Property & Infrastructure Funds Unlisted Property Trusts

For unlisted property funds, what are the typical sizes in terms of funds under management? Are we talking everything from small (up to 5 large private investors with say $10m under management) to the very large who could list on ASX but choose not to for various reasons.

 

@The Falcon I’m sure you’ve thought of this but if the intention is to hold the unlisted asset long term why are you buying it in a higher tax company structure vs your Australia Super Industry Fund?

The deferred income included in the property trust distribution reduces the cost base resulting in increased CGT when the asset is sold. And some of these smaller (and large) unlisted trusts do sometimes sell their assets at opportune time.

Australian Super has access to unlisted property deals individual investors can only dream of. They offer their Property Fund option separate which if held till retirement (pension mode) will be CGT free hence the lowered cost base as a result of the deferred income component isn’t an issue like in a Company structure. There’s no doubt some listed stuff in the fund also but I doubt that would be a deal breaker. It seems like a lot less hassle and work compared to trying to research this stuff yourself? Would perhaps be a great compliment to your Aus and International with them?

Aus Super Property Option:

AustralianSuper - Property (list of property assets)

 

A trust unitholder cant typically demand or expect exiting unless its listed or its unlisted and the manager allows the redemption. They dont have to otherwise and can defer the issue endlessly. You then become a passenger or unsecured creditor at best. Best to address this with a solicitor before writing a cheque.

Many have failed and some are just non-compliant with ASIC regs (illegal trust schemes). I have seen taxpayers wait years to get back some of their initial funds. Typical scenario is they run short of funds....despite having more than enough. Then project stalls....Or never really starts. Some are builders etc....Even saw one which was a large well known building firm. Client got her funds back. 1 year late. Low return and was poorly supported by financials etc

And even some seemingly well regarded managed trusts have failed horribly - Trilogy Group was a good example. AUnitholders got some money back and non-smsf super funds were paid from the APRA insurance scheme. SMSFs got jack....And its still going.

Prime Trust - Retirees' nightmare: anything goes if you disclose

Many A-reits were severely hampered by funding difficulties in the GFC. Even big guns like Centro and Stockland. Many colapsed. Investors took a battering. And that same position is emerging now. Lessons learnt: Property trusts recover from the GFC

 

Yes that is a good product and super is a good location for it. A few comments ;

- I am outsourcing SAA decisions to AustralianSuper, I am deliberately choosing two different approaches, as a natural hedge.

- viz super, 20+ years to access, risk of how high balance will be treated etc.

- things like unlisted property, Direct investment and opportunistic stock purchases (20% - often sells) will be done in trust - the indexed core (80% -never sell) is in company.

- this is a fact find, not a decision. The hassle and work is kind of the point though, when not working hassle and work is interesting and you might just find a few small opportunities along the way. While the plate is still full however, no time for this...and the plate is currently full!

 

Oh so you’re using a Trust / company structure as opposed to stand alone company?

 

Yes, there is both a Pty Ltd and a trust.

 

Safeguarding SMSF portfolios through market cycles

Forza Capital – Property and the Illiquidity Premium

 

Generally speaking, a significant problem that hampered unlisted property trusts in the past was the ability for investors to put in redemption requests. A $100m office building is not a liquid asset, despite how pre-GFC product PDSs may have led people to believe.

Most properly constructed unlisted property syndicates these days have a defined term - e.g. 5 or 7 years and full liquidity event is achieved when the property is sold or if unitholders choose to extend the life of the fund, the people who want out are effectively 'paid out' by others. Even the ones with limited redemption facilities clearly disclose the amount available for redemption and have robust clauses that can prevent a 'run' on redemptions. Some of these limited redemption vehicles are 'hybrid' in nature - e.g. majority of unitholder funds invested in a portfolio of properties alongside an allocation to an AREIT fund + higher than normal levels of cash.

 

I respect these guys

Home :: Scope Property Group

Smaller commercial property investments that are Perth based. You need to be quick once they find something.

And they can take a long time to bring something forward (once or twice a year).

 

Some interesting ones on offer - Nursing home (plenty of upside if they choose to expand)

 

OP, just wondering if you ended up going into any unlisted property trusts? if so which managers did you go with.
I’m holding unlisted property trust investments with a number of managers. Charter Hall, Centuria, Sentinel, Heathley and Fortius.
As you can see I am a fan of unlisted property.

