Redhill Partners is a specialist investment manager focusing on commercial real estate opportunities within Australia. The company is 6 people strong and based across Singapore and Australia. In the past 2 years, the company has completed over AUD$200M worth of commercial real estate investment deals.
What opportunities do you look for at Redhill Partners?
We have a relatively specific investment criteria of pursuing value-add CBD office assets in Perth and Brisbane, and long WALE office and industrial assets in CBD and Metro markets of Perth, Brisbane and Canberra. For the value-add opportunities we tend to partner with equity sourced out of Asia or the United States. For the long WALE assets, we tend to syndicate the deals locally to investors within Australia.
Why these assets?
We believe that both the Perth & Brisbane markets are at the bottom of their cycle, providing opportunities to acquire assets at a significant discount to replacement cost. Redhill Partners focuses on acquiring mismanaged assets with strong underlying fundamentals, aiming to reposition the asset with on the ground asset management. We believe purchasing assets with holding income and upside potential with the right repositioning strategy provides our investors with upside potential.
Why these locations?
Our internal view is that these markets still provide value opportunities and the underlying economic fundamentals are strong. The yield spread between Perth, Sydney and Melbourne are well above the long-term average, providing our investors with greater returns. With minimal supply coming to the market in the short to medium term in Perth and reduced vacancy rates in Premium and A grade office space, we believe it an opportune time to invest in the right assets, which is the main reason behind the acquisition of 28 The Esplanade, Perth.
How are you finding the market right now?
In terms of Australian capital markets, we have observed that the majority of assets sales have been postponed by vendors, due to factors such as financing concerns for buyers, inability for off-shore groups to physically inspect assets and longer response times from FIRB in Australia. There is also a lack of transactional evidence since the outbreak of Covid-19 which is making some valuers hesitant to support pricing on new acquisitions. Looking beyond the short term, we believe there will be emerging opportunities to acquire assets off-market via sale and leasebacks and REITS re-weighting their portfolios. On a positive note, we have noticed that the banks sentiment towards funding new acquisitions has improved in the past few weeks, which should allow an increase in sales volumes.
In what way has COVID impacted Redhill Partners?
Covid-19 has slowed down Redhill Partners transaction pipeline for 2020 due to the unknown impacts the virus will have on medium term cashflow and asset valuations. Redhill Partners withdrew from a large off market transaction in the middle of the crisis due to a heightened risk on investors capital. Australian banks were also hesitant in lending at the peak of the Australian crisis which made deal commitment difficult. We continue to explore the right opportunities, however with more downside risk in the current climate we believe sitting on the side-line during these times is a prudent capital management approach. The main focus of Redhill Partners during Covid-19 sits with the current cashflow management and tenant retention of its Australian Portfolio, which to date has been positive. Redhill Partners prides itself on a very hands on approach with a high focus on direct tenant and landlord relationships, which has proved its worth in the current climate.
What type of investors do you look for? And are you looking to raise?
Historically, we have completed deals with a variety of investor profiles including Singaporean listed groups, Hong Kong family offices and NYSE listed private equity groups. Most of the capital base is in Singapore, Hong Kong and South Korea.
We are not looking to raise at the moment, we are closely observing the market and actively looking for value opportunities; we are forming an opinion as to where the best value is and then to make targeted acquisitions.
Any projects you want highlighted for the readership?
Redhill Partners acquired 28 The Esplanade, a value-add office building in Perth for AUD$104M alongside a well-known NYSE-listed PE group. The property located in the core CBD and was previously known as the BGC Centre. It is a 20-level A-grade office building with ground floor amenities and generous basement parking. The office levels have a central service core with large floor plates of approximately 920 sqm, excellent natural light from all elevations and a panoramic view of the Swan River.
We were attracted to this building due to its prime location in the core of Perth’s CBD, opposite Elizabeth Quay and within 70 meters walking distance to Elizabeth Quay Railway Station. We expect the property to benefit from its close proximity to the various high-end developments in Elizabeth Quay, as well as the expected growth in the Western Australia economy as mining activity increases. To date the property has been performing well, successfully securing a new lease over the largest vacancy to a global construction company as we settled the property. We have also implemented a new leasing strategy including a speculative fitout on one of the office floors which was successfully under offer within 5 weeks of practical completion after multiple parties submitted offers.
What would you say are the USPs for Redhill Partners?
The Directors of Redhill Partners co-invest into all investments in the order of 5% to 10% of equity and prides itself on a hands-on asset management approach via our Australian and Singaporean office. The team at Redhill Partners have an extensive Australian network sourcing approximately 50% of their completed transactions off market to date. This has enabled our investors to participate in unique investment opportunities and with a higher degree of deal certainty than an on-market bidding process.