Melbourne’s Rialto valued at $1.3bn as half stake sold
Two of the best known names in property, the listed Dexus and Singapore’s Government Investment Corporation, are teaming up to buy a half stake in Melbourne’s Rialto complex in a deal that values the twin tower skyscraper at about $1.3 billion.
The $644m acquisition will see them own the building alongside the Grollo Group controlled by Rino Grollo, of the famed construction family that built the tower with the backing of Kuwaiti-backed St Maritns Properties.
The purchase is a shot in the arm for the office tower market, indicating that values at the very top end are likely to hold despite the coronavirus crisis.
Grollo Group is run by Lorenz Grollo, a cousin of Daniel Grollo, who runs the Grocon development empire, and the Middle Eastern fund has sold its half interest in the iconic building after owning it for more than three decades.
While a slight price reduction could be attributed to the crisis, the interest will change hands on a fully leased yield of about 5%. Before the crisis it would have traded at a slightly tighter level than but the deal will give valuers confidence about office towers.
The transaction indicates the top tier of real estate investment trusts and property fund managers will come through the crisis despite the sector’s dramatic fall from grace, which has been driven by plunging shopping centre income and asset values.
Although GIC will account for about 90% of the equity, Dexus, which will contribute the remainder, will become manager of the entire asset, in which the Victorian government has a major presence.
GIC has close ties with Dexus and this month settled a deal to boost its stake in a $2bn logistics property trust the listed group runs to 49%.
Dexus will also work closely with Grollo Group on rounding out the precinct in future as it effectively controls the entire city block.
Meanwhile, retail landlords are locked in talks with their tenants, as Prime Minister Scott Morrison has come down on them to hasten the striking of a national code that will split the pain of store closures more evenly between malls and retailers.
Even city retail centres are not immune with Emporium Melbourne closing at the end of Sunday trading, except for essential services, as 90% of retailers had already shut.
The Melbourne transaction is one of the largest globally and a sign that international capital will chase Australian commercial property notwithstanding new Foreign Investment Review Board rules designed to clampdown on offshore vulture funds picking up distressed Australian companies on the cheap.
The appetite for generational Melbourne properties has already been put on display with David Jones’ South African parent, Woolworths Holdings close to selling the site of its menswear store to Newmark Capital for about $120m.
The two transactions indicate the blue chip end of the property market will remain keenly contested even as lower grade assets face pressure from tenants asking for rental reductions.
The deal has been underway from some time and the Australian reported last May that Dexus was working on the plans. The company has bolstered its presence in Melbourne and last year snapped up the near $1.5bn 80 Collins Street complex from QIC Global Real Estate.
The Rialto Towers skyscraper at 525 Collins Street, in the western side of the central business district of Melbourne, was the tallest office building in the southern hemisphere when it was built in the early 1980s.
Grollo Australia picked up the site in 1981 in a joint venture with St Martin’s Properties and then developed the landmark site on the corner of Collins and King Streets. The Rialto complex consists of two interconnected towers, North and South, with rooftop floors at Level 41 and Level 58 respectively.
More recently, Grollo Group and St Martins Properties venture poured $100 million in a world-class design and regeneration of the famous precinct. The Rialto regeneration project was completed mid-2017 and the pair have since expanded the site’s footprint, and Dexus could drive further expansion in coming years.
The Singaporean sovereign wealth group is a long-term investor in Australian offices and shopping centres and has been shaking up its local property holdings. It sold a half a stake in Sydney’s $1.8bn Chifley Tower and Plaza to Charter Hall last year.
This article originally appeared on www.theaustralian.com.au/property.
