Much-anticipated property funds -the focus for investors
With term deposit paying less than 2 per centper year, it has been a challenging low yield environment since GFC. In the same time, commercial property fund, which is technically a form of shadow banking, has aroused investors’ attention.
The opportunity arises, when the Australian Prudential Regulation Authority tightened the taps on Australia’s Big Four banks and banks retreating and lowering their exposure to this sector, which opens up significant opportunities for astute investors. Investors of commercial property funds are filling a lending gap left by the major banks.
One of the commercial property funds, Wealth Pi Fund says, its investors are putting an average amount of $250,000 towards an individual property development project from a minimum allowable investment of $100,000. Asset values are inthe $2-35 million range, loans typically range between 6-24 months, and investors are earning net returns of 8-15 per cent per annum.
“Each loan is completely segregated from the other in an individual unit trust structure – it’s not a pooled mortgage fund,” says Wealth Pi Fund partner Olivia Jiang.
Unlike pooled mortgage schemes, investors lending money to these types of commercial property funds know exactly what asset they are backing, and its profile.
“Investors have control over selecting the asset class, location, loan size and terms. They have control over their money. With such transparency and control, it was the only way a lot of investors, coming out ofvery opaque funds, especially after the GFC, were going to part with their money,” says Christina Jiang, Wealth Pi Fund Senior Business Development Manager.
In many cases, these investment opportunities are fully subscribed within days of launching. Wealth Pi Fund recently launched a 1.77-million-dollar investment targeting a 10 per cent return per annum with first ranking mortgage for a project in a premium residential area: the fund was fully subscribed within 1 day.
Like many of their peers, Wealth Pi Fund only take sophisticated investors and deal with experienced industry operators. Their investors are comfortable with blue-chip investments in major capital cities – places they know well.
Risk management
“We appoint independent valuers and conductdue diligence, and if that ticks the boxes then it goes to the Credit Committee,” says Tiger Liu, Managing Director of Wealth Pi Fund.
“If the investment Credit Committee decides to proceed, we put skin in the game instead of waiting for lenders. Most of the large size loans are fully funded by Wealth Pi and JV partners in the first instance, and then investors are offered the opportunity to purchase part or all the loan. The loan might also partially be securitised as a private bond and wholesaled to an advisory group as well as offered to high net worth individuals.”
A Case Study
Wealth Pi uses the example of a 6-month mezzanine loan for a developer that needs a little more time to sell down apartments. The developer is one of the well-known developers in Sydney and has a portfolio of high-quality projects in their pipeline.
“If we lend the money on a short-term basis at around 15-17 per cent for mezzanine loan (preference share), we could then potentially offer our investors between 12-14 per cent. The spread is Wealth Pi doing due diligence on the asset, structuring the financing solution and managing the loan throughout its duration. Our investors are pleased to see the net return paid quarterly into their bank accounts,” says Tiger Liu, the Managing Director of Wealth Pi Fund.
Although non-bank lenders only take up 7% of the commercial lending market, the competition is intense. Partnered with Pallas Capital (Australia) and Tyee Capital Group (Hong Kong), Wealth Pi Fund is a quick mover in the market, leveraging its vast funding resources in APAC, strong local market knowledge and deep industry contacts.
www. wealthpifund.com
info@wealthpifund.com
Author: Christina Jiang
Bilingual (Chinese& English) columnist on financial literacy. More than eight years’experience in commodity trading and wealth management industry acrossAustralia, Singapore and China. Senior business development manager of WealthPi Fund. LinkedIn profile:www.linkedin.com/in/christinajiang16
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