Gateway Capital forges into new industrial cycle with an eye on opportunistic deals

After a stellar first fund, the industrial property funds house sees plenty more ways of making money, even as the cycle cools after values jumped during the pandemic.

Gateway Capital's asset in Sydney’s Thornleigh has been rolled over into a recapitalised vehicle that is now on the hunt for new assets.

Fund manager Gateway Capital, led by property veterans Stuart Dawes and Peter McDonald, is bullish about the prospects for the industrial sector but says winning in this cycle will depend on being best at managing assets rather than relying on falling rates to lift values.

The company, which launched just four years ago with the backing of British heavyweight Grosvenor Group, is successfully winding up its first partnership, realising above-forecast returns for investors, and a new vehicle is getting under way.

Gateway had assembled seven assets ahead of the sector rocketing during and just after the pandemic, and exited with the disposal of about $246m worth of warehouses in Victoria, NSW and Queensland.

The company sold five to private buyers, including owner-occupiers, and two assets – one in Melbourne’s Sunshine West and the other in Sydney’s Thornleigh – were rolled over into a recapitalised vehicle that is now on the hunt for new assets.

The duo, who also held senior roles at Propertylink, emphasise the work that went into repositioning their assets, making them more durable in tougher times. Mr McDonald cited the “heavy lifting” of active management by redeveloping or repositioning, and a focus on leasing, allowing the firm to drive rents over the last four years by up to 60 per cent. “So it’s a very active strategy,” he said.

At Thornleigh, for example, the company leased up one building and then demolished another to make way for a new asset it ­developed for CSR.

Gateway Capital co-funders Stuart Dawes, left, and Peter McDonald.

Mr Dawes said the company was focused on land-constrained sites and differentiated the ­approach from larger managers focused on “big box” developments in outer-suburban areas. These are now under pressure to find tenants.

Mr McDonald said large market-wide rental increases were unlikely, and investors could not rely on capitalisation rates decreasing in a meaningful way in the next few years. “You’ve got to have a very strong active management approach,” he said.

Mr Dawes said tenants were chasing efficient, functional buildings. “There’s a bit of a flight to quality going on,” he said.

Gateway’s first partnership sold four Queensland assets, including three in Acacia Ridge for a total of $62m to separate buyers, in deals brokered by Cushman & Wakefield and Colliers. The agencies also handled the sale of a complex in Fleming Road, Hemmant for $46.6m. Another property in the Melbourne suburb of Laverton North was also sold off via Cushman & Wakefield.

The Gateway pair also see value in the small and medium end of the market, which some other institutions avoid.

“If you’ve got really well-located functional assets that are catering for small to medium-sized businesses, rather than a big box on the outskirts, that’s where the growth is,” Mr McDonald said.

While they sit at the bottom end of institutional grade assets, its plays also show Gateway’s eye for deals.

“We see continued value in that space going forward,” Mr Dawes said. “While it won’t be something that we’ll look to do in our broader institutional vehicles, we’re certainly open to assets where there is more of an opportunistic play to be able to drive those returns.”

In a throwback to the days when the sector had fewer institutions, Mr McDonald said it was still important for managers to get their hands dirty by meeting the demands of tenants and adding value.

Gateway is also strong at the larger end and last year teamed with Canadian heavyweight Ontario Teachers’ Pension Plan and an Asian sovereign wealth fund to snap up a major site in Chullora, in Sydney’s west. It also picked up another $330m logistics estate in Sydney from Brookfield this year.

Mr Dawes said the latest vehicle would operate more in the core space and had been seeded with about $100m of assets from its first trust.

“It was really good to see that new vehicle with some good institutional capital backing and that will continue,” he said.

It is focused more on core and core-plus property and is expected to grow to more than $400m before new capital is added.

“We’ll continue to expand our capital base,” Mr Dawes said, noting ­interest from North America, ­Europe and Asia.

“There is really good diversity across our partners,” he added, noting this could see the firm push into some greenfield development as it served larger tenants. “Our focus will still be land-constrained sites,” he said.

Gateway has come through the cycle profitably and is preparing for the next one. “We’ve been pretty selective about the acquisitions of all of our assets, which is what’s put us in a good position,” Mr Dawes said.

Originally published as Gateway Capital forges into new industrial cycle with an eye on opportunistic deals