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Fund manager on asset bargain hunt

THE AUSTRALIAN
16 JULY 2018

Property fund manager Quintessential Equity has about $200 million to invest in secondary office and industrial assets that it hopes to refurbish and re-let.

The group has raised a fresh fund to be ready for the likelihood that it will become harder to borrow from banks, particularly for the purpose of buying the distressed buildings that it hopes will hit the market.

Over the next five years, the Shane Quinn co-founded group hopes to triple its assets under management to $1 billion, from more than $350m now. As the firm embarks on a growth phase, Mr Quinn has moved into the role of executive chairman in order to concentrate more on transactions.

Chief operating officer Russell Bullen will take up the chief executive role and run the business day-to-day. “Russell has been with the business for seven years and he is better suited to being a CEO,” Mr Quinn told The Australian.

“I want to get back to doing more transactional work and doing deals and so it frees me up.” The group has raised a blind fund of $112m in equity, which, combined with leverage, will allow for more than $200m of investments.
“We’re looking for value-add type of assets that are unloved —might have vacancy, might have capex issues —and that we can get in and stabilise the long-term income,” Mr Quinn said.

“We’re finding a number of assets are starting to pop up where vendors are looking to meet the market with distressed assets.

“If it’s non-income-producing they’re probably in breach of banking covenants, that is, their interest cover ratios. And if they’re in breach of their interest cover ratios the bank’s probably saying you need to top up with additional equity or sell the asset.” The group will look for office and industrial buildings along the east coast, in Adelaide and in Perth, targeting properties that can be bought below replacement value. The fund will allow the group to buy some properties in cash that are vacant and thus unfundable to a bank.

Despite a seemingly downbeat view, Mr Quinn said he is “pretty bullish” about the office market amid good tenant demand.

“I think people are paying a premium for cashflows at the moment which is a concern. But if you can buy an asset at a reasonable price I think the leasing fundamentals are strong,” he said. “We won’t pay a premium just because it’s got cash flow.”

CREDIT: ELIZABETH REDMAN

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