What types are there?
Unlisted Property Trusts aim to offer a low-maintenance real estate investment alternative that generates regular income without the responsibilities that come with direct property ownership.
Other real estate investment trusts are operated through a special purpose vehicle (SPV), giving investors a share in potential gains from either rough development, capital improvements, planning permission, or linear property growth.
What are the potential benefits of investing in these types of opportunities?
Property trusts or similar can be part of a diversified portfolio for many reasons. Depending on an individual’s portfolio, financial goals, and risk tolerance, the benefits of these investments can include:
1. Regular income & Opportunity for capital growth
Unlisted real estate trusts aim to provide you with regular and competitive distribution income over the life of the trust – so investors can focus on what matters most. However, distributions are not guaranteed, nor is the repayment of the initial capital invested.
2. Professional management
Unlisted real estate trusts and SPVs are usually professionally managed by a fund manager, allowing investors to earn regular returns from real estate without having to take on any debt themselves or manage any real estate assets.
The fund managers use their investment and real estate expertise to find and acquire properties that meet their investment and risk management criteria.
3. Access to property and critical diversification
Pooling funds with other investors in a property trust or SPV may give investors access to benefits they might not have been able to gain as individual investors.
Investors can gain access to real estate without the significant upfront capital that would have been required to purchase the property or properties outright. The larger pool of capital can also allow a trust to acquire multiple properties within its portfolio, giving investors a critical level of diversification that cannot be achieved by investing directly.
What should be considered if you want to invest in an unlisted real estate fund or an indirect real estate investment:
The decisions made by the fund manager directly affect how investors’ capital is used to generate returns – it is therefore important to choose an investment managed by a strong fund manager. Characteristics of a strong fund manager can be:
Experience: The fund manager should have developed a thorough understanding of how the market and real estate investments work so that he is well placed to make calculated investment decisions in your best interests.
Discipline: Ability to adhere to its investment mandate, criteria and representations to investors.
Proactive risk management: The ability to identify risk and proactively manage its impact on returns.
type of property
The class of property or property held or developed, such as B. residential, commercial, office or industrial properties, plays a large role in the overall stability and performance.
Different classes of real estate are subject to different demand, market and economic trends, risks, lease terms, liquidity and investment objectives, all with their own risks and benefits.
The cash flow of a real estate fund depends heavily on rental income. Therefore, the creditworthiness of the tenants and the duration of the leases are crucial to the ongoing performance and value of the trust.
Unlisted real estate trusts and SPVs are inherently illiquid. It is important that investors always consider cash flow requirements and understand the time frame of the investment when planning an investment.
It is important to be aware of the level of equipment. To buy real estate, many managers raise a portion of the capital from investors, with the remainder being funded through debt, often secured by one or more mortgages on the real estate. Higher leverage ratios may indicate that a Fund has a higher degree of financial leverage and is generally more vulnerable to downturns in the economy or the real estate cycle.
Ross Stiles is an independent director and chairman of CFMG Capital.