GIC JV Buys 50% Stake in A$1.3B Melbourne Office Complex

Singapore’s GIC has teamed up with Aussie REIT Dexus to buy a 50 percent stake in a landmark Melbourne’s commercial property for A$644 million ($398 million) through an off-market transaction.

ASX-listed Dexus announced in a bourse filing yesterday that the pair had set up a joint venture to acquire the half-stake in the Rialto Towers, with GIC taking a 90 percent share in the JV while Dexus will hold 10 percent.

“We are pleased to continue to grow our relationship with GIC, enabling them to extend their investments into the Australian office market,” said Dexus’ CEO, Darren Steinberg.

The Singapore-led venture is buying the 50 percent stake from Kuwaiti sovereign wealth fund-owned St Martin’s Property, which co-developed the 55-storey complex in a 50:50 joint venture with Aussie developer Grollo Group in the 1980s.

Acquiring an Iconic Aussie Property

Based on Rialto Towers’ 94,000 square metres (1 million square feet) of grade A office space, the joint venture is paying A$6,851 per square metre for the two-tower property.

Located at 525 Collins Street in what is known locally as the Paris end of Melbourne’s central business district due to its luxury shops and heritage buildings, the blue-hued development is 91.7 percent occupied with a weighted average lease expiry of 4.6 years.

Tenants in the twin tower complex include the Australian Stock Exchange, the Bank of Melbourne and mainland China developer Poly Global. Law firm Jones Day Lawyers leased a whole floor of the complex last year, paying a reported A$925 per square metre per month for the 1,000 square metre space on the 48th floor.

The joint venture is acquiring the stake in the 1986-vintage complex after the towers underwent an A$200 million refurbishment three years ago.

This latest transaction comes five days after GIC acquired an additional 24 percent interest in the Dexus Australian Logistics Trust core portfolio for A$366 million, increasing the sovereign wealth fund’s total investment to 49 percent.

Buying Amid a Pandemic

Despite a 2019 upswing in Melbourne’s office market, the outbreak of COVID-19 has emptied offices in the city and introduced fresh uncertainty to a once dynamic sector over the past few weeks.

In acknowledgement of this situation, Steinberg said that Dexus is “focused on business continuity” in the current environment, adding that he was pleased the JV was able to close the transaction within the targeted timeframe.

Prior to the pandemic, Melbourne’s low vacancy levels and rising office rents in Melbourne had made the city’s office sector increasingly attractive to investors.

“Rialto Towers is expected to benefit from the positive supply demand dynamics of Melbourne’s office market over the long term,” Dexus said in its announcement.

Rents climbed to A$655 per square metre per month in the last three months of 2019 – a rise of 1.6 percent compared with the same period the year before – while vacancy hit an 11-year low of 1.8 percent.

Encouraged by this positive trend, ARA Asset Management together with QuadReal Property Group just over one month ago closed on an acquisition of an A$330 million office development in the city – due to be the first investment from a value-add joint venture targeting office and logistics assets in Australia.