Accessing the office from home: The unlisted property opportunity
Until now, there has been a lot of pain and suffering in pockets of the property market. COVID-19 hit property unevenly, as residential and industrial markets absolutely skyrocketed while commercial and retail were left in limbo.
In this video, we discuss a range of topics with Wehl, including the impacts of COVID-19, the excess dry powder in the property market and what this will do to asset prices.
This transcript has been edited for length and clarity
What are some of the pre-COVID trends to be aware of?
Hamish Wehl: Well, going back several years, we were seeing the activity-based workstations, which is more flexible within the office environment fit-out.
So you're seeing a higher density of workers per square metre to sort of encourage collaboration within the office environment. And now you're seeing the reversal of that. You're seeing a greater footprint of office environment per employee. There's no doubt COVID's still going to be a factor as we go beyond 2022 and beyond. The fallout from COVID will still be there.
What are the trends in a COVID-Normal world for the direct property market?
I think the key questions are, is industrial overpriced? Will retail bounce back? And what's the future for office? I don't have a crystal ball for any of those things in particular, but we're office experts and that's the place we play in, I guess, in Australia.
And I think the office will always be a key environment and will be a required footprint for collaboration and personal development, mentorship and for the company culture. They're important things.
And when you all work remotely, they're hard to foster. So I think the office is going to evolve. It was evolving before the onset of COVID and it will continue to evolve, but it's certainly not dead.
How can investors take advantage of emerging property trends?
Look, investors can access the commercial property market via an unlisted property fund. Some of the key benefits of that is that they can get access to institutional-grade investments, which often cost 100s of millions of dollars for as little as $10,000. So take an example of the Cromwell Direct Property Fund.
That's a fund that invests into a core portfolio of commercial property assets. It's diversified across four different states and territories. We've got exposure to nine assets.
Six of those assets we own directly. And we pay monthly distributions with a limited monthly liquidity facility. And we accept applications daily.
So those sorts of characteristics are quite unique to the fund. And it gives an everyday mom and dad exposure to some corporate institutional assets that they wouldn't otherwise be able to gain access to.
What is your strategy for the fund including diversification and fund duration?
We're sort of cautiously optimistic on the office environment in general, but we're also very selective in the assets we acquire.
We've got a really strong focus on income quality. So our tenants have the ability to continue to pay their income. In excess of 65% of the Cromwell Direct Property Fund's revenue stream comes from government and ASX listed tenants. It's a fund which has exposure to nine assets.
Six of those assets are owned directly and they're across four different states and territories. It is focused on the office sector at the moment.
We have the capacity or the capability to invest into industrial and retail when we see value in those sectors, but diversification is delivered through those nine assets. And they range in value from sub 20 million to in excess of $280 million. So there is a diverse range of values between those nine assets.
How much liquidity do you hold in the fund?
Look, it's an open-end fund. And what that effectively means is that the fund is continually open for investments.
We accept investments daily, and we pay the monthly distributions. One of the key differences between an open-end and a close-end fund is that there's an element of liquidity provided to investors.
One of the fund's key features is that it provides unlimited monthly liquidity facility. A lot of competitors provide six monthly or quarterly or bi-annual. Sorry. Bi-annual or annual.
The Cromwell Direct Property Fund provides unlimited monthly liquidity facility. So what actually means is that in any month, we make available .5% of net assets and we pay that out to investors if we get that level of redemptions. Now, if we also hold in excess of 6% cash, so as a simple example, if 6% of cash ism say, $10 million of the fund and we hold $15 million of cash in the fund, we can make available the greater of.
So in that particular month, we can make $5 million of cash available for redemptions in that particular month.
Now, the fund's been going for eight years. Throughout the life of the fund, we've had four months where we haven't been able to provide liquidity in full throughout the peak of COVID, but we did provide an element of liquidity throughout those four months and then we were able to catch up by the end of the four months and provide liquidity each month thereafter within those thresholds.
One of the other key features is that after an initial first-term of seven years, every five years thereafter, there's a full liquidity event.
So investors know for sure that they can get an element of liquidity every single month and then every five years, there's a full liquidity window where they can gain 100% of liquidity.
For more information about Cromwell’s funds, please visit their website or fill in the contact form below.
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