Dexus to pull trigger on $1.4bn deal for 80 Collins St

Dexus is readying to enter due diligence in what would mark one of the city’s largest ever property sales, which opens the way for the listed group to dominate the precinct in Collins St, as it also owns a nearby development site.

The race for the complex was one of the most fiercely contested in this commercial property cycle and will see the property trade on a yield at around 5% as investors bet that office rents will rise and interest rates will stay low.

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The race was brought to a head this week as Dexus, backed by a substantial offshore investor, edged out listed rival Charter Hall, which had the backing of Singapore’s GIC Real Estate.

Another prime contender, Mirvac, which was mooted to have tied up with Chinese sovereign fund CIC, bowed out last week as the battle for the mixed use property at 80 Collins St took its final shape.

The deal, likely to show an internal rate of return of about 8 per cent, is being closely watched not only as marker of a high point in the pricing of Melbourne’s best office towers but also of the confidence of well-connected market players like Dexus that the cycle has further to run, as a raft of new developments are in planning.

The site that Dexus is taking on is one of the country’s most complicated real estate assets. It encompasses an under-construction premium office tower, a 1970s skyscraper, and a proposed hotel and a luxury retail and restaurant complex.

The driver of the deal has been the ongoing desire of global capital partners to further their ambitions of local real estate, with groups targeting assets ranging from top end towers to suburban office parks and logistics holdings.

Charter Hall had been working with close partner Singaporean group GIC Real Estate, while Dexus has drawn interest from Korean funds, with sovereign fund NPS among its backers elsewhere in its portfolio, but Britain’s M&G and GIC are also on its platform.

Artist’s impression of 80 Collins St.

The sale has effectively set a fresh benchmark to underpin the development of a new wave of proposed office towers, which include one by Dexus, another by Charter Hall, and projects by Mirvac and ISPT.

QIC and the parties declined to comment but the developer has made strong progress in leasing the office tower and completing the project ahead of bids closing.

The complex has been marketed since last year after the Queensland government-backed funds manager decided to sell the precinct at the “Paris end” of Melbourne’s Collins St.

It tapped Rob Sewell, Simon Rooney, Nick Rathgeber and Leigh Melbourne of JLL and Ian Hetherington, Ben Azar and James Girvan of Savills to market the complex and they pitched it as having unique scale and diversity.

The sale of the project came after a decade of work by QIC, which first lodged plans to develop the area in 2008 as it capitalised on its ownership of empty plaza areas around the existing 52-storey tower at 80 Collins St, formerly known as Nauru House.

The new tower fronting Collins, Exhibition and Little Collins streets is slated to be finished in 2020. It will comprise both a next-generation, 43,000sq m premium-grade office tower and a significant refurbishment of the existing tower.

The QIC project came through the credit crunch and won key tenants ahead of rival towers. Multiplex is constructing the new building, which will have a blue-chip roster of tenants including investment bank Macquarie and consultants McKinsey & Company.

QIC is also drawing top luxury, beauty and lifestyle brands to the 5800sq m retail component, which includes a high-end food and beverage concept.

The proposed boutique 300-room hotel on the Little Collins Street side will be run by Singapore’s SilverNeedle under its NEXT brand.

This article originally appeared on www.theaustralian.com.au/property.