Ivanhoe Cambridge recently decided to sell down its stake in LOGOS Property Group. Florence Chong speaks with George Agethen about the initial motivation to buy the company and Ivanhoe’s plans going forward
Back in 2015, Ivanhoe Cambridge, the property investment arm of Canadian pension Caisse de dépôt et placement du Québec (CPDQ), took what was then a pioneering step for a pension plan: it bought into a logistics development and management company in Australia.
Alongside Macquarie Capital, Ivanhoe Cambridge took an about 30 per cent stake in the Sydney-headquartered LOGOS Property Group. The investment coincided with the timing of Ivanhoe Cambridge’s search for opportunities in the industrial sector in Asia-Pacific.
George Agethen, Co-head of Asia Pacific at Ivanhoe Cambridge, says it was ‘not a natural reflex’ for a real estate investor to want to own a business.
But Ivanhoe Cambridge could see an alignment in the LOGOS expansion plans with its own Asia strategy. Here was a convenient meeting of minds.
“We were coming from a low exposure to Asia and the LOGOS team was relatively young and seeking to grow the business,” says Agethen, an Australian-educated Singaporean, who started his career in Australia with Stockland and Macquarie Group.
Early this year we held an offsite and brought in research people to remind our team what it was like before the global financial crisis, when interest rates were 4 - 5 per cent and prime cap rates 5 or 6 per cent. On that basis, you could have a reasonable return from owning real estate. But everybody knows the world is not going back to low interest rates anytime soon
“Alongside Macquarie, we supported the platform’s ambition to invest and create a business that is pan-Asia,” he tells [i3] Insights. The deal was as a shareholder in LOGOS, Ivanhoe Cambridge could choose to invest as a limited partner in LOGOS strategies regionally as it saw fit.
LOGOS accelerated Ivanhoe Cambridge’s entry into markets through the region. Over ensuing years, Ivanhoe Cambridge has ploughed a considerable sum of capital into logistics projects in Australia, giving it ownership of some of the country’s finest logistics properties.
In 2021, it was part of a LOGOS consortium to buy Australia’s largest intermodal freight facility, the Moorebank Logistics Park in southwestern Sydney for $1.67 billion.
Along the way, it rode a series of corporate plays on LOGOS after Macquarie decided to exit the logistics company in 2020, selling its interest to Singapore-based ARA, which has since been taken over and merged with ESR group. ESR listed on the Hong Kong Securities Exchange in 2022.
In the restructuring of the merged ARA-ESR businesses that followed and the listing of ESR in Hong Kong, Ivanhoe Cambridge and its Canadian compatriots OMERS and Oxford Properties joined the Netherlands’ APG to acquire shares in ESR’s head stock.
“The LOGOS relationship has been a great one for us. We have experienced the positives and the negatives of expanding into different countries,” says Agethen, as he reflects on the investment.
Now, the time has come for Ivanhoe Cambridge to take some profits and one example is its decision to sell down its interests in the LOGOS Australian Investment Venture. Agethen explains: “It is a discipline of investing. You buy and you sell over a determined investment period to crystallise the gains and reinvest.”
He says proceeds from the sale will go into ‘the pot’ from which Ivanhoe Cambridge funds its global real estate strategy, adding that its current preferences are industrial and residential, two areas which he says are ‘super-interesting for us’.
Agethen is surprised at the level of media interest in Ivanhoe Cambridge’s decision to put its LOGOS stake on the market. “It is hardly newsworthy,” he says, but does suggest that the curiosity may be a desire to see where the value lands in an uncertain market, at a time when interest rates continue to rise and valuations are under pressure.
The Québec-based pension plan is not walking away from LOGOS, says Agethen. “We continue to invest capital in Moorebank and other LOGOS strategies.”
Ivanhoe Cambridge has expanded its stable of Australian partners from LOGOS to Scape Australia, Greystar’s Australian subsidiary, Stockland and Irongate Property.
Today, Australia is Ivanhoe Cambridge’s single-largest and growing market, with assets ranging from logistics and student housing to build-to-rent and technology parks, valued in total at around $3 billion.
In terms of allocation, logistics represents the biggest chunk of that investment in Australia.
Last year, Ivanhoe Cambridge committed close to $1 billion to the Scape Core Program, a venture that holds the largest student housing portfolio in Australia – 27 buildings offering more than 13,000 beds. Scape is Australia’s largest student housing operator, owner and developer.
Ivanhoe Cambridge secured exposure to another growth segment of the living sector – build-to-rent (BTR) – when it became a foundation investor in the $1.3-billion Greystar Australian Multifamily Venture in 2021.
Yet perhaps from ‘an intellectual and returns perspective’ the project that best captures Agethen’s imagination is the redevelopment of a mixed-use project, the Younghusband Woolstores, in Kensington, an inner Melbourne suburb, a project undertaken by Irongate Group.
“The building was abandoned as a woolstore operation since the 1970’s, says Agethen. “Our plan is to transform and give new life to the heritage-protected building into one of the most sustainable complexes in Australia. We want to differentiate it from other urban infill projects, boasting features of which we can be proud.”
The building will embody ESG and flexibility to meet the changing demands of office post-pandemic. “It will not be a typical CBD glass building. It is on the city fringe, and for companies choosing to occupy the space, it will say something about their corporate values.”
“We first saw the building in 2019, a year before COVID hit. In 2022, the opportunity resurfaced. Although we are generally cautious about office, we worked out the strategy and numbers and they stacked up,” he says.
He concurs that investors generally are rethinking their exposure to office. They remain concerned with fallout from changes on office brought by hybrid working, where the impact differs from company to company and continues to play out.
Coupled with the current environment of rising interest rates and the impact on profitability and costs, there is ‘enough to be worried’ about in the occupier market in Australia and globally, he says.
We are looking at our portfolio almost tenant by tenant to try to foreshadow whether tenants will need more or maybe less space. We are testing AI internally to have an idea of how it will impact the way we conduct own business
New technological developments like artificial intelligence are another concern. “From the landlords’ perspective, we are having to think how AI is going to affect our industry and the big occupiers.
“We are looking at our portfolio almost tenant by tenant to try to foreshadow whether tenants will need more or maybe less space. We are testing AI internally to have an idea of how it will impact the way we conduct own business.”
For now, however, the more pressing concern is interest rates.
“Early this year we held an offsite and brought in research people to remind our team what it was like before the global financial crisis, when interest rates were 4 – 5 per cent and prime cap rates 5 or 6 per cent. On that basis, you could have a reasonable return from owning real estate. But everybody knows the world is not going back to low interest rates anytime soon.”
Asset valuations do not yet reflect today’s environment and when they do there will be a ‘very painful’ reckoning for the industry, Agethen says.
With expectation of more rate hikes in Australia, he adds: “For investors in real estate, it is very hard to say where the capitalisation rate needs to be for us to invest. It needs to be higher, but sellers’ expectations are different.
“The only thing that changes that scenario is a sudden decrease in interest rates, which means recession,” he says.
[i3] Insights is the official educational bulletin of the Investment Innovation Institute [i3]. It covers major trends and innovations in institutional investing, providing independent and thought-provoking content about pension funds, insurance companies and sovereign wealth funds across the globe.