Irongate Eyes Billion-Dollar Horizon in Value Add Industrial Play

Real estate fund manager Irongate has further expanded its industrial holdings to $350 million with four new assets across New South Wales and Queensland. “We’re bullish,” chief executive Graeme Katz says. And they have got some deep pockets and agile capital backing them. The fund manager is working in partnership with South Africa’s JSE-listed Burstone Group to acquire quality “unloved” sheds. It’s not their first time around the block . Irongate’s management team sold 37 assets in a listed REIT valued at $1.7 billion to Charter Hall three years ago. And they have their eyes on a similar prize. “We sold to Charter Hall. I think we had about $1.7 billion (in assets under management). There’s no reason why we can’t get there again in the next two or three years,” Katz says. “The capital backing that we have is encouraging. We’re careful not to take on mandates because you’re kind of pushed to invest your mandate. We aren’t driven by mandates, we’re really driven by the right opportunities. “[Mandates are] where people make mistakes because you either have to use it or lose it, then people use it and they end up blowing themselves up. “We’ve been around for 20 years and we’re not in the game of blowing ourselves up.” ▲ Irongate chief executive Graeme Katz says infill opportunities such as the Ingleburn acquisition pictured are providing competitive advantage. In Queensland the fund has bought up a 9.7ha site at South Pine Road, Brendale, for $63.8 million, with a gross lettable area of 31,738sq m and a 3.7-year WALE, as well as the Interchange Industrial Estate at Narangba for a reported $76 million. The 10ha site ( pictured at top ) has a gross lettable area of 34,382sq m with tenants including Bunnings, Apex Building Products, Cleanaway, Liquid Specialty Beverages and Avante. Further south in western Sydney, Irongate acquired a 4ha site at Williamson Road, Ingleburn, for $62 million, and a state-of-the-art cold-storage facility at Minchinbury for about $66.5 million, which Katz says they have bought up on a fund-through basis. It is the first cold-storage facility Irongate has added to this tranche of assets but not their first experience with this niche asset class. Katz says the assets are all in premium infill locations and value-add opportunities with access to good power supply. “Sydney value add is land to expand and add value to an existing tenancy, either for existing tenancies or bringing in new tenants,” he says. “Site coverage is very important for us, as is power, that’s a consistent theme amongst all our sheds, and we’re not afraid of manufacturing.” While industrial asset managers are chasing shorter weighted average lease expiries (WALE) in the current market, with strong rental growth in their sights, Katz says the long WALEs will return. “The long WALE story is really a function of cost of capital, cost of debt, and your margins. And that will come back,” he says. “We can’t and won’t compete with the bigger guys doing the sheds, with long WALES and lazy balance sheets. “If we do find a niche in the market or if we do find a specialised asset, such as the cold storage we have in Minchinbury, we will go for it. This is an opportunity to get in well below replacement cost with an existing tenant with a 10-year lease. That’s certainly something we could roll out and get some scale in that sector.” ▲ The fund manager is bullish on the Queensland industrial infill market where it acquired a 9.7ha site at South Pine Road, Brendale, for $63.8 million. Katz says the tax landscape in Victoria has made it “uninvestable” but Irongate is confident in the Queensland story. “We think there’s still growth there. We like the infrastructure story, we like the fact that people are still moving to Queensland and there’s good growth. “The problem for Queensland is the construction cost and the availability of good quality builders. “So if we could buy an existing shed well below land and replacement cost with an opportunity to increase rents in time, we think we’ll do very well out of Queensland.” Katz says the fund remains focused on acquiring infill sites because it’s a “competitive advantage”. Irongate does not own large swathes of land and Katz says that means there is no incentive to develop or compete with groups who have held sites for a long time. “We have the ability to buy assets at below land and replacement costs and work the assets hard and work out the most efficient scheme for industrial sites—we think there is still value there,” he says. But, Katz says, there’s always competition. “Looking back 15 years ago we bought the Walker industrial property portfolio at a 9 per cent yield with a 10-year lease. It was still competitive in those days, people were just chasing long WALE,” he says. “That’s when we transitioned because it’s too competitive and heated and we looked more at the value add space. “There’s always a market. Australia is a sophisticated market with generally good operators but there’s still the question of offshore capital appetite for Australian industrial property. “The space we play in, looking at the mid-teen returns is competitive.” It’s not a quick play though. Katz says Irongate is driven by capital and the assets are held in separate vehicles. “You would have to think you’d be wanting to hold most of the asset plans around four or five years as a minimum hold. And then we’ll look to see where that takes us.”

Irongate Eyes Billion-Dollar Horizon in Value Add Industrial Play

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