AMP still feeling land hit
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."
cvedelago@theage.com.au Twitter:@chrisvedelago
Frequently Asked Questions about this Article…
AMP Capital (with former joint‑venture partner Folkestone) bought 320 hectares of farmland in Mickleham in 2006 for $85 million intending to develop a $1 billion industrial estate. After the global financial crisis caused a slump in the industrial land market, the group sold about 144 hectares at a loss and is now left with remaining parcels it is trying to re‑position and sell, which has prompted media coverage.
When the 320 hectares were purchased in 2006 the fund paid about $265,500 per hectare. In May the fund sold 144 hectares to the Department of Agriculture, Fisheries and Forestry for $38.28 million, equating to roughly $264,700 per hectare — slightly below the original per‑hectare cost.
The 144 hectares were sold in May to the Department of Agriculture, Fisheries and Forestry for $38.28 million.
The article says the global financial crisis led to a sharp slump in the industrial land market and a 'dramatic' fall in prices. That weaker market environment forced AMP Capital to sell nearly half the holding at a loss and to reassess the remaining land's use and sales strategy.
After the joint venture with Folkestone ended, AMP Capital controlled about 175 hectares. The group is looking to sell roughly 60 hectares to business/industrial users and is negotiating with planning authorities to rezone much of the remaining land to residential, potentially permitting a 1,000‑home community.
Select Property Portfolio II (established mid‑2005) raised $200 million in equity and targeted a 17% internal rate of return over a projected seven‑year term. The Mickleham result — a partial sale at a loss — represents a reversal from that target. AMP Capital’s fund manager Warwick Petschack described the transaction as a 'good outcome' given the stagnant industrial land market since the GFC and said it was supported by investors at the time.
Yes. The article notes that the managers of Select Property Portfolio II previously bought a 52‑hectare parcel in Altona North for $25.5 million in 2006 and sold it for $40.97 million less than a year later, demonstrating past success with opportunistic land flips.
Based on the article, the Mickleham case illustrates that speculative land banking can be highly sensitive to market cycles and planning outcomes: rezoning hopes and industrial demand can change, the global financial crisis caused a dramatic fall in industrial land prices, and managers may need to change strategy (for example, seeking residential rezoning) to try to recover value.
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