Chinese exit Grosvenor Place deal as Australian assets shunned

The retreat of Chinese investors from commercial property has been put on display as US group Blackstone snapped up a half stake in the $1.8bn Sydney landmark Grosvenor Place.

US group Blackstone snapped up a half stake in the $1.8bn Sydney landmark Grosvenor Place.

The retreat of Chinese investors from commercial property has been put on display as US group Blackstone snapped up a half stake in the $1.8bn Sydney landmark Grosvenor Place in a deal unveiled on Thursday.

The drawn out transaction came after months of negotiations prompted by Chinese sovereign fund CIC pulling back from a deal to buy the interest in the office skyscraper amid rising political tensions between Australia and its largest trading partner.

Chinese companies have been dumping their plans to expand in Australian real estate, with the pandemic prompting a rethink of some luxury hotel and apartment projects, and Beijing’s crack down on the sector also crimping their global ambitions.

CIC had agreed to buy the half interest in the tower last November from Dexus and its partner Canadian group CPP Investments. The deal appeared set to go ahead when its bid won approval from the Foreign Investment Review Board mid-year.

But the Chinese fund, which owns another quarter interest in the tower which is managed by Mirvac, indicated it did not want to go ahead, although its agreement remained on foot.

At the same time Dexus tested the interest of underbidders and found a willing buyer in Blackstone, which had been chasing a major Sydney office acquisition.

Dexus on Thursday said it had settled on the sale of the 50 per cent interest in Grosvenor Place, which comprises 25 per cent owned by Dexus and 25 per cent owned by the Dexus Office Partnership, in which ownership its split with the Canadian fund.

In a sign of the strength in the market, Blackstone settled the asset at $925m for the half interest, or $694m for Dexus, in keeping with the deal unveiled last November.

The dramatic move is one of the largest property plays this year and signals another Chinese exit, although CIC still holds its quarter interest in the skyscraper, which had been expected to sell to Blackstone.

Chinese selling spans a range of big hotels, apartment projects and office buildings as developers exit, partly due to the property cycle, but also as the global ambitions of Chinese real estate companies are reversed.
But the transaction also shows the strength of the Australian office market which has continued to flourish despite concerns about a relatively slow return to offices.

CBRE’s Flint Davidson, Simon Rooney and Stuart McCann and JLL’s Luke Billiau and Simon Story brokered the deal. The agents and parties declined to comment.

The settlement on the Sydney tower remains one of the marquee transaction in office skyscrapers in the wake of the coronavirus crisis and will still contribute to the fierce pace of office deal-making. The lion‘s share of the $6bn of towers that came on to the block in the second half are now sold or in due diligence.

The sale is considered a strong marker after Australia has been through repeated lockdowns but there was some discount attributed to short term leasing risks as Deloitte is shifting to Quay Quarter Tower.

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.

Grosvenor Place was 89 per cent occupied when it traded last year and had a weighted average lease expiry of 3.4 years The settlement showed the depth of demand for top grade offices even where they must win new tenants.

The Chinese sovereign fund picked up its initial interest in Grosvenor when it bought the Investa office portfolio for about $2.5bn in 2015 and handed management of some buildings to Mirvac. These other buildings were not involved in the current deal but the sovereign fund is undertaking a reweighting exercise on its portfolio, property executives have said.

CIC still remains a big investor in Australia and is a substantial holder in industrial property behemoth Goodman, which also has extensive business in China and Hong Kong.