[+] Irongate Finds Infill Niche in Overheated Industrial Sector

They already have proof of concept but Irongate has launched its latest industrial property fund with a laser focus on low-risk infill sheds with large landholdings. Irongate chief executive Graeme Katz says “boring is the new sexy … property is a simple game, it doesn’t have to be complex”. And it will be those basic fundamentals that will apply to its industrial assets as it unlocks value-add opportunities and looks to rental growth. While industrial was once a secondary asset class, there is no denying its value in the current market. Vacancy rates remain at close to historic lows, and coupled with a lack of uncommitted supply, there continues to be upward pressure on rents. Sydney shed acquisition seeds infill strategy Irongate launched its latest industrial fund with a seed acquisition of a Smithfield shed for $57.25 million in Sydney where the vacancy rate hovers around 0.2 per cent. It’s a strategy that is familiar to the group after it sold its Irongate REIT to Charter Hall this year. The Irongate Industrial Property Fund is the first the group has launched since it completed a management buyout this year. Katz says they are focused on carving a niche within the industrial sector, focused on existing assets rather than competing with the bigger REITs, which he says are more focused on “funding their development pipeline”. “We think we can extract higher value from these assets,” Katz says. “We’ve got to look for competitive advantage and it’s not competing with the Goodmans of this world. “We believe [the Smithfield asset] is significantly under-rented. It’s an asset that needs some attention but it’s not going to be difficult to bring it to a [better standard]. Smithfield has large land holdings in a tight land market with developable land and less site coverage.” ▲ Irongate chief executive Graeme Katz believes there is value add opportunities in B-grade industrial assets across the eastern seaboard. Degearing in industrial in 2024 The Irongate Industrial Property Fund will look to infill sites with large land holdings. The Smithfield shed was acquired for below land-and-replacement costs. Katz says these assets are often underutilised, income-generating properties with strong positive rental reversion. “Next year is going to be a year of opportunity more than anything else … we have to stay close to the market to find the deals,” Katz says. “People can’t just rely on cap rate compression anymore, you need to do a bit of work (to get uplift). “Time costs you money and nobody can tell you what the costs are going to be in 18 to 24 months. We like to deal with things that [provide income]. It helps with returns.” Katz says he is expecting more “degearing” from the highly geared REITs in 2024, which he says presents an opportunity for Irongate. “They’ve said they’re focusing on shiny, newer stuff, we’re happy to take advantage of assets on the market where there’s degearing or they need liquidity and money hasn’t been spent on them. “We have had experience in buying from REITs in office or industrial in their B-grade assets.” ▲ Irongate is involved in the redevelopment of the iconic Younghusband site, which Katz says is the rebirthing of an old shed. Growth opportunities for fund Irongate will be active “where the opportunity arises” in major metropolitan areas. Uncertainty around interest rates had underpinned Irongate’s thesis for investing in value-add opportunities according to Katz. “We’ll just focus on value. We have a mandate to grow the fund … [but] we’re not going to spend money for the sake of filling our socks. “I don’t think you’re going to see the same rental growth in industrial and logistics that we’ve seen in the past few years. I think rental growth will grow with CPI. You won’t see runaway rental growth. “But I think there will still be very strong value in infill markets.” The latest fund will be managed by Irongate with seed funding from Irongate and its partner, the Johannesburg-listed Burstone Group (formerly Investec Property Fund). The fund has acquired its seed asset at Smithfield alongside co-investment from APAC-focused private equity real estate investment group Phoenix Property Investors. This investment marks Phoenix’s second in Australia in its Phoenix Pan Asia Core Plus Investments Fund. The adjoining properties at 338-350 Woodpark Road and 1 Dupas Street, Smithfield, have a combined land area of 33,988sq m and a total net leasable area of 17,546sq m across eight buildings. The fund is also looking to Brisbane and Melbourne where industrial land supply is limited. Phoenix head of Australian investments Trent Winduss said they were “strong believers in the Australia market and the industrial sector”. “We look forward to adding to the portfolio by acquiring future assets together.” ▲ Irongate in partnership with Frasers is developing the Bradmill site at Yarraville in Victoria. Irongate’s portfolio is valued at well over $2 billion and includes the $1-billion redevelopment of Younghusband in Melbourne’s inner west, along with multiple joint ventures with Frasers, including the Bradmill site at Yarraville, which is due to be launched early next year. Katz described the Younghusband project as a “great rebirthing of an old shed”, and more may be in the pipeline for the undervalued sheds of Australia’s eastern seaboard. You are currently experiencing The Urban Developer Plus (TUD+), our premium membership for property professionals. Click here to learn more.

[+] Irongate Finds Infill Niche in Overheated Industrial Sector

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