Purple patch for property syndicates, unlisted funds
The former Lonely Planet building in Melbourne. Photo: Supplied

Purple patch for property syndicates, unlisted funds

Unlisted property funds and syndicates have hit a purple patch, as investors flood into the sector on the hunt for yield.

The swing from small investors into the $125 billion unlisted funds sector is part of a broader shift towards the commercial property sector as investors seek shelter from a low-yielding investment horizon.

On the hunt for return, investors, many of them super funds, have pushed as much as $26 million into the listed property sector in the first half of 2019, joining in one flood of capital raisings as well.

At the other end of the property spectrum, individual investors are switching to commercial property, at the expense of residential, and investing in assets such as off-the-plan strata industrial units, hoping for net returns of between 6 and 7 per cent.

In between are the unlisted funds and syndicates: pooled vehicles which can hold the savings of investors – from as few as 20 to hundreds of people – who stump up anywhere between $10,000 to $250,000 to take part.

This week The Australian Financial Review has reported on two such syndication platforms. Bayley Stuart Capital will house the new home of property portal Domain in Melbourne’s east.

Investors in that new syndicate could expect a dividend yield of 5 per cent or more while the internal rate of returns, which includes capital growth, could rise higher.

Meanwhile, Planum Partners swooped on the former Lonely Planet headquarters in Melbourne’s inner west for $33.1 million. The deal is forecast to provide investors with year one income distributions in excess of 7 per cent, increasing over the life of the fund.

It’s good news for the sellers of assets too, such as Stockland’s managing director Mark Steinert, who says syndicates are so popular in the current environment they can raise equity within four weeks for assets worth as much as $70 million.

“I don’t think we’ve seen that since the rebound post the 1990 recession,” he said.

“It’s all about interest rates. Investors are finding it very hard to get an adequate return from their bank deposits and so they are very interested in relatively low volatility syndicated commercial real estate exposures that have got good yield.

“If you buy into a syndicate that might have 50 per cent leverage, with debt levels so low, those yields on the syndicates are typically well over 7 per cent, which is quite attractive to a private investor.”

Listed property fund managers, such as Charter Hall and Centuria Capital, are also raking in the harvest through vehicles that offer between 5 per cent and nearly 7 per cent in income distributions.

Steven Bennett, who heads Charter Hall’s direct business and is also president of the Property Funds Association, said there has been a noticeable increase in enquiry from retail investors, including SMSFs.

“This investment trend has been building for a number of years now, first due to declining returns and capital growth in the residential property market and more recently as a result of the record lows in Australian government bond yields and term deposits,” he said.

“It isn’t surprising investors are seeking out higher income from direct property investments.”

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