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Morgan Stanley doubles down with stake in Mirvac tower

April 16, 2018

The tower at 699 Bourke Street in Melbourne where a Morgan Stanley fund now has a stake. Photo: Supplied

The Morgan Stanley Real Estate Investing platform has taken over a half stake in an office building in Melbourne’s Docklands from global funds manager TH Real Estate for $102 million.

The acquisition brings Morgan Stanley’s Prime Asia fund into co-ownership of the 10-level tower at 699 Bourke Street with Mirvac, which has retained its own a half stake since it completed its development in 2015.

The Prime Asia fund also has a half stake in the tower next door at 664 Collins Street – developed as part of a two-tower project on one site – which it acquired from Mirvac last year for $138 million. Mirvac has a half stake in that tower as well.

The companion tower at 699 Bourke Street is fully occupied by AGL, which also has space at 664 Collins Street.

Both the Docklands towers developed by Mirvac were built on a platform constructed above rail track that is part of Southern Cross Station

TH Real Estate bought its 50 per cent stake in 699 Bourke Street from Mirvac as a fund-through deal for the project in 2014 for $74.5 million.

The building was completed in 2015, with TH Real Estate exiting three years after that.

“It’s a testament to our acquisition strategy and development partnership that we have met our target returns so early in the life cycle of this asset,” said Nick Evans, its executive director in Australia.

Key investments
On the buy side is Morgan Stanley’s recently seeded Prime Asia fund, an open-ended vehicle run out of Singapore by veteran fund manager, Australian Paul Keogh. The fund is busy building out its new portfolio.

By midway through last year it had raised close to $1 billion in equity, which is being invested in major markets in the Asia-Pacific region.

Two years ago, the fund made headlines when it joined with Charter Hall in the $525 million purchase of One Shelley Street in Sydney. That deal was struck on a yield of around 5.3 per cent.

The Prime Asia acquired its 50 per cent stake in 664 Collins Street on a 4.97 per cent yield last year.

A similarly tight yield is expected on its latest investment into the tower at 699 Bourke Street. By comparison, Mirvac holds its half stake in the same tower on a $93 million on a 5.5 per cent cap rate.

TH Real Estate is controlled by US financial services giant TIAA-CREF, which bought out its joint partner in the property platform, Henderson Global Investors, in 2015.

The platform is one of the biggest real estate investment managers in the world, with $US109 billion under management

Last year TH Real Estate sold a 16-level, A-grade office tower at 20 Hunter Street for more than $190 million to multinational conglomerate K. Wah Group on a yield below 4 per cent.

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