Commercial real estate funds avoid global volatility

It’s an uncertain time for investors right now, but commercial real estate can offer healthy returns and steady income without the nail biting.

Based on the early months of 2022, investors could face a bumpy ride this year.

We have seen the Australian equity market take a capital loss of 5% so far in 2022. The Australian dollar slipped from a 12-month high of US$0.78 in May 2021 to around US$0.73 at the start March 2022.

And investors who poured money into cryptocurrencies in late 2021 will likely be nursing burnt fingers, with Bitcoin, the world’s best-known crypto, slipping to AUD54,500 from a high of AUD89,300. last year. November.

The backdrop to all of this is the ultra-low returns from savings accounts, whose Reserve Bank data shows on average a meager 0.25%.

What’s behind the volatility?

There’s a lot going on in global markets right now, largely driven by the Russia-Ukraine conflict, although COVID and unprecedented flooding on Australia’s east coast haven’t contributed to volatility. steps.

And it may take some time for stock markets to stabilize. 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 that investors are deeply concerned about the volatility of share markets.

A profitable investment with regular income

The advantages of investing in commercial real estate include emphyteutic leases that generate regular income. A well-chosen property can also generate impressive capital growth over time.

The catch is that investing in commercial property in Australia requires a significant down payment – ​​and potentially substantial debt.

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

Advantages of managed funds

Professionally managed commercial real estate funds invest in high-quality, high-value assets that are priced out of reach for most individual investors. We’re talking big warehouses, retail malls, and even medical centers that attract top notch and well-known companies.

One of the main advantages of commercial real estate is that tenants generally don’t want to be disrupted by having to move every few years. Thus, leases generally extend for five years or more. This provides income certainty for investors – so much so that distributions are often paid monthly. Regular income is especially important for retirement planning.

Damian Collins, chairman of Perth-based Westbridge Funds Management, sums up the benefits, saying: “Unlisted property funds are a popular investment choice for those looking for a consistent stream of income, while avoiding the volatility of the property market. listed funds and large individuals. down payment from a direct real estate investment.

A hassle-free investment managed by experts

When you invest in a professionally managed fund, you can be confident that you are placing your money in high quality asset(s). Indeed, the fund management team will follow a rigorous property selection process that addresses:

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

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 workforce and provide nearby clientele.

Tenant’s call – the nature of a commercial building is important. Even if the location is ideal, some buildings simply do not meet the expectations of tenants.

Environmental sustainability – a building with strong environmental characteristics is becoming increasingly important for both tenants and owners. The potential to add value to a commercial property (and appeal to tenants), by reducing maintenance and long-term operating costs, is an important consideration in the buying process.

Add up the benefits

In fact, there are several valuable benefits of investing in commercial real estate through a commercial real estate fund. The fund manager not only handles the day-to-day management of the underlying commercial properties, but also has the experience to nurture tenant relationships, which helps reduce vacancy rates.

Additionally, a skilled manager will look for ways to add value to a site, further supporting high rents and long-term capital appreciation.

What to look for in a commercial real estate fund

For investors, diversification across multiple assets is a smart way to reduce risk and smooth overall returns.

The same goes for a commercial real estate fund. Any investment involves risk and commercial ownership is no different. However, those who diversify across different properties can reduce risk.

As Damian Collins notes, “A diversified real estate fund gives investors the flexibility 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 example, holds two assets to date – the first being adjacent industrial distribution facilities in Broadmeadows, Victoria, and most recently an office/warehouse logistics facility in Canning Vale, WA, which is fully leased to Blackwoods, a subsidiary wholly owned by Wesfarmers Limited.

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

Westbridge Diversified Fund No. 4 not only has an impressive array of assets, it also offers enviable returns. The targeted distributions are 7% per annum, paid monthly.

This solid, steady performance is a feature that will appeal to many investors who have grown weary of the emotional and financial roller coaster of many other investments.

This information has been prepared by Westbridge Funds Management for information purposes only. It does not constitute an offer to sell or a solicitation to buy securities, financial products or other investments. It should not be relied upon to determine or make decisions regarding a person’s investment objectives, financial situation or individual needs. Westbridge Funds Management recommends that investors seek professional advice before making an investment decision. All investments involve risk and investors should assess the risks of investing in a 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. License AFS 238386. Momentum Wealth Projects Pty Ltd ABN 29 090 792 439 t/a Westbridge Urban.