16/03/2022 - 10:12

Commercial property funds sidestep global volatility

16/03/2022 - 10:12

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Commercial property funds sidestep global volatility
Damian Collins, Chairman of Westbridge Funds Management and President of REIWA

It’s an uncertain time for investors right now, but commercial property can deliver healthy returns and regular income without a nail-biting ride.

If the first few months of 2022 are anything to go by, investors may be in for a bumpy ride this year.

We’ve seen the Australian sharemarket incur a capital loss of 5% so far in 2022. The Australian dollar has slipped from a 12-month high of $US0.78 in May 2021 to sit at around $US0.73 by early March 2022.

And investors who tipped money into cryptocurrencies late in 2021 will likely be nursing burnt fingers, with Bitcoin, the world’s best known crypto, sliding to AUD$54,500, down from a high of AUD$89,300 last November.

The backdrop to all this is ultra-low returns on savings accounts, which Reserve Bank data shows average a meagre 0.25%.

What’s behind the volatility?

There’s plenty going on in global markets right now, much of it driven by the Russia/Ukraine conflict, though COVID and unprecedented flooding on Australia’s east coast hasn’t helped market volatility.

And it may be some time before sharemarkets settle down. The VIX Index (also known as the Fear Index) shows expectations of future volatility. In early March it was well above its 50-day moving average, suggesting investors are deeply concerned about volatility in sharemarkets.

A rewarding investment with regular income

The benefits of investing in commercial real estate include long leases that deliver regular income. A well-chosen property can also notch up impressive capital growth over time.

The catch is that commercial property investment in Australia requires a significant capital outlay – and potentially taking on a substantial debt.  

However, there is an easier way for Australians to take advantage of commercial real estate investment opportunities – and the answer lies with property funds.

Managed funds advantages

Professionally managed commercial property funds invest in high quality, high value assets priced beyond the reach of most individual investors. We’re talking major warehouses, retail shopping centres and even medical centres that attract blue chip, household name companies.

One of the key benefits of commercial property is that the tenants usually don’t want the disruption of having to relocate every few years. So, leases typically span five years or more. This provides certainty of income for investors – so much so that distributions are often paid monthly. The regular income is particularly important for retirement planning.

 Damian Collins, Chairman of Perth-based Westbridge Funds Management, sums up the pluses, saying, “Unlisted property funds are a popular investment choice for those looking for a consistent income stream, while avoiding the market volatility of listed funds and the large, individual capital outlay of a direct property investment.”

A hassle-free investment run by experts

When you invest through a professionally managed fund, you can be confident you’re putting your money into a high-quality asset(s). That’s because the fund management team will follow a stringent property selection process that addresses:

Location – as with all real estate, location matters in commercial property. Proximity to strategic transport hubs is important to tenants in some asset classes, such as industrial, while the economic catchment area may be more important to tenants in retail or medical.  

Local demographics – the success of a commercial property can be shaped by the demographics of an area, as this can dictate the availability of a labour force and provide a nearby customer base.

Tenant appeal – the nature of a commercial building is important. Even if the location is great, some buildings are simply not up to the standards expected by tenants.

Environmental sustainability – a building that has strong environmental attributes is becoming more important to tenants and owners alike.  The potential to add value to a commercial property (and tenant appeal), by trimming long term maintenance and running costs is an important consideration in the buying process.

Adding up the benefits

In fact, there are several valuable advantages of investing in commercial property via a commercial property fund. The fund manager not only addresses the day-to-day management of the underlying commercial property(s), but also has the experience to nurture tenant relationships, which helps to reduce vacancy rates.

In addition, a skilled manager will look for ways to add value to a site, further supporting strong rents and long term capital gains.

What to look for in a commercial property fund

For investors, diversifying across multiple assets is a sensible way to reduce risk and smooth out overall returns.

That same applies to a commercial property fund. All investment carries risk and commercial property is no different. However, those that diversify across different properties can reduce risk.

As Damian Collins notes, “A diversified property fund gives investors the opportunity to spread their capital across multiple properties, industries, and markets.”

He points out that Westbridge Fund Management has achieved this with a number of its commercial property funds.

The Westbridge Diversified Fund No. 4  for instance, holds two assets to date – the first being adjoining industrial distribution facilities in Broadmeadows, Victoria, and more recently, an office/warehouse logistics facility in Canning Vale, WA, which is fully leased to Blackwoods, a wholly owned subsidiary of Wesfarmers Limited.

“The Canning Vale asset is a great addition to the Westbridge Diversified Fund No. 4,” says Mr Collins. “And we are targeting further acquisitions over the next 12 months.

The Westbridge Diversified Fund No. 4 doesn’t just have an impressive line-up of assets, it is also delivering enviable returns. Targeted distributions are 7% per annum paid monthly.

This strong, regular return is a feature that will appeal to plenty of investors wearied by the emotional and financial roller coaster of many other investments.

 

 This information has been prepared by Westbridge Funds Management as a general guide only. It does not constitute an offer for sale, or solicitation for the purchase of securities, financial products or other investments. It should not be relied upon to determine or to make decisions about the investment objectives, financial situation or individual needs of any person. Westbridge Funds Management recommends investors seek professional advice before making a decision to invest. All investment carries risk and investors should assess the risks of investing in any fund before deciding to invest. Manager, Responsible Entity and Product issuer: Westbridge Funds Pty Ltd ABN 33 652 852 214 AFSL 533936. Mair Property Funds Limited ABN 48 151 957 676 t/a Westbridge Asset Management. Mair Property Securities Limited ABN 28 091 623 862. AFS Licence 238386. Momentum Wealth Projects Pty Ltd ABN 29 090 792 439 t/a Westbridge Urban.

STANDING BY BUSINESS. TRUSTED BY BUSINESS.

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