CIC boosts Grosvenor Place stake as sale trumps China tensions

China’s sovereign wealth fund has won approval to boost its stake in Sydney’s landmark $1.85bn Grosvenor Place.

Chinese investment into commercial property had slowed to a trickle ahead of the Grosvenor Place deal.

China’s sovereign wealth fund has won approval to boost its stake in Sydney’s landmark $1.85bn Grosvenor Place in one of the most significant Foreign Investment Review Board approvals of the year.

The long-awaited approval is understood to have been granted to the China Investment Corporation ahead of the end of the ­financial year although the massive commercial property deal will not settle until mid-July.

The approval comes amid deep political and trade tensions that have broken out between Australia and its largest trading partner, and one-time dominant property buyer.

Chinese investment into commercial property had slowed to a trickle ahead of the deal, partly driven by China’s own clampdown on hot capital flowing out of its borders in 2017.

Beijing also deterred spending on luxury hotel and apartment projects in foreign capitals and prompted high-profile groups to unload assets, including Dalian Wanda and HNA, both of which sold assets in Australia.

Federal government scrutiny also increased in the wake of the coronavirus pandemic, when rules were tightened to review all deals to ensure that assets were not sold off cheaply as the pandemic broke out, although little distress emerged.

Since then the government has lifted the zero-cap limit on FIRB deals and scrutiny has ­focused on assets with exposure to data flows or other national ­security implications.

The CIC deal is also a watershed for commercial markets, which have quietened across major central business districts during recent lockdowns but are expected to spring back to life when the lockdowns end.

The building stake was sold by listed companies Dexus and partner Canada’s CPP Investment Board at a discount of about 5 per cent to book value, reflecting the impact of the coronavirus crisis.

The fall is in keeping with expectations the country’s best towers will suffer a dip in value but avoid the cataclysm initially feared when the pandemic broke out in Australian cities.

The transaction, brokered by CBRE and JLL, had long been in front of the FIRB and there were concerns as it navigated the system as political tensions with China over trade and security ­increased.

The office asset was not viewed as controversial partly because the Chinese sovereign fund already owns a quarter stake in the building.

The deal was flagged by The Australian last September when CIC edged out rivals in the contest for the interest in the tower, in one of the first signs that international players would back the ­recovery of the nation’s office markets.

The Chinese fund picked up its initial interest when it bought the Investa office portfolio for about $2.5bn in 2015 and handed management of some buildings to Mirvac. It also holds other passive property investments.

Dexus put the stake in the prime Sydney tower on the block in July last year and the deal effectively set a benchmark for more recent transactions.

Dealmaking on high-quality office towers is picking up as corporate Australia shifts back to work and buyers are targeting premium assets on the block in the wake of the coronavirus crisis.

The George St 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.

Sydney has taken a hit in the latest lockdown but the tower is winning tenants, including Ord Minnett, which has taken a lease of more than 3500sq m in the Harry Seidler-designed tower.

CIC’s confidence in the market is on display as it will face some vacancy, as anchor tenant Deloitte departs for a new tower being developed by AMP Capital.

Dexus had an economic interest of 37.5 per cent, with the Canadian group at 12.5 per cent, in Grosvenor.

Dexus declined to comment on the deal.