Landmark Myer Melbourne building being sold in $270m deal

In a remarkable turn of events, the value of the stake in the flagship property changing hands is higher than the stockmarket value of retailer Myer, which sold off its property assets more than a decade ago.

The pair are looking to buy the interests from Singapore’s GIC Real Estate which has been a long-term owner of the building and fund manager Nuveen – which acquired the stake in the Myer building five years ago – with the deal to bring them in alongside existing manager and one-third investor Vicinity Centres.

Buying the property gives Charter Hall, Abacus and Vicinity longer term options for the iconic site which could include bringing in other retailers, and part conversion into use as offices, as has happened already in the nearby Emporium Melbourne.

But the retailer will remain there for at least the next decade as Charter Hall bets on a comeback in city retail, which offers deep value, and long leases in some of the country’s best properties.

It also bought the David Jones building in Sydney last year for $510 million and it is buying knowing there are longer-term options on the sites.

JLL’s Sam Hatcher and Nick Willis and Colliers International’s Lachlan MacGillivray are handling the deal but declined to comment as did the parties.

In 2016, the forerunner of Nuveen, global fund manager TH Real Estate, bought its one-third interest in venerable department store property, with that deal valuing the high-profile complex at about $454 million and marking the exit of the Myer Family Investments.

It reflected the record values to which premium retail properties in the heart of major cities had then soared but the coming transaction will show a dip on this level.

Myer Family Investments had picked up the asset as part of a larger deal in which it teamed with the then CFS Retail Property Trust — now part of Vicinity Centres — and Singapore’s GIC Real Estate to buy the site on Bourke and Lonsdale streets in mid-2007 for close to $600 million.

That also included properties GIC and CFS transformed into Emporium Melbourne. Myer Melbourne was dramatically overhauled and it is the department store chain’s leading flagship store even as city retailing remains under pressure.

The Bourke Street Mall asset has been hard hit due to Melbourne’s repeated lockdowns. The strip on which it sits is the premier precinct of the Melbourne CBD and the focal point of the bustling retail track between Flinders and La Trobe streets.

Vicinity, which also has a large stake in Chadstone, manages the centre and though it held pre-emptive rights is considered unlikely to exercise them.

The property’s location at the centre of the strengthening core retail precinct in the Melbourne CBD is supportive of the retailer’s long-term occupancy of its flagship store.

Myer Melbourne dominates the block on which it sits, spanning 39,923sqm over nine floors with unparalleled frontage to Bourke Street Mall. The historic building is part of the city’s landscape and has run as a flagship department store since 1914.

The property carries a lease until 2031, offering annual rental growth and exposure to the blue-chip listed department store operator.

Buying the slice of the iconic building, one of just 14 properties fronting the Bourke Street Mall, will give the companies a rare slice of prime real estate at a time when commercial property values have held up despite the pandemic.

It shows the belief of Charter Hall and rival managers that city property will recover in the wake of the pandemic with sluggish city retail to be sparked by the rollout of vaccinations and the opening of borders.

The Melbourne deal will show the latest transaction is being struck on a yield of closer to 6%.

This article first appeared on www.theaustralian.com.au/business/property.