50 Carrington Street provided an opportunity for DEXUS to reposition and add financial and environmental value.
50 Carrington Street is located in one of DEXUS's core markets - the Sydney CBD. The 15-level, B-Grade property provides 10,881 square metres of office accommodation and 372 square metres of ground floor retail space. The property exhibited average energy performance, and held a 3.0 stars NABERS rating.
Given market forecasts of rental growth and a tightening of capitalisation rates over the next three years, DEXUS believes continued active management of 50 Carrington Street supports the property as a trading opportunity.
DEXUS acquired the B-grade property for $58.5 million (excluding costs) in November 2012 which was well below replacement value and represented an acquisition capitalisation rate of 8.0%.
Following acquisition DEXUS immediately commenced a capital expenditure program of upgrade works to enhance the tenant/customer experience.
DEXUS implemented a detailed strategy to reposition 50 Carrington Street, with the objective to transform the property into an appealing, secure and passive investment for risk adverse private buyers, smaller to mid-size institutions and syndicators.
Sustainability improvement and capital works include:
- Upgrading the lobby and entrance experience of the property
- Significant mechanical plant works including replacing the central plant equipment and installing variable speed drive controls to improve tenant comfort and increase the NABERS Energy rating of the building
- Interior lighting upgrades
- Replacing facade glass in the low rise floors to allow 30% more daylight to penetrate the floors
- Refurbishing lift cars and on-floor amenities
- Introducing end of trip facilities
- Redefining the base building finishes to create a "studio aesthetic", increasing appeal of the property for targeted prospective tenants
The newly refurbished floors in this boutique building have attracted niche companies seeking to move to less traditional, more modern and unique CBD office accommodation.
A focus on filling vacancy has secured leases for newly refurbished floors, improving occupancy from 61% to 95% (by area). In addition, proactive engagement with existing tenants ahead of lease expiries resulted in lease renewals with three tenants.
Together, the combination of capital works, sustainability upgrades and active leasing initiatives have added significant value to the property.
DEXUS added significant value over an 18 month period through refurbishment and a targeted leasing campaign, successfully increasing the property's occupancy from 61% at acquisition to 99% and the property's WALE from 2.2 years to 4.1 years.
The implemented energy saving initiatives have increased the property's NABERS Energy rating to 5 stars at the point of sale, providing energy savings equivalent to approximately $61,000 per annum.
DEXUS sold 50 Carrington Street in 2014 for $88 million, generating trading profits of $12 million, successfully repositioning the property and, in turn, enhancing investor returns.
“50 Carrington provided a cost effective way to access a high quality property where the acquisition cost plus repositioning is well below replacement cost. The repositioning plan for 50 Carrington St was identified at the due diligence stage and successfully completed over an 18 month period, improving the building’s NABERS rating from 3 star to 5 stars. Together with an active leasing strategy, the sustainability upgrades boosted buyer appeal and realised $12 million in trading profits to DEXUS.”