Salta Properties settles on Melbourne industrial land as housing push fails
The billionaire Tarascio family is banking on industrial land on the outskirts of Melbourne as the basis of the next big expansion of its property empire as its Salta Properties enters its sixth decade.
The company has been snapping up land parcels near an inland port that it is developing in Dandenong South in the city’s southeast that will leave it with about $2.6bn worth of industrial and logistics properties in the area as the projects are completed.
Salta’s latest purchase is a controversial block of land in Cranbourne West that caused headaches for the Andrews government when residential developers attempted to get through a lucrative zoning on the site.
The scheme failed and sparked an Independent Broad-based Anti-corruption Commission inquiry. Meanwhile the land was quietly sold and will become warehousing, with Salta managing director Sam Tarascio saying the industrial boom is here to stay.
Like its listed rivals, Salta is enjoying the boom sparked by the coronavirus pandemic, which has made industrial property the darling of commercial real estate.
“It’s an asset class that if you go back 15-20 years it was seen as the poor cousin to the office buildings and retail assets. That’s flipped on its head now and industrial is the shining light among all the other property sectors at the moment,” Mr Tarascio said.
Mr Tarascio says there is a huge amount of demand for industrial facilities, and soaring land prices are also a reflection of the diminishing supply of available zoned industrial land.
He says the uptick in demand has built with Covid-19 and industrial rents are also rising, but buildings are also benefiting from increasingly tightening cap rates, which has primarily driven up their value. “There’s a weight of global capital chasing industrial properties, so that led to some support,” he said.
The company’s multi-decade record has led to approaches from buyers “all the time”, Mr Tarascio says.
“There’s capital wanting completed assets, which we have quite a number of in Dandenong South, and there’s also capital looking for development opportunities,” he said.
But Salta is in no rush. “We have the ability to deliver these assets in our own right, but we haven’t ruled out bringing on board external capital. But that’s not a process we’ve instigated yet,” Mr Tarascio said.
While industrial is the focus for now, the company also has a huge build-to-rent pipeline and is pursuing offices outside CBDs, another beneficiary of the pandemic.
Mr Tarascio says the pandemic has shown the shift to online retail does not produce simple winners and losers, with shopping centres still relevant. “Both components need the other component. And so there’s almost now been a realisation that bricks and mortar is not necessarily going to suffer as a result of the shift online,” he said.
The new site had been controversial. In April last year, the Andrews government knocked back a proposed rezoning of land that kept developers from realising up to $150m in windfall profits. The rezoning was first proposed by Leighton, which owned the site with China’s Dacland, seven years ago, and then promoted by developer John Woodman.
Salta instead quietly bought the Cranbourne West property, via Cushman & Wakefield agents Andrew O’Connell and Peter Sagar, settling this month for an undisclosed sum.
Salta will not seek a residential rezoning and will instead develop the site as a premium industrial estate under the original 2012 plans. “We are aware of recent attempts by others to rezone the land for residential use, but Salta has no intention of seeking such a rezoning for this land,” Mr Tarascio said.
“We believe the existing industrial use is completely appropriate for this land, and we are fully aligned with the decision by the Victorian state government not to approve a change of zoning for this site.
“It’s quite clear that the government does not wish for it to be rezoned which is entirely in alignment with our views,” he added, noting authorities were “rightfully” unhappy with the “antics” around the attempted rezoning of the site.
Mr Tarascio said the 123ha industrial site was a “strategic acquisition” to continue the company’s southeast industrial pipeline alongside its nearby 180ha Nexus Dandenong South Industrial Estate, where the Dandenong South Inland Port is being developed.
Salta predicts the end value of the Cranbourne West project will hit $1.2bn, adding to the $1.4bn completion value of its Dandenong South estate.
Salta now has about 403ha of land in the area and has developed about 80ha. “We’re really excited to be filling that pipeline and we could be there for another five years,” Mr Tarascio said.
Salta tenants at both parks will have priority at the inland port, although it will also be open to other users.
Industrial vacancies are at record lows across the country and Melbourne’s southeast continues to benefit from population growth, densification, infrastructure spending and investment demand.
“Industrial has been the strongest-performing segment of the market in Australia for the past three years and it is projected that this will remain the case for the foreseeable future,” Mr Tarascio said.