AMP Capital's gamble that land banking on the city's northern fringe would deliver big returns is proving to be a dud bet, with the group facing a loss on what is believed to be its largest speculative land deal.
In 2006, AMP Capital and then joint venture partner Folkestone paid $85 million for 320 hectares of farmland in Mickleham, part of an "opportunistic" strategy of buying and flipping prospective development sites along Melbourne's growth corridors.
The parcel was rezoned to business use and mooted to become the future site of a massive $1 billion industrial estate off the Hume Freeway.
But the strategy has floundered in the wake of the global financial crisis, with the slump in the industrial land market forcing the group to sell nearly half its holding at a loss and petition planning authorities to rezone much of what is left to residential uses.
In May, AMP Capital and Folkestone sold 144 hectares to the Department of Agriculture, Fisheries and Forestry for $38.28 million.
After paying $265,500 per hectare, the fund was only able to achieve a sale price of $264,700 per hectare six years later.
It's a major reversal for the managers of the investment fund Select Property Portfolio II, which famously bought a 52-hectare parcel of industrial land in Altona North for $25.5 million in 2006 and sold it for $40.97 million less than a year later.
The Mickleham transaction coincided with the dissolution of the joint venture with Folkestone, leaving AMP Capital in control of the remaining 175 hectares along Donnybrook Road.
AMP Capital fund manager Warwick Petschack said the sale represented a "good outcome" considering the stagnant state of the industrial land market and "dramatic" fall in prices since the GFC. "You can't deny that we operate in a different environment to back then," he said.
"It's been a good outcome and it was certainly supported by our investors at the time."
Established in mid 2005, the unlisted fund raised $200 million in equity and sought to achieve an internal rate of return of 17 per cent over its projected seven-year term.
AMP Capital is now looking to sell about 60 hectares to business/industrial users. Negotiations are also under way with planning authorities for a residential rezoning that would permit a 1000-home community on the remaining land.
"We think there is now a higher and better use than business," Mr Petschack said. "Our objective would be to get the rezoning to residential and find a suitable buyer to take that on from there."