A conversation with Toby Lewis at Marquette

In this conversation, Co-CEO Mark Hurley sits down with Toby Lewis of Marquette about the distinctiveness of their commercial real estate strategy, adapting to market changes, and integrating sustainability into investment decisions.

Toby, Marquette has a fantastic track record with an average realised return of 21% per annum. Could you share some insights into how the company has evolved and what you believe are the key factors to its success?

At Marquette, we focus on acquiring high-quality prime properties that we can enhance and add value to, ultimately generating superior returns for our investors. We're driven by a commitment to preserve our investors' wealth while delivering reliable monthly cash flows and, over time, achieving real capital growth.

When considering assets for acquisition, we typically target the following key attributes:

• Prime Cycle Resistant Assets - Properties with strong underlying fundamentals that can endure a property downturn better than the market.
• Value-Add Assets – Properties that can be acquired, improved and sold when the time is right.
• Price making - Leveraging locations that are undervalued or overlooked in order to create opportunities for our investors.
• Replacement Cost—Target assets at pricing below or in line with replacement cost to facilitate genuine capital growth.
• Familiarity - Targeting properties in our primary SEQ & Sydney markets to leverage our extensive relationships with all stakeholders.

The recent $420 million acquisition and refurbishment of the Blue Tower in Brisbane's CBD is quite significant. What was the strategic vision behind this investment?

In 2022, we acquired what we consider one of the best office towers in Brisbane, the Blue Tower. We did this alongside over 200 investors and our major partners at Lend Lease.

The strategic vision for every property, including Blue Tower, revolves around a clear five-point plan. This plan helps us navigate from initial acquisition to eventual sale, focusing on growing and stabilising income, limiting operating expenses, enhancing the asset’s functionality and appearance, improving lease terms and tenant covenants, and ultimately compressing the yield to optimise the sale price.

Located opposite Brisbane's four main premium-grade buildings—which have lower vacancies and higher rents but rarely change hands—Blue Tower was perfectly positioned. We believed that with some strategic refurbishment, it could rank as the fifth-best building in the area, attracting premium grade status and benefits. We’ve now completed the refurbishment, and I am happy to report that our vacancy is down, and the average rental rates are up. The asset is now positioned for an exit at some point in the future as a premium-grade building.

Marquette has embarked on an ambitious $12.5 million lobby and end-of-trip refurbishment for the Blue Tower, aiming to elevate it from A-grade to Premium status. How does this refurbishment align with Marquette's long-term investment strategy?

During our underwriting phase, we identified Blue Tower as meeting nearly all the criteria for a premium building except for a high-quality, timeless, and voluminous lobby.

This lobby refurbishment is, therefore, pivotal in transitioning Blue Tower to a premium-grade building. By upgrading to a premium status, we significantly enhance the building’s appeal to current and prospective tenants. This aligns perfectly with our investment strategy, as premium-grade buildings not only have lower vacancy rates but also command the highest rents and attract robust businesses with strong leases. These buildings are a rarity in the market, and their robust construction means they age well and require less capital expenditure over time.

With rapid changes in the commercial real estate sector, how is Marquette adapting its strategies to thrive?

Our approach is to stay informed, continually learn, test new ideas, adapt quickly, and work hard to stay ahead of market trends.

Sustainability and ESG factors are becoming more crucial in investment decision-making. How is Marquette incorporating these considerations into its investment processes and property management?

At Marquette, we recognise our obligation to our investors, financiers, tenants, and staff to prioritise our people, places, properties, and performance, addressing social and environmental issues. We are committed to reducing our environmental impact through initiatives that cut energy and water use, lower emissions, and increase recycling. We also focus on extending the life of plants and equipment and prioritise reusing materials in our properties. We see the reuse of elements as the most sustainable practice rather than creating waste.

Considering current market trends, what do you see as the biggest challenges and opportunities for Marquette in the coming years?

Despite the negative sentiment around office spaces over the past four years, office leasing in Brisbane and Sydney's CBDs, where we focus, remains strong. Our challenge lies in convincing capital to adopt a countercyclical approach. This presents a significant opportunity—to buy great assets at prices well below their peak and to benefit as the market cycle rebounds.

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To learn more about Marquette, visit their website here.