We are comfortable buying retail: Newmark plays against flow

Property fund veteran and former Hawthorn footballer Chris Langford is playing against the real estate flow and buying retail assets.

“We are not worried about the investment committee giving us a hard time about having too much retail. If you can buy good land holdings in a growth metro area, you are doing OK,” he says.

“Not many other people are taking that view at the minute.”

Both of Newmark’s most recent acquisitions – a $51 million new large-format retail centre anchored by Bunnings and Kmart under development in Warragul in regional Victoria, and the Tooronga Village Shopping Centre in Melbourne’s east – will be swimming against a national retail downturn that has seen a sharp increase in retailers shutting their doors after slower than expected holiday trading.

The fund manager, which Mr Langford runs with co-founder Simon Morris, controls almost $1 billion of assets, including The Como Centre in South Yarra, Brandon Park Shopping Centre and Chadstone Homeplus Homemaker Centre.

Mr Langford says the firm’s investment philosophy is not about exploiting the current weak retail environment but instead focuses on buying good properties that will stand the test of time and allow management to grow income from them.

“There's an arbitrage between what's there now, what they [tenants] want and what you can create, and that's how we are able to grow income,” he said.

“We are very comfortable buying retail as a sector, but that doesn't mean we're going to buy retail in any form far and wide. It's pretty evident that the good ones are doing well and growing and there's damage in the margins.”

That contrarian strategy is proving resilient in the face of retail headwinds. Newmark’s more mature funds are averaging returns of around 17 per cent, he said.

The syndicator has seven established funds, the majority focused around single assets, such as the large Jam Factory complex in Prahran which is undergoing a major redevelopment.

Its Newmark Hardware Trust, in which the Warragul property will sit alongside three other Bunnings properties in Launceston, Lake Haven, and Maroochydore, is an open-ended fund with an anticipated 6 per cent yield.

“We are looking to have a few more single-asset funds. We'd like another open-ended fund in the next year or so, so we're working on a couple of opportunities for that second open-ended fund,” Mr Langford said.

While the hardware fund is reasonably specialised, the next fund would be a blend of diversified assets, he said.

Mr Langford said although prices were high and debt cheap, there were still opportunities in the market.

“We're seeing pricing, debt and growth rates that we've never experienced before. In my 30-odd years in the industry, I've never seen cap rates at these levels and debt at these low levels.

“That's a very healthy combination for the commercial market at the minute, and it looks like it's going to stay that way, for the foreseeable term anyway,” he said.