BlackWall (ASX:BWF) talks FY17 results & outlook

Interviews

by Jessica Amir

BlackWall (ASX:BWF) CEO Stuart Brown talks about the change in office space requirements, the company's flexible WOTSO workplaces and its deep-value, long-term approach to property investment.


Jessica Amir:
Hello. I’m Jessica Amir from the Finance News Network. Joining me from BlackWall Limited (ASX:BWF) is CEO, Stuart Brown. Stuart, welcome to the Finance News Network.

Stuart Brown: Good to be here.

Jessica Amir: We’ve never had the opportunity to sit down before. So could you give us an introduction to BlackWall?

Stuart Brown: BlackWall is a real estate business. We have three operating areas, funds management and real estate management. WOTSO WorkSpace, which is relatively new to the business and then we’ve got an investment portfolio of $30 million, on the balance sheet. What underlines all of those three activities is rent collection from income producing real estate. Rather than having a tenancy risk concentrated into large corporate tenants, we like to service the small to medium enterprise market.

And that’s right across the traditional funds management and real estate activities, through to what we’re doing with WOTSO, in collaborative workspace and flexible workspace. A good example of that is the Pyrmont project, people may knowit as the old Fox Sports studios. We took that over about three years ago, it was half empty with Fox Sports moving out and we’ve cut it up into smaller tenancies. And it houses about 2,500 square metres of WOTSO. So where you have one tenant, we now have up to 200 or 300 tenants.

Jessica Amir: You’ve announced that you’re going to sell the Bakehouse Quarter property, that iconic property in Strathfield. Can you tell us about that?

Stuart Brown: The Bakehouse transaction really sort of came out of the blue. We had the property on the market some 18 months ago, but had resolved to hold onto it and develop it ourselves. We’re in fact, in advanced discussions with a group to come in as a joint venture partner, in relation to the residential aspects of the property.

The property itself, we’ve developed for the last 20 years into 40,000 square metres of commercial office, retail and social amenity. The next step, or the next evolution of that piece of real estate is the residential aspects.

BlackWall itself is not a residential developer. So we’re, as I said, in advanced discussions with an overseas residential development partner. But then a local group pitched a price, which we found acceptable and we’ve concluded that transaction, in the lead up to 30th of June.

What that means for the investors in that syndicate, who have been there since 1997 is that once it completes late next year, they’ll have earned a 15 per cent IRR over a 20 year period. In addition, that will put about $240 million worth of investment capital into the hands of investors, who have been with us for a long time. So obviously, we’re structuring new products to redeploy that capital.

Jessica Amir: As you’ve said, there’s a lot of demand for collaborative workspaces. But can you explain for those new to the term, what it actually means?

Stuart Brown: It’s become a sort of proxy for broad-brush short-term real estate and it encompasses a lot of things. What WOTSO is doing is providing commercial realestate for small to medium enterprises on short-term contracts, but for long periods. Sowe have tenants that have been with us for a number of years. It’s about well-placed, good quality office space for small to medium enterprise. Interestingly, we’re also seeing getting some traction from the corporate market.

Over the last 20 years, activity based workspace has taken over the corporate market, in a drive for more efficiency. That means that short-term projects, offsite meetings, need to be housed somewhere, because often they can’t in the corporate’s headquarters. So we have a lot of the banks, we have a lot of large corporates hosting events or running special projects, in our short-term space.

What people who come to WOTSO are really after is that interaction that they don’t get working from home. So we have really good break out areas, we have pleasant design and efficient use of space, Ping-Pong etc. does feature heavily, but it’s more about that interaction between small to medium enterprise, within our space.

Jessica Amir: Can you tell us about your locations, where are your properties around Australia perhaps if you will. And what does a WOTSO site need to have to be successful?

Stuart Brown: Our network’s growing and we’re doing deals to grow the footprint. We’re prominently on the eastern seaboard at the moment, although we’re looking at some space in Perth at the moment. As I’ve said, we want to put workspace where people want to live. We’re responding to traffic congestion, we’re responding to really the opportunities that technology affords us today, in that people don’t need as much space as they did before. So our work life is in our computers, so if our computers are portable we can work anywhere.

So what drives a good workspace is its location. Just like a neighbourhood shopping centre, people go to the one that’s most convenient. Workspace we feel, when people make a decision to go to a workspace, they’re making a real estate decision. They’re going to the one that’s most convenient for them. So good transport hubs, good parking, high visibility is really the hallmark of WOTSO. I mean anyone who’s driven over the Anzac Bridge has seen the WOTSO at Pyrmont. And again, because of its location, people that use that facility are using it because of where it is. We attract them because of location, but we retain them through services and fit out.

Jessica Amir: What’s your strategy for growing WOTSO’s offer?

Stuart Brown: The interplay between WOTSO and BlackWall’s traditional real estate business, it’s given us a lot of advantages in that we can do straight leasing deals, as most of the market does. We can acquire buildings to house WOTSOs, but in addition, it’s quite a disaggregated market. So we can see potential for acquisitions at the corporate level down the track as well.

Jessica Amir: If we can finish on a more general question now. Where do you find value in the property market?

Stuart Brown: It’s difficult, for the market’s pretty hot at the moment. To an extent BlackWall’s market agnostic, because we’re deep value players. So we’re more looking for turnaround positions like our Pyrmont property, which was half emptywhen we took it over three years ago and now full. Or untenanted buildings like our Adelaide facility, which we just syndicated off the balance sheet. So again, that was an empty building, we bought it well and we worked up the WOTSO product in there. So notwithstanding the market is hot, if you are a deep value player, there are opportunities out there.

Jessica Amir: Stuart Brown, thank you so much for the introduction.

Stuart Brown: Thanks very much Jessica.


Ends

Jessica Amir

Finance News Network
Jessica joined FNN in January 2017 after having worked in financial advising for seven years and in TV journalism for seven years, specialising in finance, equities and analysis. She has interviewed former Prime Ministers of Australia, Tony Abbott, Julia Gillard and Kevin Rudd and ex Treasurer Jo Hockey. Jessica has worked as a journalist with Sky News Business, ABC 1, ABC's The Business, ABC24 and has also been a regional Channel 7 and 9 TV reporter with Prime7 and Win News.