans to retain it for residential use. The sale price was $8.25 million.

Last November, Sydney-based John Beville sold 509 St Kilda Road – on a double block – for $163 million, almost twice the ($84 million) price he paid in 2014.

BayleyStuart banked $65 million last December selling 541 St Kilda Road to German fund manager GLL Real Estate and Sydney-based Marprop.

Value adding a Vantage PI specialty

Vantage PI, which represents a mix of private investors, syndicates and institutions, has a history of selling investments after re positioning.

In 2017, it flipped 18-20 Prospect Street, Box Hill, for $24.5. It paid $14.72 million in December 2017, the last property cycle peak (interestingly, Mr Podgornik’s estate contained a Box Hill office at 43-45 Prospect Street).

Also two years ago Vantage PI sold 247 Collins Street in the Melbourne CBD for $35 million with a weighted average lease expiry of nearly 10 years.

It paid $22.7 million for this then-fully vacant office two years earlier.

In 2013, on behalf of a pooled investment trust made up of high net worth individuals, Vantage PI spent $19.5 million on the Dominion building at 533 Little Lonsdale Street (occupied for years by law firm Slater & Gordon, and where former prime minister Julia Gillard once worked).

Following a $2.4 million refurbishment, and new leases (at a 43 per cent premium to the pre-acquisition rates), it sold this Melbourne CBD office three years later, off market, for $35.25 million.

Gray Puksand recently undertook a renovation of 574 St Kilda Road bathrooms (above) and end of trip facilities (below).
Part of the recently renovated end-of-trip facilities at 574 St Kilda Road.
Melbourne CBD views from 574 St Kilda Road.

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Marc Pallisco

A freelance property analyst and journalist, Marc is a co-founder of realestatesource.com.au.

Marc Pallisco