There are no guarantees in life or in property investment but there are 5 key things to consider when deciding who to trust with your money. If you’re thinking about investing in a property trust, you should analyse the following characteristics to help choose a property investment manager that you can rely on to make consistently good decisions.
1. Track record
While past performance is no guarantee of future success, a track record of putting investors’ interests first, behaving ethically, and sticking to a clearly-communicated investment process, is a good start. Of course, everyone is subject to market movements in the short-term, but a long-term show of good decision-making, clearly explained, is important.
Investors should look for a well-thought through, transparent and robust investment process, as well as a demonstrable history of consistently sticking to it. How properties are chosen and why, what they will add to an overall portfolio, and what plans there are to upgrade them now or in the future, are all factors that contribute to the ultimate return an investor can expect to receive.
Time spent in the market builds knowledge and experience that can’t be learnt any other way, and it’s also the only way to build strong relationships (the importance of which we cover in point 3).
Transparent dealings at every stage of the investment process are arguably more important now than ever, in a post-Royal Commission world. Some analysts are predicting a tightening of credit and access to funds in the wake of revelations of systemic problems in the past – but those with a track record and a strong balance sheet are likely to be less affected. And the ability to access funds at a reasonable rate is of course important because all costs impact final investment returns.
2. Size matters
The size of a company’s balance sheet matters because it gives an indication of financial strength of the entity.
A strong balance sheet and conservative capital management are important because they provide comfort not only to investors, but to banks and other financiers. A financially secure company will typically find it easier to access credit and raise equity than one which is considered riskier – and funding costs will usually be more competitive. The cost of debt (and of raising equity) can make a difference to the end return an investor takes home, so getting the most competitive rates is important.
Size also matters in property investment because research and understanding of specific property markets will make good investment decisions more likely. Time on the ground talking to tenants, agents, and other players is crucial when it comes to identifying and securing quality properties for the right price – sometimes off-market.
3. Relationships matter
Relationships matter in property markets, arguably more than they do in some other investment classes. Investors choosing equities on the basis of quantitative models, for example, don’t need the same market relationships that other investment managers do – particularly property investment managers.
Property transactions can be competitive and complex. Property transactions typically involve a number of participants – vendors and buyers of course, but also commercial property agents and financiers – and long-term industry relationships increase the chances of a favourable deal. Relationships with agents, who play a pivotal role in recommending a buyer to the vendor, are key to success. If a commercial property is for sale via a competitive tender process, the recommendation of the managing agent can make the difference between winning or losing. The same can be said of off market transactions, which can allow for a better deal due to the reduced competition. Relationships are key to identifying potential opportunities, and to negotiating a deal off market.
Strong relationships with tenants can make a significant difference to the returns from a property. Trust between tenant and landlord takes time to build, and close relationships mean fewer surprises with respect to tenants’ intentions. Being the first to know when a tenant requires more space, is experiencing difficulty paying the rent, or is looking to re-locate, means being in a better position to negotiate the best possible deal.
An understanding of the importance of good tenants and good relationships with tenants is the reason that we at Centuria believe strongly in the importance of an in-house asset management team. Our internal asset management team coordinates all negotiations with tenants – which are mostly completed directly, or sometimes in conjunction with a third-party agency.
4. Flexibility and responsiveness, not bureaucracy
Size matters, but flexibility matters as well, and finding the right balance can be a challenge.
The size and financial strength to compete for quality deals is key, but so is the flexibility to move quickly and negotiate in a matter of days not weeks. This is true in acquisition and sale processes, but it is equally true with tenants. Responding in a timely manner helps build relationships, but it also means securing deals quickly.
5. Transparency at every stage
Investors have the right to know where their money is going and how it is being invested – down to the last dollar. Investment managers that do a good job of communicating their investment process, outlining reasons for individual investment decisions, and updating investors regularly are more likely to engender trust and loyalty in those investors.
Transparency is key – and there’s nothing like hearing updates from the horse’s mouth. We believe that investors should be able to talk directly to the fund manager – the person responsible for the ultimate decisions about every property transaction. We hold regular investors updates for this purpose, during which investors can ask questions directly of the fund and asset managers and have them answered openly.
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