This article is from the Australian Property Journal archive
DEXUS has confirmed the addition of Melbourne’s famous Rialto Towers to its portfolio, taking on a 50% interest in the skyscraper with Singapore’s sovereign wealth fund Government Investment Corporation in a $644 million deal.
As part of the agreement, GIC will hold a 90% share in the joint venture and Dexus will hold the remaining 10%, while as investment manager of the JV, Dexus has been appointed as the manager of the entire Rialto Towers complex at 525 Collins St.
GIC recently settled on its additional 24% investment in the Dexus Australian Logistics Trust, taking its holding to 49%.
The half stake of Rialto Towers has been acquired from Kuwaiti-owned St Martins Properties. Grollo Australia retains the other half, having built and developed the tower in 1986. Comprising interconnected towers of 55 and 41 storeys, the Rialto was the tallest office building in the southern hemisphere on completion.
The complex is 91.7% occupied with a weighted average lease expiry of 4.6 years at the beginning of March. The deal was struck at a fully leased yield of around 5%.
Dexus is taking a far-sighted view to the deal, which lands in a market that has nearly ground to a halt during the coronavirus outbreak.
“Rialto Towers is expected to benefit from the positive supply-demand dynamics of Melbourne’s office market over the long term,” Australia’s largest office landlord said in a statement confirming the transaction.
“In these times of elevated uncertainty Dexus continues to focus on preserving capital while selectively investing in assets with long term value and strong fundamentals.”
Commercial transactions fall away
Australian commercial real estate investment fell away sharply in the first quarter of 2020, according to Cushman & Wakefield, due to the absence of large portfolio transactions, travel restrictions, and softer confidence related to the COVID-19 situation.
Total transactions were down 52% on the same period in 2019 to $3 billion in what is seasonally a quieter three months of the year, and well 81% lower quarter on quarter from the $15.9 billion of property that changed hands in the final three months of 2019 – the second strongest quarter on record.
Foreign investment represented 22% of all investment compared to an average of 42% over 2019 as international travel restrictions escalated during the period.
National investment activity was led by the office market with $1.6 billion in deals, accounting for 54% of the total, but this was down 78% quarter-on quarter from $7.3 billion. The industrial sector appears to be the least affected sectors at $524 million as demand surged for e-commerce and logistics facilities. Retail continues to come under pressure, meanwhile, with $730 million recorded as restrictions of social movement impacted shopping centres sales.
Dexus bookends
Dexus now boasts Collins St bookends after acquiring the 80 Collins St precinct in the east end of the city last year, in a record $1.47 billion deal, following its purchase of the adjoining sites at 60 and 52 Collins St across Exhibition St for $230 million. Melbourne City Council last month gave final assent to plans of a 26 storey tower with over 35,000 sqm of prime-grade office development.
The group has enjoyed strong leasing take-up at 80 Collins St, saying earlier this year it had secured tenants at record rents. Melbourne’s CBD office market recorded the lowest vacancy rate in the country at the start of the year, at 3.2%, and Dexus said prime vacancies were at 1.8%.
Settlement of the Rialto deal is expected in May, subject to Foreign Investment Board Review, with Dexus’ interest funded from existing debt facilities.
Their co-owner, Grollo Group, effectively owns the entire stretch of nearby King St from Flinders Ln to Collins St on the eastern side after picking up the infamous Inflation nightclub site at 54-60 King St for $17 million two years ago, and has sought additions to its hefty footprint.
Australian Unity divests city edge building for $72 million
Meanwhile, on the city’s northern edge Australian Unity Diversified Property Fund has offloaded a six level A grade building mostly leased to the Environment Protection.
According to Nine Media, Sydney based real estate investment manager Realmont Property Partners paid $72 million for 200 Victoria St in Carlton on behalf of a Japanese Group.
Known as the EPA building, the property has a 6 Star Green Star Office Design rating and is located between the Queen Victoria Market and the University of Melbourne, whose Trinity College leases two floors and a ground level space on a 10 year term until 2024.
The fund bought paid $42.3 million in 2014.
