Property & Infrastructure Funds Unlisted Property Trusts 2021

Thank you for sharing -that's super helpful.

Do you use similar principles when choosing mortgage syndicates? Like for example, would you now avoid properties in CBD locations?

I'm currently looking at the latest investment opportunity (Plumpton) in AU's Select Income Fund, and I'm not really sure what I'm supposed to be looking for. I am speaking with AU next week, so hopefully they will shed some light on what I should be focusing on.

 

Mortgage syndicates are different. It’s more short term focused. All I care about is can the properties being built in the syndicate be sold.
I like plumpton and went in for $200k. That’s on the upper limit of what I allocate per syndicate. Reason being that I favour assets that are either standalone property developments or land sub division deals. Right now anything standalone or land for standalone is hot.

So non apartment developments are a plus. Lower lvr is also something that I favour. Most don’t go over 65% anyway so it’s not to bad, but again I favour syndicates that have slightly lower Lvrs. Next is presales. The higher the presales the better. If presales are lower but so is the lvr then that’s ok. Funnily enough yield on these ranks last for me. Yields are moving lower as competition in non bank lending is getting fierce.
Another one is residual stock syndicates. Again they are lower risk being the build is complete.

I also look for developers that have a good track record with previous syndicates through AU. You will notice there are a few developers that have done multiple developments and financed with AU. I work closely with Matt from AU and we chat regularly, so he will give me some background on a syndicate and history on the developer.

Hasn’t been easy to get money allocated lately. The investor demand has been high. I went into a new syndicate this week and waiting for another residual loan syndicate next week. This is just capital that has been freed up from older syndicates that have matured and paid back.

 

Thanks so much for that generous information, I found it really helpful.

I like Plumpton, too.

What is a standalone property development? Is that like townhouses/duplex developments?

Also, I don’t fully understand a residual loan syndicate. I read that it’s a loan they give to developers of completed apartment complexes, while they sell leftover apartments. Apparently developers seek a loan so that they can release capital that is trapped in the completed and unsold apartments. Is that right?

I had a good chat to Matt today -he’s a lovely guy, very easy to talk to.

He explained that they focus on three areas:

1. Land refinance (I think that’s what he said?)
2. Residual stock
3. Construction

I understand that construction carries the highest risk and therefore has a slightly higher management fee.

I noticed that some of the syndicates that are well on their way to project completion, are still open for investment. Do you think that it’s smarter to invest in syndicates that are close to completion (say 3-6 months off) since they carry a much lower risk than jumping in at the start? It would mean that you would have to actively manage your syndicates and chop and change every 3-6 months, but I wonder if it would be worth it?

Matt said that in 2022, they will likely be separating land refinance and residual stock syndicates from construction syndicates -so there would be two separate funds. He said that some of the land syndicates would roll into construction (and the interest would increase slightly as a result) -do you understand what that means?

He also said that interest is likely to drop to 5.5-7.25% from next year due to increased competition. Is that because a lot of people are offering loans?

I noticed that some of their fully invested syndicates have not even started the development process. Syndicate #548 for example, was supposed to start in Nov 2019 and shows 0% progress. What does that mean?

Also, why is the waiting time so long to get into syndicates? For example, you can't get into #578 until October this year. If the syndicate is not closed, why does it take so long to buy in?

 

Given the interest in mortgage investments, and while still being property related though on debt side rather than equity side, have you @Big A had a close look at Wingate and Merricks ? You might find of interest if not.

 

I haven’t looked at those two but I will.

Too be honest it wasn’t an asset class I went looking for as an investment. I came across it while looking at Australian unity’s property trusts. It’s not normally an asset class I would be comfortable with as manager risk would be a serious concern for me. Australian unity is a manager that I am comfortable with in this sort of investment. The size and reputation of AU is the key for me. Plus the the fact that they aren’t just a financing business like most other debt providers. AU themselves develop and manage property trusts. That gives me more confidences in their ability to manage the development in the event the developer they are financing runs into trouble. A pure finance focused manager would more likely just offload an incomplete project which could result in less desirable outcomes.
As it is I am once again probably going to heavy into this asset class. Can’t help it, I’m addicted to investments that pay me plenty of income. The regular income flowing in from the high yielding investments is like a regular sugar hit.

I am working on overcoming this addiction.

 

Yeah so anything that’s not an apartment building. Townhouses, duplex’s and land subdivision which would be for single home lots.

