The Hawthorn Arcade - 660a Glenferrie Road, Hawthorn was sold by GormanKelly a week prior to auction for $8,560,000 which reflected close to $11,000/sqm for land area and a yield of 4.3%.
The result was somewhat higher than the initial expectations of around $7,500,000 and the property generated a significant level of interest from locally based commercial property investors seeking an opportunity to purchase a strong cash flow with clear potential for bigger and better down the track.
Initially constructed in 1922, the building is positioned in Railway Arcade, alongside Glenferrie Station. It is leased to three tenants including the former Cheers Nightclub (which has recently been taken over by nightclub veteran Nick Foley from Seven Nightclub), longstanding Alley Tunes Café and My Adventure Store (part of the Flight Centre Group). The property provided an annual rental of $372,000 with 90% of the income secured by new 10 year Lease terms. The site occupies 790sqm of land with a 42.5 metre height limit under the Glenferrie Road Structure Plan.
We initially commenced discussions with the vendors in August last year. At the time, the nightclub tenant was looking to sell the business and assign their lease, Alley Tunes Café was coming to the end of a long term Lease with no further Options and the third tenancy (a long standing book shop) was looking to close their doors. Additionally, the property had planning approval for a 12 level student accommodation development. The vendor was unsure how best to maximise the end price: sell as a development site? Or restructure the leases and package up as an investment?
In our opinion, the strength of the current investment market pointed to the site having a higher value as a passive investment, with the added bonus of development potential. Working over the ensuing 10 months, we assisted the owners to restructure new leases across the three tenancies. Two of the three tenants signed new 10 year initial lease terms with fixed annual 4% and 5% rental increases and we replaced the bookshop tenancy with My Adventure Store on a new 6 year lease. The property was then put to the market for auction packaged as a secure investment with a strong cash flow from three solid tenants and the future upside of medium to longer term development potential.
Hawthorn has seen in excess of $75 million of property transact in the last few months which shows the ongoing strength of the local area and buyers’ continued comfort in commercial real estate investing in the inner eastern suburbs of Melbourne.