Lendlease’s investor fees clearer than Mirvac, Lombardo says

“We’ve made a very clear set of rebates available to all our investors, and we’ve published what those rebates are, so everyone’s clear, and how they qualify for those is clear,” he said in an interview in Singapore on Monday.

“I think Mirvac has not published this.”

Rebates are a discount on the management fee investors pay that are funded by the manager and recognise larger investors.

A Mirvac spokesperson disputed Lombardo’s assertion.

“Mirvac has an existing, transparent fee rebate policy that applies within its commingled funds,” they said. “This policy applies to all investors.”

The fight has become increasingly bitter. Industry super funds Hostplus and UniSuper, which have called Wednesday’s vote, together, control 38 per cent of the voting register for the industrial fund. Lendlease’s own stake is 17 per cent, but as an affected party it cannot vote, raising the effective vote of the two funds to 46 per cent.

Two-thirds of investors, or 10 funds, must be present for the vote and Lendlease last week sought to derail the vote by encouraging investors to stay away from the meeting.

Lendlease has said it would call investors to a second vote on October 2 if Wednesday’s vote goes against it, but Lombardo was non-committal when asked if he would definitely go ahead with it if Lendlease lost on Wednesday.

“It all just depends,” he said. “We’ve got to get through Wednesday. Wednesday will then give us an indication of what happens going forward.”

A turning in the global cycle of commercial real estate as asset values stop declining and borrowing costs fall puts yield-hungry investors on the hunt for investible assets. In this environment, investors are pushing for a shake-up in management of the funds Lendlease has managed for three decades, with some unhappy at the way they say the company has managed them.

Lombardo shrugged off criticisms of liquidity, saying the company had resolved problems around meeting investors’ redemption requests. These had been a feature of the $2.8 billion, four-asset, retail fund, rather than the industrial fund and were now over, he said.

The funds had also cut fees they charge investors, he said.

“Do you get everything right?” he said. “No, but I think what we have tried to do is listen and continue to evolve. We continue to benchmark the products. Over the last 24 months, we’ve benchmarked the series twice and repriced it based on where the market is and based on feedback that we’ve had from investors.”

Governance of the funds was good as there were no shared directors between the funds and Lendlease itself, he said.

But Lombardo’s strongest pitch for continuity came in his promises to lead investors into a future of growth – including by converting assets in the APPF Industrial into higher-value data centres – but also more widely across the company.

“If I look at the industrial fund, it’s one of the best performing funds in the market,” he said. “It’s got a good outlook, growing from $2 billion to $4 billion.”

He promised further growth to investors in Lendlease’s $5.8 billion APPF Commercial fund because they would get first dibs on new developments, such as the Hunter Street Metro over-station development in the Sydney CBD if the company’s bid was successful.

“I’d be hoping we’ll be doing that in partnership with our APPF, because that will be pipeline that APPF commercial will get access to,” he said.

“I think they’ll want to continue to get the best access to some of the latest generation of office assets, which like Salesforce tower, like Barangaroo, like Victoria Cross.”

Lendlease said last month it was pushing ahead with a new $800 million commercial real estate lending business in the US and Lombardo on Monday said the company would imminently – even this week– announce the first deal structured with its partner, an unidentified $40 billion credit fund.

The build-to-rent, or multifamily, development in New York’s Manhattan would be smaller than Lendlease’s own 1000-unit Java project in Brooklyn and would allow Lendlease to make use of the construction and project skills it had built up in the US, Lombardo said.

“We’ve got the team that actually can assess what rents we believe the developer can achieve, the construction program and the construction costs, because we have a pretty good handle on those sorts of things,” he said.

“The fund will put in up to 90 cents in the dollar of each deal, and we’ll put in 10¢ to 20¢ – we’ve got an option.”

Lendlease was also looking to start a similar product in Australia and had signed a deal to progress that with one of the big four banks, Lombardo said.