Pretty much. Developer finishes the build and still has a few or a lot of apartments still unsold. They will then lend them money against those assets to either pay down the construction loan or for extra capital they might need for other projects. They tend to pay a slightly lower rate for a residual stock loan vs construction loan.

There are positives and negatives with this. As you said the further along the build is, the less risk with regards to issues with the build process. Especially the early stages in which things like car park dig out carries more risk in the build process. On the flip side, if the project reaches the end and has issues selling and ends up in a quick sale with a reduced price you could end up with a loss of capital. If you had been collecting interest from the get go, you would have 12-18 months of interest to ensure your ahead overall. This was me on the Surry hills deal last year. Lost 8.5% from original capital. Collected 15.5% interest over loan term. Finished 7.5% over a 2 year hold. Not a great return but that’s the only loss of capital syndicate to date and I’m coming up to 70 syndicates I have been invested in.
So this one is a mixed bag. I have no issue going into a syndicate late in the build as long as the lvr is conservative and the pre sales provide a high debt coverage ratio. I also get details on those pre sales to ensure sunset clauses are solid and don’t end up expiring resulting in the pre sales evaporating. Again learnt that lesson with the Surry hills syndicate.

Not sure what this means. The different loan types are already seperate. So a land deal is a land deal. Sometimes a land deal will also include financing the development once they get started. But spds will tell you exactly what the deal is financing so you can make your decision. You do have loans that start as a land deal, so land that’s held while they prepare for build. Then they move to a construction loan. Then if unsold stock is left over it becomes a residual stock loan. But at each change of loan your investment matures and you get invited again to invest in the next stage of the loan. You can collect your capital and walk away if you decide the next stage of the loan doesn’t appeal. Read the spds carefully. They are fairly straight forward and explain exactly what the purpose of the loan is and the expected time frame. If anything is unclear, give them a call and ask questions. I do this all the time.

Yes the private debt market is getting very competitive. Lots of investor money looking for returns.

I just looked up 548. That’s a residual stock loan for an apartment building in punchbowl. I’m sure I hold that. 0% progress because it’s not a construction loan. The progress refers to the construction progress. Land deals and residual stock loans will always show 0% progress. That doesn’t mean they haven’t been selling more of the outstanding apartments and paying down the loan. That info comes in the updates you get on the platform for the loans you hold.

Yes this has been my only frustration with AU. Waiting to get money into loans. The reason you will wait with an open loan is because the money lent to developers is provided in instalments. As the development progresses and the developer needs the money, they release more of the loan. As the requests for more of the loan money comes through , they will then take your money. This is standard practice and it’s a good thing. If they just gave the developer the full loan money upfront and the developer miss appropriates the funds rather than finish the build the lender will take a hit. This way at each stage of the build they ensure the developer is on target before they release any more money.
Land deals and residual stock loans will be full loan upfront and you will normally have your money deployed as soon as the loan opens.

As frustrating as it is waiting for your cash to start earning in the syndicates, I look at the upside. That being these guys aren’t just rushing in and taking every loan that comes across the table. They pick and choose loans that they are comfortable with in order to minimise risk to your capital. I’m sure they could lower their lending standards and have more loans open up for you to invest in. But I think most investors would prefer waiting rather than going into higher risk loans.
Loans going pear shaped would be bad for investors and would also damage the managers reputation and ability to attract investors in the future.

 

During my search for a decent financial adviser, I spoke to one of the huge financial advising companies in Australia.

They were really big on investing in what they termed “Alternatives” ie. first mortgage funds, industrial property funds etc.

These were three of the funds they recommended to us:
CVS First Mortgage Fund
Wingate WIP3 Fund
Merricks Partners Fund

I noticed that several of the funds they recommended were not ones we could directly invest in ourselves ie. we had to invest in them through a financial adviser.

I don’t know anything about the above funds, but I knew the names Wingate and Merricks rang a bell!

 

@MsNewbieInvestor from memory they are $500k minimum “wholesale investor” only. You can invest directly if you meet the minimums. These are essentially diversified private debt funds. As I recall when I looked at them, Wingate is a lot of development finance holding 1st mortgage. Merricks development finance, Ag business and cash flow lends. Long term performance on both at 10% pa and 12% pa respectively.

 

Ok, thank you.

That makes sense -thanks.

Ok, I didn't think of that. Good to know, thank you.

Sorry, I wasn't very clear in my explanation.

