Dexus, GIC pay $644 million for half share of Rialto Melbourne

Rialto Melbourne at 525 Collins Street has glittered 251 metres over the Yarra River since 1986.

Dexus and Singapore sovereign wealth fund Government Investment Corporation are paying Kuwait’s St Martins Property $644 million for a half share of the Rialto Melbourne complex.

The incoming owners will co-control 525 Collins Street with Grollo Group, which is directed by Lorenz Grollo, son of owner, Rino.

St Martins – also a sovereign wealth fund – and Grollo acquired the collection of properties which made way for the complex when forming their joint venture in 1981.

Robbs Building, developed in 1890 at the south east corner of Collins and King streets, was one of the structures razed to make way for Rialto Melbourne. The Bank of Melbourne office (below) is now in its place.

One of them, the five-level 1890 Robbs Building (pictured, right), hugged the south-east corner of Collins and King streets.

Another historic structure, which remains next door (497-503 Collins Street), designed by William Pitt, is also called Rialto.

The Rialto skyscraper was constructed between 1982 and 1986.

As part of a $100 million development in 2017, the owners added a low-rise office – now occupied by Bank of Melbourne – on the land where Robbs Building stood.

In 2017, a 3500 sqm office (pictured, front) and about 4500 sqm of multi-level retail area was constructed on Rialto Melbourne’s former forecourt – costing $100 million.

A retail component was also created three years ago – Mercedes Benz choosing this space to open its seventh global Mercedes me concept store.

In 2018, Grollo and St Martins acquired nightclub Inflation at 54 – 60 King Street – the last piece required to control the eastern side of the strip from Collins Street to Flinders Lane, which it had been amalgamating for years with the 525 Collins Street block.

This move, as well as creating more land to develop, ensured Rialto Melbourne’s office occupants would see west facing natural light.

However those renters won’t enjoy unobstructed views in that direction for long – with BPM constructing a 30-level hotel at the south west corner of King Street and Flinders Lane.

Last year, Charter Hall unveiled plans for a 34-storey office which will effectively block Rialto Melbourne’s western face.

This proposal will replace 555 Collins Street, on the south west corner of King Street – a site Charter Hall acquired in 2018 for $140 million following a public marketing campaign – as well as neighbouring 55 King Street, at the north west corner of Flinders Lane.

Also two years ago, Grollo and St Martins passed up the opportunity to buy 26-32 King Street, a five-level retail/office at the south east corner of Flinders Lane which traded for $11.98 million, again, following a public marketing campaign promoting the airspace development potential.

The landmark Rialto Melbourne

The Rialto Melbourne skyscraper is considered a design success – glass still a popular façade used on major commercial buildings proposed today.

Despite bursts in office vacancy levels since 1986, the complex has proven popular with occupiers, especially over the past 10 years.

Near the western edge of Melbourne CBD’s Hoddle Grid, leasing agents have marketed 525 Collins Street as being in “the centre of the city” since about 2005, when Docklands started becoming a significant corporate hub.

Rialto Melbourne’s shortest skyscraper, fronting Collins Street, known as North Tower, rises 43 storeys.

It is joined to a 58 level, 251 metre-high wing, South Tower.

When the complex was completed it was the tallest office in the southern hemisphere. For decades it was Australia’s highest skyscraper.

Between 1994-2009, the 55th level was fit out as an observation deck, shutting when Grollo configured a replacement at Southbank’s 92-level (297-metre tall) Eureka Tower.

Celebrity chef Shannon Bennett later moved exclusive eatery Vue De Monde (translated to ‘view of the world’) to the redundant observation deck space.

Rialto Melbourne contains more than 84,000 sqm of A-grade office area in the tower. A further 3589 sqm was created in the forecourt three years ago.

The asset has about 4400 sqm of retail too.

Price comes in above expectation, despite coronavirus

Ten months ago it was reported St Martins was touting its stake in Rialto Melbourne off-market.

At that time the pair’s investment was loosely valued at about $1 billion.

The Dexus/GIC deal prices it at $1.288 billion.

Importantly, the sale was concluded following March 20, 2020, when the coronavirus COVID-19 outbreak created its first economic upheaval in Australia and the majority of the world’s commercial airlines began to ground fleets.

Based on Rialto Melbourne’s rental return, Dexus and GIC’s $644 million deal reflects a c5 per cent yield.

GIC is tipping in 90 per cent of the acquisition price. Dexus will pay the balance, then manage it.

Dexus and GIC have a track record of investing in Australia: in 2018 the pair established a $2 billion industrial vehicle, Dexus Australian Logistics Trust, seeded with some of the former’s investments and building blocks.

Three months ago, GIC exercised an option to increase its stake in the trust’s investment portfolio from 25 per cent to 49 per cent.

GIC already controlled 49 per cent of DALT’s development pipeline.

Last August the Singapore group sold a half share in Sydney’s Chifley Tower to Charter Hall Group for $900 million.

Dexus’ Melbourne spending spree continues

Last month Dexus won approval to replace two buildings at the north east corner of Collins and Exhibition streets, with a Premium grade 26-level office.

In a significant deal, last May, Dexus paid $1.476 billion on a funds-through basis for a portfolio of investments at the north west corner of Collins and Exhibition streets, marketed as the 80 Collins Street collection.

Offloaded by QIC Global Real Estate, it included the 52-storey Nauru House office and an incomplete 43-level commercial building in front of it, cantilevered over the former Le Louvre boutique at 74 Collins Street. A hotel and shopping centre is also to be constructed.

In late 2018, Dexus paid the federal government $160 million for 60 Collins Street, the Reserve Bank of Australia’s local headquarters, on the north east corner of Exhibition Street.

At the same time it was bidding on that property, which was for public sale, it negotiated, off-market, to buy the neighbouring 52 Collins Street office from syndicate Marks Henderson for $70 million.

Last month Dexus won City of Melbourne approval to replace mid-rise buildings on both 52 and 60 Collins Street with a Premium grade (the highest quality) 26-level, 22,727 sqm office (pictured above, right) with 757 sqm of retail but just 36 car parks.

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Marc Pallisco

A former property analyst and journalist, Marc is the publisher of realestatesource.com.au.

Marc Pallisco