Capital Property Funds Executive Director, Joe Christie introduces the company's special purpose metropolitan office and first mortgage funds.
Jessica Amir: Thanks for your company. I'm Jessica Amir for the Finance News Network. And joining me today from Capital Property Funds is Executive Director, Joe Christie. Hello, Joe, and welcome to the network.
Joe Christie: Hi, Jessica. How are you?
Jessica Amir: Good, thank you. So, first off, for those who haven't heard of Capital Property Funds, just give us an introduction.
Joe Christie: Capital Property Funds is a Sydney based fund manager, and we were established in 2012. We aim to provide our investors with a net income return of 8 per cent per annum, and that 8 per cent is net of all fees and expenses, and it's paid on a quarterly basis. We do that with basically two styles of funds. We've got an unlisted property fund structure that we offer to investors, and we also have a real estate debt fund, which we obviously also offer to investors.
Jessica Amir: And now, let's talk about the property market, which is cooling its heels in some regions of Australia, but what's the house' view on the property market?
Joe Christie: We were buying actively looking for assets in Sydney and Melbourne in the last three or four years, and I think everybody would agree that the firming of yields in both Sydney and Melbourne in the office market has plateaued, and by that I mean that those markets are fully priced now. And so we've actually been actively divesting out of those two markets and actively buying in the Brisbane market.
So since about 2016, 2017, we've been actively buying commercial office buildings in the core Brisbane CBD and the near city or what they call the fringe CBD market. So, yeah, we sort of feel as though Brisbane is, say, two or three years behind where Sydney and Melbourne are, so you're starting to see funded infrastructure projects in Brisbane, you're seeing the underlying fundamentals of the Brisbane market improving, so you're seeing effective rental growth, you're seeing improvements in vacancy rates, and white collar employment growth in Brisbane.
There's also a weight of capital, so there's a lot of institutional investors both domestically and internationally that have been buying up assets in the Sydney and Melbourne markets, and I think they're also of the view that, look, those markets are fairly fully priced now, and there's better value in the Brisbane market. So that's our house view at the moment. I mean, we're actively buying into the Brisbane market. We probably got in quite earlier, two or three years ago, but you're just starting to see the underlying fundamentals of that market improving.
Jessica Amir: And Joe, what do you look for in a property before pouncing on it and investing?
Joe Christie: We're looking for A-grade or B-grade commercial office buildings with large floor plates, abundant natural light, close to retail amenity and transport amenity, so well-located, good-quality office buildings. And typically, we're looking at the exit strategy, so we're thinking, when we're buying an asset, we've got to look at who we're going to be selling it to at the end of the investment holding period.
And so we're looking to buy institutional-grade assets, so assets that would fit the mandate of a large institutional fund manager. But the secret we find is that we've got to be buying assets a couple of years ahead of where the fund managers at the moment are buying, so by way of example, sort of in 2015, most of the larger international and domestic fund managers were purchasing core Sydney, Melbourne CBD assets, and we've sort of felt they were getting fully priced, so we were looking at that near city or fringe market so we bought an asset in Parramatta in 2015 for $30 million, and then we've recently sold that for $57 million after a three-year holding period.
So the average investment in that fund was $100,000 so the investors in that fund enjoyed an 8 per cent income return for the three-year holding period, and their initial $100, 000 is now worth over $200,000. We're trying to replicate that strategy, I suppose also in the Brisbane market.
Jessica Amir: Brilliant, and well done to you.
Joe Christie: Thank you.
Jessica Amir: Now, can you tell us about the funds?
Joe Christie: As I said before, there are two styles of funds. So we have what we call an unlisted property fund. So that's where we buy a commercial office building. They're generally to five year holding period and the minimum investment in that fund is $25,000 and the funds are geared at 50 per cent. And so the rental income is generated by the tenants in the building, and we simply just pass that income out to the investors. And then at the end of the holding period, we also try to obviously sell the building for more than what we've acquired it for and to provide a capital gain to them.
And then the other style of fund we have is our real estate debt funds. And those funds are secured via a first mortgage over property. So whereas the unlisted property funds is a five-year term, the real estate debt fund is only a 12-month term. And that does have a lot of appeal for investors not wanting to tie their cash up for a long period of time, still get the 8 per cent return, net of all fees and expenses, but no capital growth in that fund.
Jessica Amir: And just lastly, before we let you go, is there anything that you want to share with the audience today?
Joe Christie: Just if anybody's interested in registering with us as a potential investor, go to our website, it's www.capitalpropertyfunds.com.au and you can register your details there, or you can send us an email at firstname.lastname@example.org and we love to see people. So if you're in town in Sydney, we're at 50 Margaret Street, the mezzanine level, and we always welcome you to have a cup of coffee and come in and have a chat and meet us face to face.
Jessica Amir: Wonderful. Joe Christie, Capital Property Funds, thank you so much.
Joe Christie: Thank you very much, Jessica.