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With attractive levels of income and potential for capital growth, unlisted or direct property funds are in the spotlight in this global low income yield environment. While Australian commercial property is a well-known investment option, the various types of property funds that are accessible to retail, SMSF and high net worth investors are less understood. This article aims to explain the differences between the most common property investment structures.
Funds like the Charter Hall Direct Office Fund (DOF), have no fixed expiration date. In Charter Hall’s case, our funds offer investors rolling five-year liquidity events. This means that the fund will continue for the long term, remaining open past each liquidity event. Open-ended funds allow you to invest or add to your investment at any time. Investors are given the opportunity to redeem all or some of their units at certain times during the life of the fund through scheduled liquidity events. Alternatively, investors can choose to remain invested instead.
These funds may also offer regular limited withdrawal offers. For example, in DOF, these are intended to be made every six months, subject to the fund having available liquid assets.
A benefit of open-ended funds is the ability to add assets to the portfolio over time. Assets will also be sold, usually when the manager takes the view that the risk adjusted returns for that property have been maximised for investors.
These funds have a defined investment period and a limited number of units available. Like open-ended funds, investors often buy units without the certainty of all the assets in the portfolio, trusting the manager to execute on the fund’s investment strategy. Once all units have been allocated, the fund closes, and no further units can be purchased. Investors cannot redeem their units until a liquidity event occurs, usually at the end of the fixed term.
Syndicates or trusts, usually invest in a single asset or small portfolio of properties. Investors have certainty as to the assets in the portfolio before deciding to invest for a fixed initial term. Once the term concludes, it is intended that the portfolio be sold, proceeds are returned to investors and the investment vehicle closed.
Australian real estate investment trusts (A-REITs) provide investors with exposure to commercial property via the Australian Securities Exchange (ASX). These have the benefit of daily liquidity and wide diversification options. However, they are subject to listed market fluctuations.
Other types of open-ended funds may not hold the property directly. For example, a property securities fund like Charter Hall Maxim Property Securities Fund (Maxim) – an unlisted fund that invests in A-REITS. The benefit of having listed securities as the underlying investment is the daily liquidity, noting that this typically comes with greater volatility in the fund’s unit price.
While having very different structures and many different features, these are all ways to invest in the one thing, commercial property. Commercial property investment usually delivers sustainable and stable income, and strong risk adjusted total returns. Unlock more value for your clients and contact us today.