On the move: Logistics funds strike fresh deals
Top international funds are striking fresh deals in the country’s hot logistics sector with a renewed focus on inner-city sites directed towards last mile delivery services.
Big funds ranging from Canadian giant Brookfield Asset Management to Cadillac Fairview, the real estate arm of Ontario Teachers’ Pension Plan, are snapping up properties along the eastern seaboard.
The nimble operators they are backing, including boutique funds houses Centennial and Gateway Capital, are seizing well-positioned sites that will become the next generation of prime industrial assets.
Centennial and Brookfield have revealed ambitions of creating a $700m specialist industrial and logistics fund targeting sites that are benefiting from the revolution sweeping the sector.
Gateway Capital is also advancing after in April unveiling Cadillac Fairview as an initial backer of its planned $1bn specialist vehicle, and is targeting its first property acquisition in suburban Melbourne to accommodate a major facility. The two are at the vanguard of the nimble footed operators that are targeting the inner-city infill sites that are being transformed to service e-commerce operators.
Centennial has won backing from Brookfield’s private real estate fund unit as it rolls out its strategy in the mid-space urban logistics sector.
Brookfield’s real estate secondaries business is teaming with Centennial on its new $700m Enhanced Value Partnership, which will recapitalise existing Centennial assets and provide further capital to grow a major portfolio in Australian infill logistics, which has some of the lowest vacancy rates in the world.
Centennial has put four seed assets into the new fund, recapitalising three distribution centres in Brisbane and Melbourne, and an industrial park in Brisbane’s tightly held Australia TradeCoast precinct. The properties are fully leased and span a combined gross lettable area of 48,400sq m, and are well-positioned to capture rental growth via redevelopment and active management.
The Australian group is committed to the plan, with up to $60m to be invested by Centennial principals and its existing private clients.
Centennial CEO, industrial & logistics, Paul Ford said the partnership’s strategy was based on selecting niche, mid-sized or underperforming assets in urban, supply-constrained markets that were generally overlooked by larger institutions due to scale requirements and management intensity.
The partnership will target estates and buildings comprising tenants of 1000sq m-10,000sq m in established inner-ring and land-constrained markets, which are typically valued at $10m-$75m after they are stabilised and or redeveloped.
“The partnership has been created to capitalise on continued tailwinds for the sector such as the continued growth in e-commerce, improvement in customer service models and material levels of existing building obsolescence,” Mr Ford said. “Underscoring the strong fundamentals for the logistics sector is that Australia has the lowest vacancy rate in the world at just 0.6 per cent.
“When you add factors such as Australia’s population being expected to grow by 4.2 million by 2032, e-commerce penetration levels and delivery models well below global peers and severe supply constraints, we only see continued outperformance for true last-mile, inner-ring warehousing and logistics markets.”
Brookfield managing director Marcus Day, who oversees the firm’s real estate secondaries business, said the transaction with Centennial gave the company additional exposure to Australia’s dynamic last-mile logistics sector.
“Our partnership with Centennial is an exciting opportunity to recapitalise an existing high-quality logistics portfolio and pursue attractive urban infill acquisitions in the strongest industrial markets in the country,” Mr Day said.
Brookfield has similar strategies in North America and Britain, and Mr Day called out the tightly held nature of Australia’s east coast markets.
“We expect the next few years to provide attractive opportunities in the logistics sector for well capitalised investors,” he said.
Centennial CEO Adrian Taylor said the partnership with Brookfield allowed the firm to invest in high-quality assets over the next two years, which would take it to about $3bn of assets under management.
Big institutions are chasing an exposure to this new breed of prime assets. Rather than massive facilities on city outskirts, infill facilities can hit customers in just 30 minutes as e-commerce operators demand more timeliness. Some landlords are also selling long-held sites that are ripe for overhaul. At the same time, the new breed of operators are winning investors as they can access dramatically higher rents on new warehouses, while some larger facilities are stuck on lower rents for long periods.
Active players are expanding with Gateway Capital going into due diligence on the Axxess Corporate Park in Melbourne’s southeastern suburbs in a deal worth more than $300m. It is being offloaded by Dexus at a premium to book value, industry players said.
Axxess sits in the heart of Mount Waverley’s hi-tech office and warehouse precinct, and the 19.6ha corporate estate has development options for a new last-mile facility.
Gateway has been hunting for properties, unveiling the $1bn partnership with Cadillac Fairview, which is focused on urban core plus, value add and development assets on the east coast markets.
Cushman & Wakefield is brokering the deal, but the firm and the parties have declined to comment on the deal.
“We continue to see attractive investment opportunities in the urban industrial and logistics markets across the east coast of Australia, particularly for groups who are focused on creating core assets through active management and development,” Gateway Capital chief executive Stuart Dawes said.
He did not comment on investing but noted there was also strong demand from traditional industrial and logistics users.
Others are also active. Urban Logistics Co, jointly invested in by Wentworth Capital, and BlackRock Alternatives is building a portfolio of urban infill industrial property in last-mile locations in major capitals.
It has a last-mile logistics portfolio with assets and a development pipeline valued at more than $1bn, which it is aiming to double over the next five years via targeted acquisitions and new projects.
And HMC Capital is already active with its Last Mile Logistics Fund. It is targeting a first close equity raising of $500m, giving it up to $1bn of firepower for acquisitions.
It seeded its fund by picking up Menai Marketplace in Sydney for $150m and is already backed by supermarket giant Woolworths and the listed HomeCo Daily Needs REIT.
The race for first place in the delivery wars has only just begun.