Hong Kong’s Phoenix Leads $37.5M JV Buy of Sydney Logistics Complex

Phoenix Property Investors has teamed up with a joint venture between Australia’s Irongate Group and South Africa’s Burstone Group to acquire a Sydney industrial estate in the Hong Kong real estate private equity firm’s second bet on the Aussie industrial sector.

The A$57.25 million ($37.5 million) transaction will see Phoenix acquiring an 80 percent stake in the asset and the Irongate-Burstone joint venture (Irongate JV) taking the remaining 20 percent, according to a release from Burstone. The Irongate JV will also act as fund and asset manager for the venture.

“The transaction is in line with our Irongate investment philosophy which focuses on low-risk infill sites with large land holdings, acquisitions at below land-and-replacement cost and, under-utilised, income-generating properties with strong positive rental reversion, all of which this acquisition is set to deliver,” said Graeme Katz, chief executive of Irongate Group.

While Phoenix representatives had not responded to inquiries from Mingtiandi by the time of publication, under the leadership of Sydney-based Trent Winduss, the company has been ramping up its Aussie bets, including entering the country’s industrial market in June with an A$185 million joint venture with local property firm Lendlease.

Phoenix Rising

Located at 338-350 Woodpark Road and 1 Dupas Street in the western Sydney suburb of Smithfield, 31 kilometres from the city’s central business district, the asset occupies a 33,988 square metre (365,844 square foot) site with a total net lettable area of approximately 17,500 square metres (188,368 square feet) spread across eight adjoining buildings.

The properties have functional improvements focused on smaller users and are currently occupied by multiple tenants with a weighted average lease expiry of 1.7 years.

In explaining the rationale for the investment, Burstone noted that vacancy rates in the Smithfield area stand at 0.2 percent and said it expects the asset to benefit from rising rents due to the supply-demand imbalance in western Sydney’s industrial market.

Phoenix’ June entry into Sydney-area sheds also saw the company betting on the western Sydney logistics market, with its joint venture with Lendlease set to take on development of an industrial precinct in the suburb of St Marys, around 25 kilometres (15.5 miles) northwest of Smithfield.

The Asia Pacific-focused investment manager already has established office, retail, residential, and hospitality projects Down Under, which together make up 20 percent of its investment portfolio and ranks Australia as its fourth largest market behind Hong Kong, Japan and Mainland China, according to the company’s website.

The Aussie shed investments come as the company looks to widen its industrial and logistics footprint, which accounted for the fund manager’s second lowest sector exposure at 4 percent as of December 2022. At that time, the company had $7.9 billion in total assets under management, of which 60 percent was allocated to office and residential.

In 2021, the fund manager acquired three Japanese logistics developments across Tokyo and Nagoya and an all-cold storage logistics centre in Incheon, South Korea.

Kwang Joon Kim, Phoenix’s executive director for Japan investments, told Mingtiandi TV in May that many of Phoenix’s development and forward purchase logistics projects in Japan are being pre-leased well ahead of completion.

Phoenix is already an investor in one of Irongate’s existing properties, according to the statement, with this latest acquisition marking the company’s second Australian asset under its Phoenix Pan Asia Core Plus Investments Fund.

Investec Descendants

The acquisition marks the first investment by the Irongate JV, which was established in March as a 50/50 partnership between Johannesburg-based Burstone Group and the management team of Irongate Group’s funds management business. The asset will seed Burstone’s new unlisted Australian Industrial Property Fund.

“We believe this acquisition will showcase how we at Burstone can unlock value in the assets we acquire and manage. It supports Burstone’s capital light strategy, which leverages the skills within our business and partnerships to provide new sources of income through management and performance fees, in addition to capital returns and property yield, which enhances returns on our deployment of capital,” said Andrew Wooler, chief executive of Burstone Group.

Formerly known as Investec Property Fund, the REIT unit of Anglo-South African financial services firm Investec, the trust completed its rebranding to Burstone Group in October following an “internalisation” of the trust’s asset management business. Investec retains a 24 percent stake in the fund.

JSE-listed Burstone bills itself as a fully-integrated international real estate business investing in best-in-class assets focusing on fund management, asset management, and development management. The fund has ZAR37 billion ($2 billion) in gross assets under management and ZAR5.4 billion ($286 million) in third-party capital under management across South Africa, Europe, and Australia.

Sydney-based Irongate Group, itself originating as Investec’s Australian and New Zealand property investment and asset management business, underwent a management buyout in April that saw the Katz-led investment team partnering with Burstone Group to buy back Irongate’s unlisted funds management business from Australian property giant Charter Hall. Charter Hall and Dutch pension manager PGGM had privatised Irongate for A$1.2 billion ($909 million) in March 2022.

The management buyout immediately followed the establishment of the Irongate JV with Burstone and marked Burstone’s entry into the Australian market. The transaction also saw Burstone picking up a 18.7 percent stake in the Templewater Australia Property Fund, a vehicle owned by Hong Kong private equity shop Templewater and managed by Irongate.

Irongate now manages close to $500 million of office, industrial, retail and residential assets, according to the release.