A conversation with Sam Kitson at Quarry Capital

Quarry Capital has built a reputation for its active management approach in the commercial real estate sector. Can you share the vision and core principles that guide Quarry Capital’s investment strategy?

Quarry Capital is a close-knit team. We take a hands-on approach to property/scheme management and promote an open-door policy for our growing investor base.

Quarry’s investors are interested in the regular income commercial real estate provides, as well as the opportunity for long-term capital growth. Maintaining an active relationship with our tenants, bankers, insurers and other key stakeholders is critical to ensuring the properties are performing as well as can be expected and they continue to be positioned for future growth.

There are a lot of moving parts in the commercial real estate market, so having an active approach is essential to identify potential risks and make sure strategies are being implemented to either remove or mitigate them. Helping to guide our investment strategy and oversee investment decisions are the independent Investment Committee and Independent Directors who also provide ongoing operational support to the Executive team once opportunities have been secured.

Quarry Capital focuses on adding value to properties through hands-on management and strategic enhancements. Could you elaborate on how this approach differentiates Quarry Capital from other investment firms?

Being smaller than many of our industry peers has its advantages, but it has made it more difficult to ‘compete’ directly for prime property in the main centres. This is not necessarily a bad thing. We have learned to be patient and to focus on opportunities that work for us, and more importantly, for our investors.

Quarry remains focussed on acquiring high-quality assets in stable locations with opportunity to improve income and in turn value over the long-term. A recent example was the purchase of a former Mico Plumbing building in Invercargill which was repurposed as the Southland head office for Ministry for Primary Industries under a new 12-year Govt. lease. Not every opportunity promoted will appeal to all investors, and that is the beauty of commercial real estate.

A close relationship with Hilton Haulage, one of New Zealand’s leading logistics companies, has led to Quarry acquiring several Hilton-tenanted industrial properties via sale & leaseback. It also enabled the promotion of a successful ‘fund-through’ investment model for the development and ownership of a substantial food-grade industrial warehouse in Dunedin.

With the dynamic nature of the commercial real estate market, what do you see as the biggest challenges and opportunities for Quarry Capital in the coming years?

The past few years have underscored the importance of having a sound investment strategy, but also the ability to be adaptable in response to changing market conditions. Schemes established near the peak of the market following a sustained growth period have undoubtedly been hit the hardest by rising costs, as they have had little time to grow their income base and build comfort with bank covenants.

Ensuring the portfolio is positioned for the future is an important focus over the short-medium term. Technological advancements have fundamentally changed the way we work and do business, so a key challenge for us is to ensure that the properties under management are positioned to meet future demand in a timely and cost-effective manner.

Keeping a close eye on market trends and opportunities, and continuing to create opportunities to improve liquidity, stability, sustainability and diversification for investors are the key focuses for Quarry over the next few years – in addition to managing safe, desirable, resilient assets.

It’s fairly cliché, but in challenging times there are opportunities. Discerning investors know that commercial real estate is a long-term investment and that purchase yields are higher than they have been in recent memory. With interest rates and term deposit rates on the way down, there are certainly reasons to be optimistic about the next phase in the cycle.

Quarry Capital recently acquired DABS and rebranded it to Quarry Auckland. What was the strategic vision behind this acquisition, and how does it align with Quarry Capital’s broader goals?

Quarry had been looking to grow its presence in the North Island, particularly in Auckland, for a number of years. An opportunity came about to purchase the management of an existing portfolio of ten largely Auckland-based property schemes, and after a long due diligence period, we reached an agreement suitable for both parties.

The Quarry Auckland portfolio complements and contrasts Quarry Capital’s portfolio well. DABS had focussed predominantly on acquiring office and retail property, whereas Quarry Capital had focussed predominantly on industrial and childcare assets. The first schemes were established within two weeks of each other (2015) and the portfolios had grown to a similar size over the ensuing eight years, albeit in a slightly different way.

The DABS acquisition provides scale and reach, as well as an established investor base to continue to work with when promoting new opportunities in the future.

How does Quarry Capital foster relationships with tenants and other stakeholders to ensure successful outcomes for all parties involved?

Regular communication, transparency, and a long-term ‘partnership’ approach. We’re very fortunate to have inherited a highly capable property management team in Auckland, who are in regular communication with our North Island based tenants and Childcare centres. Keeping all parties satisfied at all times can be a challenge, but it is one that the team navigates with expertise.