Commercial real estate funds – consistency in uncertain times

We talked about it. And now it has finally happened. The Reserve Bank raised interest rates by 0.25%, and this has already had an impact on the equity market. But in these uncertain times, commercial real estate funds can be a stable and reliable investment.

There are a lot of things weighing on the minds of investors right now.

Inflation jumped to 5.1% – a level not seen since 2008. That prompted the Reserve Bank to raise the cash rate by 0.25% in May, with a veiled comment that more rate hikes could be on the way as our central bank begins “the process of normalization of monetary conditions”.

Unsurprisingly, May’s rate hike rocked the Australian equity market, which immediately fell 0.4% following the Reserve Bank’s rate decision.

Add to that the uncertainty of an upcoming election and a cooling housing market in some major cities including Sydneyand investors may wonder what options are available to achieve a healthy and steady return.

The answer could be commercial real estate funds – especially unlisted commercial real estate funds that aren’t impacted by stock market volatility.

The economic outlook remains positive

To understand the appeal of commercial real estate funds, it’s worth taking a quick look at why the Reserve Bank raised interest rates.

Australia’s economy is on track for growth, with the unemployment rate forecast to drop to 3.5% in early 2023, which would be the lowest level in almost 50 years.

However, rising inflation could dampen growth and the Reserve Bank is keen to control the cost of living by raising interest rates.

The result is that the economic outlook is fundamentally positive. It is good for companies that rent commercial properties. And that translates into strong and steady rental returns for commercial real estate investors.

Why commercial real estate is so attractive

Commercial real estate has a reputation for providing strong rental returns. Select the right property, and investors can also potentially earn healthy long-term capital growth.

These advantages can make a direct investment in commercial real estate very attractive. But there are compelling reasons to invest through a commercial real estate fund.

For most direct investors, limited capital means that it is really only possible to own one commercial property. This concentrates risk, especially since more affordable properties may be occupied by a single small business. It also means that your investment is exposed to the fortunes of a geographic market.

Investing directly usually also means taking on significant debt to fund the property – a step that may not be viable or attractive to all investors.

Investing through an unlisted commercial real estate fund not only overcomes these drawbacks, but can also provide significant benefits to investors.

Access to diverse, high-quality properties

A commercial real estate fund will have considerably more capital to invest than individuals. This allows the fund to buy high-quality properties that attract prime tenants – companies that may be publicly listed or nationally based with proven business models.

An oversized pool of capital also allows a managed fund to invest not just in one property, but in multiple properties spread across different sectors and locations. This is an important advantage for investors as it brings diversity to the mix, which reduces risk.

By investing through a commercial real estate fund, not only do investors not need to take on more debt, but they don’t have to bear the burden of managing a commercial property and its tenants.

In fact, investors benefit from the fund manager’s expertise when it comes to selecting suitable properties, negotiating rental agreements to maximize rents and minimize vacancy rates, and recognizing investment opportunities. ‘add value to the property(ies).

Damian Collins, President of Perth Westbridge Fund Managementsummarizes the advantages of a managed fund.

He explains: “Investors in unlisted commercial real estate funds can expect the financial rewards of steady returns generated from current rents, coupled with the potential for capital growth, but without the hassle of day-to-day property management.

“These factors explain why many Westbridge investors hold shares in several of our commercial real estate funds. It can be a rewarding, but very easy investment. And unlike listed equities or real estate companies, unlisted commercial real estate funds are not affected by fluctuations in the equity market.

Spotlight on a corporate real estate fund

For investors unfamiliar with unlisted commercial real estate funds, it’s worth taking a look under a fund’s hood to see how they work — and what’s inside for investors.

the Westbridge No.4 Diversified Fund is a diversified fund that currently owns two key assets leased to ASX-listed or domestic tenants: an industrial distribution facility in Broadmeadows, Melbourne, Victoria, and a recently upgraded warehouse logistics facility in Canning Vale, Perth, Australia western.

The Fund is currently in the process of acquiring a third property – a 1.07 hectare retail complex just south of Perth.

The shopping complex is anchored by an independent retail outlet by Dan Murphy and enjoys prominent exposure.

So what are the advantages of Westbridge Diversified Fund No.4 for investors?

“We are aiming for consistent monthly income with target distributions of 7% per annum*, supported by a diversified income stream of rental income from national and high quality ASX listed tenants,” says Damian Collins.

“Furthermore, each site has been carefully selected following extensive due diligence, to foster the potential for capital growth.”

To learn more about commercial real estate funds and how they can bring consistent returns to your portfolio, or to invest in the Westbridge No.4 Diversified Fundto visit to request a copy of the Product Disclosure Statement and Target Market Determination.

* Anticipated distributions are neither promised nor guaranteed and are based on a number of assumptions. Their realization is subject to risks. The target performance is only an objective, not a forecast and it may not be achieved.

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.