Dexus deal to control 1 Bligh Street tower in Sydney CBD
Property major Dexus has taken full control of a $1.1bn tower in Sydney’s CBD after setting up a funds management alliance with a Singaporean company.
Property major Dexus has taken full control of a $1.1bn tower in Sydney’s CBD by setting up a new funds management alliance with a Singaporean company that will take a one-third interest in the building.
The deal, foreshadowed by The Australian, will see the Singaporean company team with Dexus to buy the interest in the premium 1 Bligh Street property from super fund-backed Cbus Property.
The move comes as Dexus also seeks to merge its main wholesale fund with a $4bn AMP Capital-managed trust, backing its push into funds management.
Office trusts have rebounded from their February lows as more certainty returns to the market.
Large developers like Lendlease say that top companies are chasing modern towers built for life after the crisis. But there is short-term pain as governments and the private sector seek to get workers back to their desks after a sluggish return this year.
Low occupancy rates have prompted widespread fears about lower-grade buildings not being able to keep tenants and being hit with rent reductions as cities struggle to regain momentum amid an excess of space.
But the top end of the market is showing resilience even though the first quarter of sales has been relatively subdued, falling short of initial hopes of a strong bounce-back from the coronavirus crisis.
Savills Australia and Cushman & Wakefield brokered the Bligh Street transaction.
Agencies are preparing for a busier second quarter when more office buildings are expected to hit the market.
Bids are in for a $1bn portfolio of office and industrial assets being offered by insurance company Swiss Re, and funds manager Nuveen is selling a half-stake in 101 Miller Street and the Greenwood Plaza in North Sydney.
Big purchasers appear to be waiting until leasing markets are more settled before committing, although that has not deterred some who want to get in early. Funds group AEW snared 505 Little Collins Street in Melbourne from a Credit Suisse fund in a deal finalised last week.
Dexus set up the Mercatus Dexus Australia Partnership joint venture with Singaporean funds group Mercatus Co-operative, which will buy the stake in 1 Bligh Street for $375m.
Mercatus will provide the bulk of the capital, holding an indirect 90 per cent share in MDAP, with Dexus holding 10 per cent.
The deal is a pointer to the interest of Asian groups in buying Australian offices, and the venture is structured to enable additional office acquisitions in the future. Dexus is the investment manager of the venture and will continue managing 1 Bligh Street.
The move means the ownership of Bligh Street is split between Dexus, its flagship wholesale fund, and the venture, so the listed firm’s ownership interest will rise to about 36.66 per cent.
“This transaction demonstrates the ongoing strength of demand from international institutions for high-quality Australian office asset exposure under Dexus platform management,” Dexus chief executive Darren Steinberg said.
Dexus executive general manager, funds management, Deborah Coakley said the purchase was the first by Mercatus in direct real estate investment in Australia.
1 Bligh Street is a premium-grade, 29-storey building in Sydney’s financial core. The property is 99.5 per cent occupied with a weighted average lease expiry of 5.4 years.
Cbus Property chief executive Adrian Pozzo cited the company’s strong relationship with Dexus, as the pair co-developed 1 Bligh Street and also co-own 5 Martin Place, also in Sydney’s CBD. “This transaction forms part of our ongoing strategy to recycle capital into our future investment and development portfolios, and to pursue other major opportunities for the business across Australia,” he said.
“The sale pushes our premium portfolio WALE to well beyond 10 years, with a government covenant of approximately 50 per cent, strengthening our overall group portfolio position.”
Cbus Property has a development pipeline with a completion value of about $4bn, including commercial projects at 83 Pirie Street in Adelaide’s CBD and 435 Bourke Street in Melbourne’s CBD.
It is also undertaking residential projects including 111 & 121 Castlereagh Street in Sydney’s CBD.
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