Dexus takes 35pc haircut on Pyrmont office

OFFICE sector deal-making is gaining momentum in the lead-up to the festive season, with Dexus offloading two properties for $443.2 million – including the Pyrmont headquarters of Domain in a remarkable deal that highlights the heavy washout of values following the pandemic.

Dexus confirmed the sale of 145 Ann Street in Brisbane, which was previously reported by Australian Property Journal, for $213.9 million out of its Dexus Office Partnership, a joint venture between Dexus and the Canada Pension Plan Investment Board.

It was acquired by Aware Real Estate and Navigator Property Group.

The sale price reflected a 1.7% discount to the June 30^th book value, and is more than 20% below the peak book value of $265 million of June 2022.

In Pyrmont, however, Dexus has offloaded 100-130 Harris Street, Pyrmont for $229.3 million – in line with book value, but at a massive 35% discount to the peak value of $358 million two years ago. The price is also a long way down from $327.5 million that Dexus paid seven years ago.

Taking advantage on the buy side is the Lowy family-backed Assembly Funds Management and Wentworth Capital.

“This acquisition is in line with Wentworth’s proven strategy of acquiring irreplaceable, prime assets within strategic locations, especially where there is significant government infrastructure spend,” said Wentworth Capital executive director Paul Apostoles.

The Sydney CBD fringe property is a 26.800 sqm A-grade boutique heritage office building with an occupancy by area of 83% and a weighted average lease expiry of 4.3 years, located on a 7,791 sqm adjacent to the new Pyrmont Metro station that is new to open in 2040.

Tim Meurer, chief investment officer of Assembly Funds Management, said, “We view this acquisition as a unique opportunity to strategically allocate to Sydney’s office sector at an interesting stage in the cycle.

“Acquiring a building of this quality, in a growing precinct, underpinned by committed infrastructure investment, presents as a compelling investment.”

The Pyrmont sale shows revaluations continue to roll through the sector, and follows Dexus’ sale of 5 Martin Place in Sydney to Cbus Property for $296.2 million, reflecting a discount of over 30% from the peak. That sale set the stage for more Dexus divestments, including 130 George Street, Parramatta and 18 Motorway Circuit, Ormeau, also below peak value.

Office tower revaluations drove Dexus, Australia’s largest office landlord, to a massive $1.58 billion statutory loss for FY24. It is looking to diversity its portfolio.

Last year, it sold 1 Margaret Street in Sydney for $293.1 million, at a 21% discount to the asset’s June 2022 book value, and it is currently Dexus is also selling offices in Melbourne.

Pricing gap closing, deals getting done

Values have been hit hard in recent years, as working from home and flexible working during and since the pandemic saw offices emptied. The latest deals, however, come as the pricing gap expectation between buyers and sellers in Sydney has reduced significantly – from 21.6% at the end of 2023 to 6.7%, according to the Australia Capital Trends report from MSCI. Deal-making is now being done.

Ben Martin-Henry, MSCI’s head of Pacific real estate research, recently told Australian Property Journal it is a sign that valuation adjustments are aligning with market expectations.

“We’re seeing a lot more transactions in the office sector, and that’s not necessarily because of stability in the interest rate environment. It seems to be that a lot of investors are trying to get out of the office sector, or at least get them off their books in order to recycle capital into something else, and what we’re seeing is other investors take advantage of these discounts that are on offer,” he told Australian Property Journal.

“We’ve certainly seen that with some of the larger transactions in the office sector, such as 5 Martin Place and 52 Martin Place in Sydney, 367 Collins down in Melbourne, that they have gone at significant discounts, and I think that’s what’s really driving the office sector at the moment.”

Martin-Henry suggested Sydney’s office sector could be one to watch over the coming year. Sydney offices experienced quarterly yield compression of four basis points.

These latest transactions take the office tally to over $1.3 billion in the past week. This week, Australian Property Journal reported that some $350 million of assets in Western Australia are set to change hands before the end of the year, including Multiplex scion Andrew Roberts’ property funds platform RF CorVal divesting the A-grade tower at 66 St Georges Terrace for about $75 million.

Earlier this week Warren Ebert’s Sentinel Property Group and Growthpoint each picked up an office building in Canberra worth around $160 million.

And last week the Australian Unity Office Fund sold a St Kilda Road office building for more than $40 million.

Elsewhere:

• US giant BGO acquired 10-20 Bond Street from Mirvac and Morgan Stanley for $580 million;
• Singapore-listed companies UOL Group and Singapore Land Group (SingLand) bought Brookfield’s half-stake in 388 George Street for $460 million on a yield of 6.2%;
• German investment powerhouse Real I.S. Group snapped up 8 Windmill Street, Millers Point for $47.75 million from Melbourne-based property investment manager Marks Henderson;
• Hong Kong toy billionaire Francis Choi sold off $1 Castlereagh Street in the heart of Sydney’s CBD for $196.4 million, at a hefty discount;
• Mitsui Fudosan acquired a circa 66% stake in 55 Pitt Street, Sydney for $1.3 billion;
• Keppel REIT bought a 50% stake in 255 George Street; Sydney for $363.8 million;
• Mirvac divested the 40 Miller Street, North Sydney office building to Barings for $140 million, and 367 Collins Street in Melbourne for $345 million, with both deals struck at a 20% discount to peak book values;

Meanwhile, Proprium Capital Partners is running the ruler over 20 Bridge Street, weighing up a circa $270 million acquisition from Choi. The tower, soon be vacated by the ASX, will trade for below what he paid. Choi purchased the building from Malaysian pension fund Kumpulan Wang Persaraan in 2017 for more than $330 million.