Things are heating up as the Australian summer approaches, with China’s sovereign wealth fund paying A$925 million ($674 million) to purchase a 50 percent stake in Sydney’s Grosvenor Place office tower in 2020’s biggest commercial property deal Down Under.
The sale of the stake in the 44-storey building to China Investment Corporation, commonly referred to as CIC, was confirmed by sources familiar with the transaction, and is seen as evidence of a reawakening of the office market in Australia’s largest city, after Australian commercial real estate transaction volumes fell by 43 percent in the first nine months of 2020 compared to last year.
“The Grosvenor Place transaction is significant, as it further solidifies Sydney’s appeal as a strategically important gateway destination for global investors,” JLL’s head of capital markets for Australia, Fergal Harris, told Mingtiandi. “This transaction also aligns with what we believe is a bottoming out of the APAC investment market in 3Q, as we’re now seeing more cross-border capital returning across the region.”
The Chinese sovereign wealth fund is making its purchase through two separate transactions, picking up a quarter stake of the tower at 225 George St from Aussie REIT Dexus and another 25 percent from the Dexus office partnership fund. Pending regulatory approval, the sale is expected to close early next year.
CIC already holds a 25 percent stake in Grosvenor Place. The remaining 25 percent is owned by Commonwealth Superannuation Corporation, according to data from Real Capital Analytics.
Sovereign Fund Reawakens
CIC, which had a reported $940 billion in assets under management as of 2018, is picking up the remaining slice of the 32-year old tower after it had originally acquired a stake in Grosvenor Place as part of its A$2.5 billion 2015 acquisition of Morgan Stanley’s Investa office portfolio.
Grosvenor Place had an 11 percent vacancy rate in June with some 60 percent of the leases (by income) expiring within the three years to November 2023. Key tenants at the building include consultancy Deloitte and car parking management firm Wilson Parking.
Australian property group Mirvac manages CIC’s real estate investments in Australia, while Dexus shopped its stake with the assistance of global property brokers CBRE and JLL.
The investment marks the reappearance on the real estate stage for CIC, which had gone largely quiet after a series of overseas acquisitions through 2018.
In June 2017 the fund landed what was then the biggest property deal of all time by buying Blackstone’s European logistics portfolio Logicor for $13.8 billion. CIC exited its longtime investment in Blackstone in February 2018, having bought a $3 billion stake in the NYSE-listed private equity giant in 2007.
COVID Clamps Down on Deals
According to a CBRE report released this month, Australian office sector transactions in the first nine months of 2020 were down 53 percent year-on-year, as several trades that were due to close pre-pandemic were put on hold. Most of those transactions are unlikely to be settled in 2020, CBRE said.
However, Stuart McCann, a CBRE broker who advised on the Grosvenor Place investment, sees the transaction as part of an encouraging trend in the market.
“The Grosvenor process uncovered several new offshore entrants to the Australian office market,” McCann said. “These investors are actively seeking strategic and long-term partnership stakes in core Sydney office property, a trend we see continuing as assets which have traditionally been tightly held continue to become available.”
The brokerage pointed to attractive yield spreads, historically low financing costs, relatively low vacancy levels and a resilient economy as appealing to offshore investors.
Recycling for a Better Future
“This transaction continues our asset recycling strategy, realising value for both Dexus and our Dexus office partner,” said Dexus chief investment officer Ross Du Vernet, announcing the deal in an 18 November press release. “The sale further strengthens our balance sheet and enables us to organically fund higher-return growth initiatives in our funds and development businesses.”
ASX-listed Dexus, which has 153 properties and A$32 billion in assets under management, plans to use the net proceeds, representing a roughly 5 percent discount to the property’s book value as of 30 June, to repay debt.
In its press release, the REIT manager noted that it lacks property management control of Grosvenor Place, a condition limiting the REIT’s ability to leverage its asset management platform to drive investment performance.
Last week’s transaction comes on the heels of A$803 million in recent sales for Dexus, including the A$273 million offloading of 60 Miller St, a 17-storey office tower in the North Sydney business district across the harbour from the CBD, earlier this month.
Other Dexus moves this year include several deals solidifying the REIT’s partnership with GIC, the Singaporean sovereign wealth fund.
In January, GIC acquired an additional 24 percent stake in Dexus Australian Logistics Trust (DALT), a joint venture of Dexus and GIC, for A$366 million, increasing the Singapore fund’s interest in the vehicle to 49 percent. In April, the two teamed up to buy a 50 percent stake in Melbourne’s landmark Rialto Towers for A$644 million. In July, DALT acquired two large sites in Sydney and Melbourne for a combined A$173.5 million to expand its logistics footprint.
DALT was formed in late 2018 with GIC initially holding 25 percent of the portfolio and Dexus holding 75 percent.
Note: The original version of this story overlooked the 25 percent stake in Grosvenor Place held by Commonwealth Superannuation Corporation. The story and headline have been updated based on the correct information.