 

Big Al nice work... are the historical returns generally in the 8-9% range for those managers?

 

Most have a distribution in the 7-8% range. Then there is the growth of the unit price. Most have had strong gains in the unit price in the last 3 years since I started investing. Others not so much. One example is centuria ATP fund. Started at 8% p.a distribution when I went in over 2 years ago. Now it’s paying 9% distribution based on the $1 unit purchase price and the unit value has grown to $1.49. Additional to that you get a good percentage of the distributions tax deferred.
In saying that compared to 3 years ago when I started researching and investing the deals coming across my table from the different fund managers have slowed and the distribution yields have come down. Now anything above 7% with good quality assets / location are hard to come by now.

 

Good feedback @Big Al and just coming back to your question now. I have not entered any UPTs currently but something I would expect to do in the next couple of years. I have a target AU commercial property allocation in my portfolio and have been looking at different means of getting this exposure, a single direct property (with debt attached), UPTs or A-REITs and I am leaning towards a basket of UPTs and trying to be a bit tactical with them.

Obviously there is quite a bit of room for skullduggery in this space so I will be pulling apart IMs and managers reputations before placing any money and also thinking about where these are placed (individual names, trust or company) given the fixed term of these investments.

Very keen to continue discussion and hear your experiences.

 

Probably sounding naive but given the access to highest quality product (hopefully with great due diligence) in the likes of property and infrastructure wouldn’t simply investing in these asset classes via an Industry Super Fund be worth considering? Are fees an issue? I suppose if access to assets prior to preservation age (min 60 for most) is an issue then of course it may not work. From a tax perspective Super is often ideal given the nature of real asset distributions compared to other structures.

This topic is a refreshing change so good to see it active again.

 

Deliberate policy to not rely on super access alone. At 40 & 36 a lot can happen until we can get access to the cash. So it’s really about doing both. At next major liquidity event will do 3x non concessional contribution limit each and continue to make concessional contributions at $25k pa each as we currently do, so won’t be short on the super side.

 

Thought that might be the case.

Joy oh joy, another proposed Labor change if elected. Non-concess contributions reduced to $75k pa which of course reduces Three Year Bring Forward amount accordingly. They’ll likely not encounter much resistance to this change I imagine given their mantra of soak the wealthy and ride the populism wave. So hopefully that liquidity event of yours happens soon.

Fortunately we’ve maxed out Super. I say fortunate as I have less and less interest in Super given the constant meddling by politicians. Investing outside of Super has more of a feeling of permanence and hence greater interest from me. Silly I know in that it’s more a behavioural thing but such is life.

 

I wasn’t aware of the pending $75k cap but fits with ALP agenda......it’s about having multiple pots for mine, similar asset allocation but different location. You can fine tune tax planning with specific assets and have it all tipped over. So I’ll just focus on getting it largely right.

 

Thank you Falcon. I like to think after 3 years of heavy research into the unlisted property sector I am well versed on the topic. I meet with a rep from charter hall regularly to discuss the market and have met one of the original founders of Charter Hall ( Cedric ) a few times now hence why I favour Charter Hall. I currently have holdings in 6 of there unlisted funds and 1 of there listed trusts. I have also met with the founder of Sentinel ( Warren Ebert and his side kick Michael Sherlock ) while definitely a smart bunch and very experienced I only hold 1 fund with Sentinel. Did hold a second fund that has now been closed.
Have also met a number of other property fund managers over the years but decided not to go into there funds.
I have personally met with every property fund manager I have invested with expect only Centuria who I never met face to face but spent much time on the phone with discussing each of there funds.
With super I'm pretty much in the same position and mindset as you. Being 38 years old I only started to paying attention to super a few years back. I now contribute the max 25K concessional limit each year. I have allocated all super to equities through a number of fund managers on the BT wrap platform. I have a financial adviser that manages that. I have kept all the property investments outside super and use family discretionary trusts and company structures to hold everything outside super. Spend plenty of hours with the accountant working on the best possible set up. I think he will be issuing me an honorary accounting certificate soon for the amount of time I spend with him learning and understanding the accounting side of things.