Offshore investor wins sought-after Investa portfolio

Offshore investor wins sought-after Investa portfolioChina Investment Corporation’s (CIC) $A2.45 billion acquisition of the Investa property portfolio sends a signal to the industry and sets a new high watermark for direct real estate transactions in Australia.Investa Property Group’s portfolio of nine office towers has been sold to CIC, one of the world’s largest sovereign wealth funds. Established by the Chinese government to manage its offshore investments, CIC has an estimated $A301 billion in overseas assets.The acquisition, managed by USB and Morgan Stanley as part of the sale of the $A9 billion Investa Property Group portfolio, has been touted as the largest global property deal so far in 2015. Analysts say the fall in the Australian dollar and record low interest rates are attracting unprecedented interest from offshore investors.”For an overseas investor taking into account the lower Australian dollar, property assets are looking cheaper than they have done in the past,” says Kristian Fok, CBUS Super Fund’s executive manager of investment strategy.”Quite sizeable sovereign wealth and pension funds that previously had investments in bonds are now looking to diversify. One of the areas in which they have the most confidence – in terms of high returns and diversification – is property.”Fok says most international funds “don’t hedge the currency risk in property – they think long term” and see Australia as a well-developed country where their money will be safe.”Investing in Australian property is delivering higher running yields than other established markets, making ours an attractive investment opportunity, particularly where there are portfolios of high-quality assets up for grabs,” Fok says.The Investa portfolio, which has a fully let income of about $145 million, includes a number of premium assets: 126 Philip Street, Sydney the Australian headquarters of Deutsche Bank (pictured); Grosvenor Place in Sydney occupied by accounting firm Deloitte; and 120 Collins Street in Melbourne, home to Rio Tinto, Merrill Lynch, Morgan Stanley and Citigroup. Based on a fully let basis, the properties would show an initial yield to the purchaser of more than 5 per cent.Fok says local superannuation funds are also looking to expand their property portfolios.”Many pension funds have had well-established property portfolios. And while property looks expensive when compared with history, when assessed against alternative investment areas, it still looks reasonable. Our challenge is to invest in portfolios that maintain good returns,” Fok explains.How long will this international demand for property last? “It’s hard to say, but it could endure for some time to come,” Fok concludes.Kristian Fok will join a panel of portfolio managers to explore the drivers influencing sovereign wealth and superannuation funds at The Property Congress on the Gold Coast in October. Reserve your place at The Property Congress today.