Matt said that there are three loans: land, construction and residual stock. He said at the moment, all three loans are lumped into the Select Income Fund, however, next year, they are likely to split them up and place the land and residual stock loans into one fund and the construction loans into another fund.

What you explained is what Matt said ie. that some of the land deals can move into a construction loan, and the interest would increase accordingly (since construction holds a slightly higher risk).

The bit I was concerned about was whether or not we get asked if we want to invest in the next stage of a loan that changes from say land to construction. Thanks for confirming that we do.

I will definitely call them and ask plenty of questions!

Oh, ok! I thought the progress bar referred to how many they've sold! Thank you.

That makes perfect sense and I also think it's a good thing. AU seem to focus on quality not quantity, and I find that reassuring.

Thank you for all the helpful advice -much appreciated.

 

Morning guys, I am keen for any feedback on experiences with smaller operators listed below ;

Stronghold investments
Exceed capital
Peak equities
Benlee
Fawkner property
APIL
Mair
Westlawn
Primewest
EG
Argus Property
Stamford Capital Investments
Corval

Just starting to do some research on smaller operators running single asset trusts.

 

Did look over the offerings from Fawkner and westlawn early on. The offerings were not enticing enough or look to be offering anything better than the bigger players to warrant taking the risk of investing with a small.

Yields are similar or slightly higher than the bigger players but the assets they acquire tend to be smaller / lower value and located in regional area or areas not considered prime in comparison to where the bigs tend to buy.

My experience with 3 smaller players being Heathley who are now under Centuria and Fortius have not been the best performers.
The Heathley experience is exactly why I wouldn’t go near smaller niche players again. Fortius funds I hold have had some difficulties but I can’t blame their management style for that. It’s been more around the exposure to retail that has struggled since COVID.
Though I specifically went with Fortius to gain some retail exposure as the likes of Charter hall and Centuria have stayed away from offering unlisted retail exposure.
And last but certainly not least is Sentinel. Again prime example for why I wouldn’t touch another small.

 

What does this mean for Charter hall, Aldi planning for 3 highly automated distribution centre (VIC, NSW and QLD) reducing from 6 DC's from 2025

Aldi scraps big sheds, opens high-tech distribution hubs

 

The upsides on the single asset funds is lack of dilution and typically higher LVR if you are risk hungry. Downside single asset / leverage / risk of skullduggery.

For me I am playing with a small part of the portfolio trying to achieve PE type returns c. 15%+

Ideally, well chosen unlisted property which is acquired with a view to re-purpose / partial redevelopment should be able to achieve this, obviously core buy/hold will not. I think the only other way to get this is in the property space is mezzanine and preferred equity but these are typically short term investments.

Just working through this it’s clear that I’ll need to look at a bunch of deals, all single asset and do specific DD on the managers plan for the asset and the manager themselves. Will take some time but that’s ok.

 

Aldi will make up ~5% of tenants in the Charter Hall Prime Industrial Fund by the end of this year (and prob less by 2025) so it will only be of nuisance value and I'm sure unitholders aren't complaining...

Unit price:
30 June 2020: 1.27
30 Sep 2020: 1.27
31 Dec 2020: 1.35
30 Mar 2021: 1.39
30 June 2021: 1.48

~16% growth + ~4.5% yield for 2020/21 FY

 

Any thoughts on the latest offering from Centuria? Centuria Government Income Property Fund | Centuria Property Funds

It looks like a well located asset with a very long WALE, 90% to government tenants. Is Footscray a decent suburb in Melbourne with a positive trajectory?

 

Here's a webinar link that just came to me on the asset in question.

 

Thank you - yes I saw that too. It actually looks a decent product to me (famous last words). Essentially credit risk is the government for 13 years and offers a reasonable premium to government bonds with income growth. I'm just not familiar with Footscray and whether it genuinely is an up and coming suburb where market rents will grow sufficiently to offset the $0.87 per unit starting NTA...

 

Some pretty crazy reval's going on for the 2 Charter Hall Office Funds (imo)

Fund_____30/6/20_____30/6/21_____Distro_____Total Performance 2020-21
DOF_____1.5236_____1.6876_____0.0783_____15.9%
PFA_____1.0663______1.1141_____0.0743_____11.5%
DIF4_____1.0982_____1.1976_____ 0.0676_____15.2%
LWF_____0.9991_____1.1035______0.0588_____16.3%

 

Nice. I’ll take that. Hold all but LWF. Was expecting a good jump from DIF4 and that’s why I topped up before June 30. Wasn’t expecting such a jump from the office funds.