Barwon Investment Partners has capped off a run of deals with its acquisition of a St Kilda Road office tower on the Melbourne CBD fringe, after raising $480 million for its healthcare real estate funds.
The purchase of 607 St Kilda Road for around $75 million is the latest in a $648 million haul of assets backed by the raising and acquired for the Barwon-run funds, which focus on healthcare-related real estate, a rapidly growing sector. Barwon also this year launched a disability housing fund.
Rob Morrison, Barwon’s founding partner and co-head of property, said that focus had been a boon, with healthcare real estate proving resilient, leading to a rerating of the sector and winning interest from domestic and institutional investors.
“The existing Barwon healthcare portfolios have been beneficiaries of this rerating,” he said.
Over the 12 months to October, the Barwon Healthcare Property Fund delivered a 20 per cent total return and the Barwon Institutional Healthcare Property Fund gave back a 35 per cent total return.
The building at 607 St Kilda Road, which had been held by a private investor, generates a large proportion of its income from hospital operator Alfred Health, making it a good fit for the Barwon Institutional Healthcare Property Fund.
“The acquisition of the St Kilda Road asset gives the fund a well-located metropolitan asset, acquired on sensible market rents and with a clear pathway to access and support [from] the continued growth being experienced in community mental health – anarea that has been under-serviced, but is now being well supported with new state and federal funding,” said Barwon’s head of healthcare property, Tom Patrick.
“We expect to see significant growth in this sector as clinical models adapt to support a more outpatient focussed delivery of care.”
The transaction was struck on an initial yield of just over 4 per cent and a rate of over $10,000 per sq m. Only one other asset over $50 million has changed hands in the tightly held St Kilda Road precinct in the last two years, after Flight Centre sold its headquarters at 436 St Kilda Road for $62.15 million early last year.
The transaction was brokered by JLL’s Josh Rutman, MingXuan Li and Simon Quinn, with Cushman & Wakefield’s Leigh Melbourne.
“It’s little wonder why assets are seeing such a depth of interest as the office investment market in Melbourne has been starved of opportunities in 2021,” Mr Rutman said.
“The activity from private and institutional capital in the office market further reinforces the contention that the office is here to stay, even if that means the nature of the workplace is evolving.”