Melbourne CBD fights back with $440m office sale
The nation’s surprisingly strong run of office deals is rolling on with German group Deka snapping up an office tower being sold by a Dexus managed fund for $440m.
The deal was struck at an 11% premium to its last value, showing that top buildings have held up even during the pandemic that has seen Melbourne locked down and global demand for local assets remains strong.
The strength of offshore demand has been displayed with Chinese sovereign wealth fund China investment Corporation in talks to buy a half-stake in Sydney’s Grosvenor Place for close to $1bn.
The unlisted trust that sold the Melbourne asset, Dexus Wholesale Property Fund, is one of the best performers in its area and is making a play for a rival fund controlled by AMP Capital.
If a proposed merger goes ahead it would create a vehicle with about $15bn worth of assets, and investors supportive of Dexus have noted its superior performance.
For Deka, the purchase is a sign of its confidence in the local market in which it is already a big player. The group picked up a Brisbane tower earlier this year for $380m and holds buildings in other parts of Australia.
The sale to the German investment house was handled by Cushman & Wakefield’s Richard Butler and Mark Hansen, with Luke Etherington and Sunny Patel on the ground in Melbourne.
Deka also owns the adjoining 15 William Street.
Butler said the deal was a first step in the post-COVID-19 market.
Deka will have three active mandates as soon as the current restrictions are lifted.
The trade of the 22-level, A-grade office tower in the Melbourne CBD shows the steep rise in commercial property values over the last decade.
It was acquired by DWPF in 2011 for $194m and substantially refurbished. “This transaction reflects our continued focus on maximising value for investors,” DWPF fund manager Michael Sheffield said.
“We remain committed to driving investment performance through active management and this transaction is a great example of our approach.”
The property delivered an unlevered total return of 24% per annum over the past two years following a major foyer refurbishment and significant leasing success. At 30 June 2020, the property was fully occupied and had a weighted average lease expiry of 6.3 years.
The sale was negotiated following an off-market campaign with interest from a number of parties around the sale price, including Singapore’s Keppel Capital. The transaction is expected to settle in mid-November and is subject to the purchaser receiving FIRB approval.
Proceeds of the sale would initially repay debt with capacity to recycle into higher-returning opportunities, DWPF said.
This article originally appeared on www.theaustralian.com.au/property.