Wollongong – 60 Burelli Street

Upgrading the building and repositioning the tenant mix, while working on a Development Application

Location

Wollongong, NSW

IRR

15.97%

CAPITAL GAIN

37%

Original Strategy

We wanted to buy within one hour’s drive and 100km from Sydney as we took the view that the Sydney population growth rates and lack of rental accommodation suggested people were moving to more affordable areas. It made sense that commercial property demand and values would follow residential growth.

The property was underpinned by ASX listed NRMA call centre and Workcover, a government agency. However, the shops, which were a large component of the building, were either vacant or commanding lower rental rates than the office space in the building.

The opportunity existed to reposition the retail component and increase the retail rental rate per sqm. In addition, the property floor space ratio (FSR) was 1:1, yet the allowable FSR was 6:1. This was a significant future development opportunity. Across the road was a Woolworths trading well above the national average, despite being an older format store. GPT had announced a revamp of their major shopping centre in Wollongong, which was to include a new Coles store. We believed that Woolworths needed to upgrade their store to retain market share. This would provide 60 Burelli Street an opportunity to reposition the retail component of the building.

The projected return of the fund was 9.20%. The initial fund term was five years and we were confident we would effectively reposition the building within three to five years.

The key milestones were to renew or replace the commercial tenants, and reposition the retail component, first by tenanting vacant shops with higher quality tenants, and second by increasing the retail rental per square metre rate. We also obtained a development application for a large-scale mixed-use redevelopment. – Not sure if this is correct but the sentence made no sense.

The Journey

At settlement a tenant had gone into liquidation, therefore we inherited a vacancy that was a blow to our initial fund return. We met with tenants to gather an understanding of their business. Audio Clinic had a small shop and was trading well. The vacant shop was much larger. We negotiated a solution whereby we would contribute to the fit-out of the new Audio Clinic in return for a much higher rental rate per sqm. This outcome reset the retail rental rate.

We then set about replacing the weaker tenants. Our strategy was to actively target tenants. We secured the Apple reseller Mac1 and provided them a fit-out contribution, which improved the overall quality and presentation of the building.

Towards the end of the fund term, NRMA advised that they would not be renewing their lease. They were the largest tenant, and this could have been devastating to the fund. Rather than force the contractual make good on (is this correct?) the premises, we negotiated a payout amount in lieu of make good as we believed the fit-out would still be functional. We backed ourselves to find a tenant as this was the largest contiguous floor plate available in Wollongong. Our instinct was correct, and we successfully secured a government associated tenant, iCare, for the space on a five-year term.

Running in parallel, we obtained a DA to redevelop the property and commissioned Antoniades Architects to produce a compelling concept plan for the redevelopment. The fund strategy was achieved, and the building was ready to be sold.

Our approach

The property must make sense. There needs to be a sensible plan to achieve the projected outcomes. If it has good bones, is in a great location, and has multiple options to achieve the requisite returns then we’re interested.

Find miscalculated assets

Unlock value

Investor alignment

Interested in joining our next fund? Let’s talk.

© Eagle Property Group. ABN 9915 9438 623 All Rights Reserved. The references to ASIC and APRA above do not in any way intend to show or infer that Eagle Property Group has been endorsed, is associated with, or approved by either of these bodies. Eagle Property Group operates under Australian Financial Services Licence (AFSL) no. 402998. This AFSL is held by Crest Funds Management Pty Ltd, a company wholly owned by the shareholders of Eagle Property Group. By virtue of the AFSL, Eagle Property Group is regulated by the Australian Security and Investments Commission. Site made with love by Orange Bicycle