Dexus defies coronavirus challenges with $2bn in office sales

The office titan is bullish on a market recovery but has been swamped with lucrative offshore offers.
The office titan is bullish on a market recovery but has been swamped with lucrative offshore offers.

Property group Dexus could take its dramatic property sell-down to around the $2bn mark as it fields offers for a one quarter slice of Melbourne’s landmark 80 Collins Street development that it picked up last year in the city’s largest ever direct property deal.

The Collins Street project is one of the city’s largest and comprises an existing 47-level A-grade office tower, a premium grade office tower that will rise 35 levels, a major retail podium and a boutique hotel.

Dexus and its wholesale fund snapped up the entire development for close to $1.5bn last year and are finishing it off. The company has undertaken value-adding plays like winning law firms HSF and Ashurst as major tenants, adding to a roster including Macquarie Bank, McKinsey & Company and DLA Piper.

The behind-the-scenes offering has been prompted by approaches to the company since it bought the project in May 2019 and bringing capital partners into the deal was on the cards even at that time.

The move will test the Melbourne market but indicates that top-quality office buildings are trading even amid broader concerns about the city’s second lockdown and a wave of new towers that could add to supply at a time when leasing markets are all but frozen.

The Darren Steinberg-led company has been an active seller and last week secured Chinese sovereign wealth fund China Investment Corporation as the preferred party to buy a half interest in Sydney landmark Grosvenor Place.

Industry players suggested similar-sized players would chase the Melbourne asset and noted the company’s close ties with Singapore’s GIC Real Estate, although its interest could not be confirmed. In April, GIC provided the bulk of the firepower for Dexus to buy a half stake in Melbourne’s Rialto Towers for $644m.

Dexus has also defied pandemic-related concerns to sell top-quality assets, and this week its largest managed trust, Dexus Wholesale Property Fund, sold a Melbourne building to German group Deka for $440m.

That deal, brokered by Rick Butler and Luke Etherington of Cushman & Wakefield, was struck at an 11 per cent premium to its last value, showing top buildings have held up, even during the pandemic that has seen Melbourne locked down again, as global demand for local offices remains strong.

The strength of offshore demand is on display in the CIC deal in Sydney as it is in talks to buy a half interest in the building for close to $1bn. This would be a discount to pre-crisis offers but the latest deal, bring brokered by CBRE and JLL, reflected the movement in leasing and capital markets, sources said.

Dexus has won interest in other buildings and secured a prospective buyer for its Miller Street tower in North Sydney for about $260m. Hong Kong group Huge Linkage is chasing the office block. In June, Dexus sold 45 Clarence Street in the Sydney CBD to Singapore-based funds manager Peakstone for $530m.

Dexus shook up Melbourne’s office market when it bought 80 Collins Street development from QIC Global Real Estate for about $1.48bn in the city’s largest ever trade. It took a 75 per cent interest, and the unlisted DWPF took 25 per cent.

The trust then tapped the market for $900m via an institutional placement. Dexus originally had interest from UniSuper as a potential backer, as well as from other local and global capital partners, but the attractive metrics led it to place the bulk of the purchase on balance sheet.

The company declined to comment on renewed interest in the asset.

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