Speculation that the industrial property sector’s bull run could be starting to unravel has done little to staunch the recent pile-on, with Irongate being the last real estate fund manager to hitch its fortunes to this previously overlooked asset class.

Earlier this week Savills Australia released its Shed Briefing Report (SBR), which suggests the surge in warehousing demand is decelerating on the back of a more cautious approach to leasing and investment decision-making.

But rather than being wary of an inflection point for industrials, the Irongate Industrial Property Fund (IIPF) has gone out its way to fund unloved assets its larger counterparts have passed on.

Having secured funding from the Johannesburg-listed Burstone Group (formerly Investec Property Fund), IIPF wants to redeploy the same strategic direction of the formerly ASX-listed, Irongate REIT, which was recently sold to Charter Hall.

Underscoring the new strategy is a focus on acquiring low-risk large land holdings that are underutilised, income-generating properties with strong positive rental reversion.

First acquisition

In line with that strategy, IIPF launched its fund this week with the $57.25m acquisition of a seed asset in Smithfield.

Located 31 kilometres west of Sydney’s CBD, the Smithfield asset was acquired from the Katz family’s EK Nominees, owner of the St Ives Shopping Village on Sydney’s North Shore.

The property was exclusively sold to Irongate via Colliers Trent Gallagher, Gavin Bishop, Sean Thomson, and Peter Dale.

Comprising a combined land area of 3.4 hectares, and a total net lettable area of 17,546 sqm across eight buildings (currently occupied by multiple tenants) the fund’s seed asset was acquired for below land-and-replacement costs – without taking on development risk.

The estate has a weighted average lease expiry (WALE) of only 1.7 years.

We have our sights set on a number of under-rented assets in key logistics hubs across the country.

Rent increases

While the properties were acquired by Irongate on a yield of 3.7%, the fund manager hopes that by leasing vacant space and resetting rents on existing tenancies, income returns can be pushed to 6% in the not-too-distant future.

Despite suggestions the industrial sector is now on a downward trend, Irongate CEO Graeme Katz believes the positive momentum in the industrial sector is sustainable, particularly in key infill areas.

Having concluded that they’re ‘stickier’ than others, Katz appears happy for IIPF to attract smaller companies as tenants which REITs typically shun.

“The Smithfield acquisition is the first of many we intend to make in the short term,” said Katz.

“We have our sights set on a number of under-rented assets in key logistics hubs across the country.”

Image: Unassuming and unloved – one of eight buildings in the Smithfield estate.