Capital Property Funds Executive Director Joe Christie reveals everything you need to know about debt investments, from returns to why people are attracted to debt.
Jessica Amir: Thanks for tuning into the Finance News network. I'm Jessica Amir. And joining us today from Capital Property Funds, is executive director, Joe Christie. Joe welcome back.
Joe Christie: Thanks Jessica. How are you going?
Jessica Amir: Good, thanks. So first up, Joe, I'd just like to start off with an introduction to what your Debt Fund actually is. What can investors expect?
Joe Christie: Investors into the Debt Fund [Capital Property Funds Property Debt Fund]. Look typically they're people that are looking for an income yield. So our Property Debt Fund is yielding an 8 per cent return net of all fees and expenses.
Then how the fund works. I mean investors say, "Look it's a great return Joe, but what is a debt fund?" And effectively we just sort of say "Look, it's really you're becoming the bank. The investors are becoming the bank." I use the analogy, if you're looking to buy a property, typically you would go to the bank. If you bought a... When you buy property, say that was $1 million, you're going to need to borrow some money from the bank. You fill in an application form with a bank. If the bank approves that application, they would then lend you the money and there'll be terms with that, associated with that loan.
And that's the same with our debt fund. So we have professional investors and developers who are looking to acquire property. They approach us and they submit an application form to our lending committee. We assess the application and if it's approved, then we send a letter of offer back to the borrower and then they need to accept that offer. Then once it's been accepted, we then circulate that to our investors and they can choose to subscribe to that particular opportunity.
Jessica Amir: Great. So just before we go any further, what's the minimum investment requirement and when does the investor get their money back?
Joe Christie: The Fund is open to mum and dad investors, self-managed super funds, retirees, so anybody can invest into the fund, provided that they meet some certain criteria.
Now the minimum investment is $50,000. And it's a very good question you ask because look, the fund is what you would call an illiquid fund. You can't just hit a button and get your money back straight away, and typically it's a 12 month term. So what we do is we issue what's called an information memorandum for each offer and that offer would stipulate what the term will be. Effectively you are locked in for the term of that offer.
We typically roll out an opportunity every four to six weeks. So investors can pick and choose the opportunities that they want to invest into.
You do need to be what's called a sophisticated/wholesale investor as defined by the Corporations Act. Effectively you really just need to complete a one page application form that needs to be signed off by your accountant, just to say you meet that criteria and it's not a difficult criteria to meet.
Jessica Amir: So it all sounds great Joe, but if you wouldn't mind just sharing an example with us of a recent transaction.
Joe Christie: The most recent deal that we did was one at Caboolture, which is a suburb just north of Brisbane. The quantum of that loan was about a $1.5 million-dollar loan, so a little bit smaller than normal. We generally like to sit between that $2-5 million mark, but this was a $1.5 million dollar deal. What we liked about the deal, was the borrower was somebody that was very well known to the team. So we'd had a long term relationship with the borrower, nearly 20 years. They had a track record of always delivering. So we'd lent to them previously and they were able to complete a development through to the end. Pay us back.
We also liked the asset as well. So we're very comfortable in the eastern seaboard being Brisbane, Sydney and Melbourne, particularly in that residential market. This was a rural land subdivision. It was a three stage development. The developer had completed stage one, so they’d done that construction work and all the sales work as well. All the lots had virtually being completely sold, so we had some very good comparable sales. It was moving into stage two or had moved into stage two. And the borrower was looking then to move out of a construction funding facility into what we call a marketing facility. So it's a slightly cheaper rate because the project had been de-risked.
So that was about $1.5 million deal. It was a first mortgage lend, so we only do first mortgages.
The other thing at Capital Property Funds, which I didn't touch on and I perhaps should have, is that we really focused on the exit strategy. So it's very easy to lend money to people. The difficult part is getting the money back. We're very, very comfortable on the exit strategy here. It was nine lots, they were very reasonably priced and the money gets paid back as the lots are sold.
During that 12 month period, the loan to valuation ratio on this particular asset was actually 59 per cent but as the lots are repaid, the loan to valuation ratio comes down. So currently it's sitting at just above 50 per cent and they're still getting the 8 per cent return. So, you know, it's a pretty good experience for the investors.
Jessica Amir: And just lastly, Joe, do you have any parting words for investors and potential investors?
Joe Christie: Jessica, if they're interested in our Debt Fund, you know, we'd encourage them to register their details on our website and they can also download that accountants certificate or they can contact us via email, that's just firstname.lastname@example.org.
Jessica Amir: Wonderful. Joe Christie, thank you so much for the update.
Joe Christie: Thank you.