Commercial bargains put real estate deals back on the agenda

Property fund managers are capitalising on the downtrodden commercial market, launching countercyclical funds and taking over the management of unlisted trusts. With the property cycle at a low point for traditional assets, more groups are looking to swoop on bargain properties and even whole trusts.

Big deals already in train include Quintessential Equity buying a tower in Brisbane for $257m and, in Melbourne, Bayley Stuart going into due diligence to buy a Bourke St building from Swiss institution AFIAA for more than $120m.

Others, like property fund manager Castlerock, are looking to restock the balance sheets of their funds. It has just kicked off a $30m-plus capital raising as it gears up for new acquisitions in its $526m Castlerock Government Property Fund.

The unlisted trust has 13 high-quality state and commonwealth government-leased assets in five states across Australia.

Castlerock is now completing a $60m, five-level office building in the southern Melbourne suburb of Frankston which will be leased by the Victorian government, and it is now chasing fresh opportunities.

“We are consistently exploring future opportunities for acquisitions or development of premium government-leased properties across Australia, with the aim of providing our investors healthy distributions and growth potential,” Castlerock director Adam Bronts said.

Others are capitalising on the dislocation.

Fund manager Centuria Capital has just launched a new $50m vehicle that has bought an industrial site in Melbourne, while a venture formed by ex-APN property executives has taken on the management of a fund run by Australian Unity.

Centuria Capital has raised $50m of equity from local wholesale investors to capitalise on non-core divestment opportunities for its unlisted Centuria Select Opportunities Fund. It will roll out a countercyclical strategy across a range of property and real estate finance sectors over the coming 15-month period while markets are still under pressure.

It has been seeded with a $20.6m industrial logistics facility in southeast Melbourne’s industrial heartland of Keysborough, where vacancy rates are below 1 per cent.

“We are looking at high-quality assets that can provide value-add opportunities such as positive rental reversions, as is the case for the Keysborough investment. We are also looking at industries with strong tailwinds that lend themselves to supply-demand imbalances and growth opportunities,” Centuria joint chief executive Jason Huljich said.

Centuria joint CEO Jason Huljich.

He said the fund was positioned to capitalise on attractive medium-term market opportunities and was also targeting direct and indirect investments that suited the group’s capabilities. The property it is buying is a logistics facility in Pacific Drive in the Melbourne suburb of Keysborough, which can be repositioned.

CBRE’s Andrew Bell and Chris O’Brien brokered the deal.

At the fund level, Australian Unity is selling its stake in and the management of the $520m Diversified Property Fund to a new specialist manager, ASA Real Estate Partners.

That company was set up by former executives of APN Property and Dexus, Chris Aylward, Tim Slattery and Alex Abell. ASA will provide some liquidity for investors in the fund.

ASA managing partner Tim Slattery said the company had a compelling value proposition for the management of the fund it would take on. “We believe the DPF portfolio provides a strong foundation to navigate the current environment and generate value for unit holders.”