History shows that the property cycle normally follows 4 phases as depicted below:
In observing the current property market and discussing the current state of the property cycle with various clients we have noticed that property syndicates and property funds are again coming back into vogue as wholesale and retail investors are favouring them in the hope that the time is right for an upswing in the property cycle, in addition to finding alternative investments given the lower return on bank deposits.
As well as the usual funds management groups who target sophisticated investors, we have also noticed other established property groups targeting retail investors in addition to new players entering the property market.
In our view, this has been a natural progression for the market given the falling cash rate and lower margins paid on term deposits resulting in investors and financial advisors actively seeking higher, secure yields through products with conservative debt levels.
As rates for bank term deposits continue to reduce as existing facilities mature, the search for yield increases.
Property syndicates have been known to seek and purchase various types of property assets ranging from shopping centres, industrial properties, hotels and office towers. Our review of the market and discussions with clients has revealed that office towers with good quality tenants and long leases are extremely attractive to place in a property syndicate or property fund.
There are numerous recent examples including APN Property Group (APN) who recently bought 541 St Kilda Road in Melbourne in a single asset closed-end property fund for $28 million. This complex is 80% occupied by SEEK. APN sought $18.75 million with investors offered an initial target yield of 9%. Cromwell Property Group recently launched an unlisted property trust that will own a large office complex in Box Hill, Melbourne that is to be occupied by the ATO. This trust was seeking $66.5 million from investors.
Property Syndicators are very active in Sydney, with Centuria Property Funds securing an office tower located at 175 Castlereagh Street Sydney from Stockland for $56 million. Centuria also recently launched the Centuria 10 Spring Street Fund, acquiring an office building in Sydney CBD providing investors with a starting forecast distribution of 8%. Our observations and feedback from the market are that these transactions have been well supported by investors.
In addition to office towers, we have seen strong demand for well tenanted industrial properties being acquired below replacement cost.One Investment Group is able to provide trustee and/or responsible entity services to property managers and/or property funds. To the extent our clients require, we are also able to provide fund administration, taxation and registry services, enabling our clients to purely focus on asset acquisition and management.