This article is from the Australian Property Journal archive
AFTER languishing a holding pattern for 12 months, the office investment market is witnessing major deals take off, with Dexus and pension fund the CPP Investment Board close to the sale of 5 Martin Place in Sydney’s CBD.
According to industry sources, Dexus and CPPIB have found a buyer in CBUS Property, to acquire their 50% share in the asset for $310 million.
Australian Property Journal reached out to Dexus, but the company declined to comment on industry speculation.
However, industry sources told Australian Property Journal, the deal hasn’t been finalised “but its very close to a done deal.”
The buyer, CBUS Property already owns a 50% share in the property.
Dexus owns a 25% share in the asset, with Dexus Office Partnership and CPPIB owning the other 25%.
Adam Woodward and James Mitchell of Colliers handled the sale.
The sale is part of DOP’s plan to execute a staged divestment of its assets. This transaction follows the $555 million sale of 140 & 150 George Street Parramatta to Mintus $154 million in the final throws of the year 2021, after having sold a 50% stake in the landmark Grosvenor Place to Blackstone for $925 million and 10 Eagle Street in Brisbane to Macquette Properties for $285 million. Proceeds of those sales were used to retire debt.
Dexus and CPPIB bought their 50% stake the 5 Martin Place development in 2014. Completed in 2015 by Grocon, the building provides approximately 33,860 sqm of NLA. Floor plates from the ground level to level 10, which is the heritage component, provide approx. 2,400 sqm (NLA), while new levels 11 to 19 each provide approx. 1,090 sqm (NLA).
As is the case with recent office transactions, the sale price of 5 Martin Place reflects the repricing of asset values across Australia.
Having said that, it also reflects the tenancy expiry profile of the asset in the near future.
The property was sold to Cbus with a short weighted average lease expiry of 2.9 years. Its anchor tenant, law firm Ashurst is moving to 39 Martin Place, owned by Investa and Canada’s Manulife.
Coworking group WeWork, which recently emerged from bankruptcy, is also a tenant along with Challenger Group.
WeWork is in the process of negotiating its leases as part of its global restructuring, committing to reduce its rental bill by USD$11 billion. It remains to be seen whether WeWork will remain at 5 Martin Place.
The sale price is below the December 31 2023 valuation of $350 million for the 50% stake, which had an initial yield of 5.40% and capitalisation rate of 5.13%.
It reflects the devaluation in the office market, the June 2023 valuation of $380 million and the peak of $405 million in June 2022.
The 2022 valuation would the initial yield at 4.34% and cap rate at 4.38%.
The sale to Cbus is estimated to provide a yield of around 6.10%, which is 176 basis points higher than the peak.
Meanwhile this signals the office investment market is thawing with a flurry of activity recently as landlords look to create some breathing room as their gearing levels face pressure due to declining asset values.
Recent data shows declining values have wiped a collective $58 billion Australian asset managers’ total real estate assets under management.
As reported by Australian Property Journal this week, the Charter Hall Prime Office Fund is expected to sell up to $850 million in assets.
Last week Mirvac divested the 40 Miller Street office building in North Sydney to Barings for $140 million and 367 Collins Street in Melbourne for $345 million, both at 20% discounts to peak book values, while Swiss fund AFIAA sold 628 Bourke Street for $115.8 million – some $70 million below what it paid seven years ago.
