Macquarie Bank May Need Bailing Out

Macquarie Groupis probably one of Australia’s best known of Australia’s commercial banks. Now it might also be the first financial group to be bailed out by the Federal government’s guarantee to commercial property investors.

According to The Australian Macquarie is having problems re-financing its flagship office at 1 St Martin’s Place  in Sydney, a building which also houses  Australian Securities and Investments Commission.  Once the ornate Victorian-era GPO of Sydney the building was redeveloped in the 1990s to a a high rise office tower and Macquarie is now having trouble refinancing nearly $129 million on the property. The property has been on the market since late 2008 and so far the best offer is nearly 25% less than the June 2008 valuation.

The “Rudd Bank” – as the opposition likes to call it – is designed to ensure that commercial property is not sold off in fire sales which may potentially undermine the entire economy, or at least the superannuation funds which invest heavily in it.

No 1 Martin Place, Sydney

The problem is establising the value ofthe property in a thin market. There have been no sales of commercial property of over $100 million since the financial crises hit in the second half of 2008 – only 10 early in the year and they probably reflected 2007 values. It really is hard to know that commercial property has dropped over 20% in a year – but if no one is buying surely that is what its worth?

The only offer on No 1 Martin Place so far is $480 million – which based on current market rents would represent 8% yield – which is why the property may become the first “asset” of the Rudd’s bailout plan.

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