Private equity business, Quintessential Equity, will seed its second master fund with the purchase of an industrial property in Brisbane for $18.5 million as the company expands its asset portfolio.
The industrial estate, located at 117 Grindle Road in Rocklea, Brisbane, will be the first asset in the company’s $300 million blind fund, known as Master Fund No.2.
The fund, which raised over $145 million in equity within four weeks late last year, is structured to provide Quintessential Equity with the pre-committed capital needed to strategically acquire and regenerate value-add and core-plus commercial office and industrial properties across Australia’s CBD and city fringe markets.
The modern industrial site comprises eight separate warehouses with a gross lettable area of 20,407 square metres. Quintessential Equity will actively manage tenants and vacancies to derive long-term stable outcomes.
The deal, brokered by Colliers International’s Simon Beirne and Nicholas Evans, was struck on a 10.4 per cent passing yield, including the rental guarantee on the vacancy. At 85 per cent occupancy, it is expected that the fully let yield of the asset will increase to 10.8 per cent.
Quintessential Equity executive chairman, Shane Quinn, commented that the acquisition aligns with the company’s expertise in identifying market opportunities that present entrapped value.
“Key to our strategy is to purchase at or below replacement cost so that we can unlock value, attract and retain quality tenants, and generate long-term stable returns for investors – and this site is a great example of that. It hasn’t been easy for investors sitting and waiting over the past year, but their patience has paid off. The current buying opportunities vindicates the decision to always wait for the right asset,” Mr Quinn said.
“The property has multiple income streams from different tenants which reduces the single-tenant risk. The vacancy level in the market is also very low which underwrites the strength of the location and the demand from the deep pool of potential tenants.”
The site is strategically located close to Ipswich motorway, which is currently undergoing a $400 million upgrade, Archerfield Airport and large population centres in the south of Brisbane.
Quintessential Equity has re-signed the site’s two existing tenants, Dynamic Supplies and Small Transport, as well securing Trumps as a new tenant.
Mr Quinn said that by renegotiating their lease agreements, the company has been able to guarantee a stable income for the trust and their investors, while also getting to understand tenants and their future accommodation needs.
“These leases were all secured during due diligence which has added substantial value for our investors before we even owned the asset,” he said.
“This acquisition is a prime opportunity for us to leverage our core expertise in capex and leasing management and utilise our unique skills in managing complex asset transactions. This was highly technical – the property had been on the market for some time and was overlooked due to the pending expiries with the sitting tenants. We saw the entrapped value in the asset which we believe will give us a competitive advantage to keep the asset let, which has been vindicated by re-signing the sitting tenants.”
Colliers senior executive, Nicholas Evans, added: “A key driver of the transaction was Quintessential Equity’s ability to recognise the value on offer from an asset with strong fundamentals in a core market.”
“Over the past six months we’ve seen a flurry of occupier activity in Brisbane’s industrial market, signalling confidence in the sector as we close out 2020,” he shared.
While the industrial property market has seen strong growth in the previous 12 months, Quinn noted that Quintessential Equity will continue to take a long-term view to ensure stable returns for investors.
“Despite industrial property being the darling child of the investment market, it isn’t always a fortress asset class. We think that there is disruption coming that’s not dissimilar to office and retail. What might be regarded as A-grade today, may have a different look in 10 years’ time due to changes to high bay fully automated sheds giving a much more intensive land use. We are just being a little more cautious and looking to the land value underwriting our investment more so than improvement value,” he said.
“The focus of this fund is to find industrial and office properties to re-engineer, unlock value and work with tenants to provide solutions that work for them that drive long term cash flows. This allows both tenants and investors to achieve stable outcomes. We are capital ready and committed to finding excellent opportunities.”
The deal represents a major milestone for Quintessential Equity’s Master Fund No.2. The property was purchased from a private landlord.
Master Fund No.2 follows the success of Quintessential Equity’s first fund which raised $113 million in April 2018 and subsequently acquired two commercial buildings at 431 King William Street, Adelaide and 8 St Georges Terrace, Perth and a premier industrial estate at 25-91 Bedford Street, Port Adelaide.
