Brookfield sells $330m logistics estate 3 months after it was built

Brookfield had only made the estate fully operational, Connect Central Sydney, in November. It sold the asset after foreign capital-backed parties showed interest, sources familiar with the deal, but not permitted to speak publicly, said.

Gateway Capital partnered with Ontario Teachers’ Pension Plan and the Asian fund, Korea Investment Corporation, according to market sources.

The sprawling estate will be held in the Gateway Capital Urban Logistics Partnership, a fund that has expanded rapidly to $850 million in less than 20 months.

Connect Central Sydney is one of the biggest logistics deals of the past year, eclipsed only by Aware Super’s $600 million purchase of Melbourne’s Austrak Business Park. The last time such an asset fetched a higher price in Sydney was Charter Hall’s acquisition of Arnott’s Huntingwood plant and distribution centre for $400 million in 2019.

Foreign institutions are battling to get their hands on well-located logistics assets in Australia’s major cities. This week Stockland said it closed deals worth about $800 million with US private equity house KKR and British funds giant M&G Real Estate in logistics partnerships.

Gateway Capital chief executive and founder Stuart Dawes said the acquisition gave the partnership position in the Sydney market close to major transport networks.

Dawes said the fund aims to grow past $1.7 billion, with its demand for its logistics properties backed by population growth and the demand for e-commerce.

“We’ve got capacity to seek more logistics assets with a view to double the size of the existing portfolio,” Dawes said.

Connect Central Sydney is a 12.6-hectare site at 2 Christina Road, Villawood, and it spans more than 69,000 square metres across 12 buildings, with individual spaces ranging from 2000 to 18,000 square metres. It has a focus on smaller businesses chasing last-mile storage facilities.

Other assets held in the partnership include Melbourne’s $315 million Axxes Corporate Park along with three other logistics sites across West Melbourne and Chullora in Sydney’s west.

The $330 million sticker price for Connect Central Sydney represents a capitalisation rate of between 5 and 5.6 per cent. Capitalisation rates, or cap rates, are an industry metric akin to an expected investment yield, which typically moves inversely to values.

Gateway expects to deliver between 11 and 15 per cent returns from the Connect Central Sydney transaction, sources familiar with the deal, but not permitted to speak publicly, said.

It is hoping to deliver those returns by repositioning the asset, which is 75 per cent leased, to get higher rents. Its tenants include Kerry Logistics, Honest to Goodness, Scope Joinery, Ricky Richards, FJT Logistics, Seima, Austway and Euro Car Parts.

Brookfield had previously signed a heads of agreement that would have led to the estate being 90 per cent leased. Some of those agreements have lapsed, but Gateway is confident that it can lock in higher-quality deals.

Sydney’s industrial vacancy rate was the lowest in the world three years ago, at 0.2 per cent for super prime space. Since then, it has risen to 3.75 per cent, with Melbourne at 3.1 per cent and Brisbane at 3.4 per cent, according to Savills data.

Ruban Kaneshamoorthy, Brookfield Australia co-head of real estate, said the divestment did not mean the property giant was seeking to de-weight from industrial property. It still intends to grow its $900 million logistics portfolio to $2.5 billion.

“Logistics continues to be a cornerstone of our Australian real estate portfolio and we remain focused on doubling the size of our exposure during the next 12 months,” Kaneshamoorthy said.

“We have a strong pipeline of opportunities that we are currently exploring.”