Grosvenor Place has been snapped up by a Chinese sovereign fund.
An offshore group has swooped on a half stake in Sydney’s landmark Grosvenor Place in a deal valuing the entire tower at about $2bn, as international players back the recovery of Australia’s office markets.
The deal is yet to be finalised but Chinese sovereign wealth fund, China Investment Corporation, which already owns a quarter stake in the tower, is believed to be behind the play.
The sovereign fund picked up the interest when it bought the Investa office portfolio for about $2.5bn in 2015 and handed management of some buildings to Mirvac. It also holds other passive property investments.
Property group Dexus put a stake in the prime Sydney tower on the block in July and the deal is understood to have been struck at close to pre-crisis levels, setting a benchmark for more transactions to follow.
Deal-making on high-quality office towers is picking up as corporate Australia gets back to work and buyers are targeting premium assets that are coming up in the wake of the coronavirus crisis.
While the disruption is ripping through the lower end of the market, the top buildings in Australia are garnering strong interest from buyers keen for an exposure to an expected recovery once the office market comes through its present dip.
Sydney is Australia’s gateway city and has taken a hit as international tourism ground to a halt. Business has been hampered as top firms have yet to call back all their workers and some will cut back space as the recession bites.
However, the global pension funds that set the pace for commercial real estate valuations bid heavily on the Grosvenor Place half interest, betting that Sydney would be one of the first cities to come out of the downturn.
Property developers are also hoping to spark new projects and benefit from longer-term shifts in the economy by building smarter towers, with their values supported by low global interest rates, a flight to real assets and the country’s strong performance in managing the coronavirus pandemic.
Notably, software company Atlassian is developing a $1bn office project in a tech precinct next to Sydney’s central station, and Dexus is favoured to take a half stake in the ultra-modern timber building.
The confidence of the Grosvenor Place interest’s buyer is on display as it will face some vacancy, as anchor tenant Deloitte departs for a new tower owned being developed by AMP Capital.
The deal has broader implications as buyers that missed out may chase some of the country’s best office stock in the wake of the coronavirus pandemic, and more top-end deals are in the offing.
Dexus tapped real estate agents CBRE and JLL to offer the slice of the building, which it holds with the backing of the Canada Pension Plan Investment Board.
A Dexus-controlled trust owns a half-interest in Grosvenor Place. It has an economic interest of 37.5%, with the Canadian group at 12.5%.
China Investment Corporation, advised by Mirvac, and funds manager Arcadia, which manages for a trust, each hold a one quarter interest. The owners worked together to upgrade the plaza of the Harry Seidler-designed tower in recent years.
The George Street skyscraper sits on a major site adjoining Circular Quay, in the northern part of the Sydney CBD, and the complex has 44 levels of prime office space.
The offer was the largest commercial property offering of the year and came after Dexus received approaches from other offshore groups before the crisis.
The outcome of the Dexus process is likely to provide further support for the argument of top landlords that office values have held at the premium end of the market.
The company in June sold a long-held Clarence Street office block in the Sydney CBD for $530m — its December book value — to Singaporean investment group Peakstone and flagged a 1.5% dip in office valuations.
“Our high-quality property portfolios were in a strong position as we entered into a period of uncertainty driven by the onset of the COVID-19 pandemic, with their high occupancy levels, diversified tenant base, and limited new supply coming online in our key office markets,“ Dexus chief executive Darren Steinberg said after that sale.
Dexus, Mirvac and the agents have declined to comment on the Grosvenor process and CIC was uncontactable.
