Apr 5, 2020 – 4.11pm
Partnering with Singapore’s GIC, the country’s biggest office landlord, Dexus, has bought a half stake in one of Melbourne’s best-known skyscrapers, Rialto Towers, in a $644 million boost of confidence for the market.
Investment activity has dramatically slowed through the economic turmoil caused by COVID-19, with the Rialto deal standing out as the largest single transaction since the onset of the crisis.
The 55-storey Rialto Towers is a Collins Street landmark.
The joint venture formed between the Singaporean sovereign fund and Dexus has taken a 50 per cent stake in the tower, buying out the position held by the Kuwaiti-controlled St Martins Properties.
Within the joint venture, GIC holds a 90 per share while Dexus, led by Darren Steinberg, holds the remainder. Dexus will manage both the JV and the Rialto Towers complex.
Their co-owner is Grollo Australia, controlled by Rino Grollo and led by his son Lorenz, who has steadily extended the family’s footprint surrounding the Collins Street landmark.
At the time of its completion in 1986, the 55-storey tower at 525 Collins Street was the tallest building in Melbourne. It was built and developed by the Grollo family, with brothers Bruno and Rino later carving up their construction empire in 2000.
Around 18 months in the making, the final stages of the Dexus-led investment were finalised in the past few days despite the uncertainty of the times.
Because of that, the transaction sets a benchmark for prime office tower values. It has been struck on a fully leased yield of about 5 per cent. Weeks earlier, the deal was tracking around the 4.75 per cent mark, indicating Dexus chiselled a little off the final price in recognition of moderating leasing conditions.
It is expected the deal will be announced within days. Insiders say the transaction shows both Dexus’ willingness to look past the short-term volatility and how the value in top-end towers is holding up.
“It’s a huge vote of confidence both in the long-term viability and investability of the Australian core markets,” a senior source said.
The transaction harks back to a similarly significant deal during the depths of the GFC when South Korea’s National Pension Fund acquired a Sydney landmark, Aurora Place, for $685 million a decade ago.
At the time that exchange was a confidence booster as the largest direct-market deal since the GFC erupted. In a neat twist, Mr Steinberg was on the sell side then, through his previous role heading the property arm of Colonial First State Global Asset Management.
Dexus’ footprint on Collins grows
The Rialto deal gives Dexus commanding positions from one end of Collins Street to the other, on the old Hoddle grid, after it took control last year of a $1.5 billion mixed use precinct under development at 80 Collins Street.
With the Rialto deal in hand, the value of Dexus’ partnership with GIC rises to around $2.5 billion. Earlier this month, the deep-pocketed Singaporean government investment platform expanded its investment in Dexus-run industrial property fund.
The Rialto is about 90 per cent occupied, with vacancy to dip to 80 per cent in coming months. With supply in Melbourne already squeezed – and upcoming projects potentially slowed further – the Rialto may well benefit from incoming tenants.
There’s also an upside for the Grollos. Bringing in an active manager can help them realise value in the prime position on Collins Street that the family has spent years preserving.