Backing WA: First State Super lends $190m to Fremantle Kings Square project

(afr.com – 16 May, 2018)

A recovering WA market has prompted First State Super to finance Sirona Capital’s King’s Square project in Fremantle and it says the $190 million deal is the first of more to come.

The $90 billion industry super fund, part of a consortium that last year took over the privatised NSW land registry business, saw the mixed-use project as a counter-cyclical first move into a property market in which yields were improving, said First State’s head of real assets Damien Webb.

“It was a good opportunity – the construction of an urban regeneration, mixed-use, new-generation asset – and also for us, quite attractive in the sense that Perth – and WA – is recovering,” Mr Webb told The Australian Financial Review. “We’re not so much calling the bottoming of the market but certainly the cap rates and other market financial indicators suggested there had been a turning.”

After years of post-mining boom hangover, commercial property in the WA capital shows signs of improving. Energy giant Chevron last year started looking for 40,000 square metres of office space.  In February, Singapore-listed OKP Holdings acquired a fringe office building from the family of the late construction billionaire Len Buckeridge for $43.5 million. Leasing activity is picking up.

 The King’s Square development will create 20,000 square metres of office space – leased to the WA department of communities – across two buildings, as well as the FOMO (Fremantle on My Own) retail facilities and the full refurbishment of the 830-bay, multi-deck Queensgate car park.

Making credit calls

“Our banks probably don’t look at maturities beyond five years, and generally in WA they seem to be more around the three-year mark,” Mr McNeilly said.

“All of the credit calls are made out of Sydney and Melbourne. Ultimately it’s a guy sitting in Sydney or Melbourne who is making a call on the credit. Dare I say it, they’ve probably had a reasonably negative view about WA, about its economy. There hasn’t been a lot of focus on WA.”

The super fund is lending on a four-year term and Mr Webb said it would exceed the fund’s targeted return of 5 per cent above inflation, net of fees.

“At the moment, we are looking to work in collaboration with the banks, but we are certainly seeing opportunity for our longer-tier financing packages that resonate with groups like Sirona,” Mr Webb said.

“There are number opportunities we’re in the final state of looking at.”

Demolition on the King’s Square site is complete and construction will start shortly on the project that is due for practical completion in September next year, Mr McNeilly said.

25 May 2018