Investing in commercial property funds

Our latest Commercial Funds Solid and consistent investment returns. Across all Westbridge funds over the last five years, our portfolio of commercial properties has achieved weighted average distributions of History shows we outperform other asset classes. Our assets under management continue to grow, maintaining strong performance and conservative gearing.

Over the last 10 years at Westbridge we have more than doubled our assets under management, while maintaining conservative gearing. We have delivered strong and sustainable returns that outperform the competition and continue to seek new assets that offer sustainable, strong returns for our investors. A Wealth of Experience. Our people are leaders in their field, but they also care. Having been an active investor himself for over 25 years, Damian continues to apply his extensive experience in property to help fellow investors make successful investment decisions.

He continues to actively support and champion the local real estate community through this leadership role. K and Australia. This pushes up rents and property prices and encourages more construction. During slowdowns or recessions the opposite happens. Commercial property is normally preferred by investors in need of an income. As with any investment the value of property investments and the income they could provide can fall as well as rise. Funds investing in physical property Property funds that invest directly in bricks and mortar are popular with investors, but we don't think they're the best way to invest.

This is because commercial property is not easily bought and sold. This creates problems for fund managers. Investors usually want to put a lot of money into their funds when performance is good and the outlook is rosy. But because it can take months to find and buy suitable properties, the manager often ends up holding a lot of cash and missing out on rising property prices. This often forces the manager to sell properties in order to give investors their money back.

The best properties are often quickest and easiest to sell, so remaining investors can be left with less attractive investments. To help with this issue fund managers adjust the pricing of their funds and can stop investors trading them. These decisions are not taken lightly and only in extreme circumstances. It does mean you could receive less than you expect when selling a property fund, or not be able to sell at all for a period of time.

The high costs associated with buying and selling property also eat into the income received by investors, more so than when buying and selling shares. Funds investing in property company shares These funds work in a similar way to funds that invest in company shares.

The value of the fund is directly linked to the value of the shares the manager invests in. They mostly invest in REITs. REITs own and operate a variety of properties and are looked after by an expert management team. This helps to spread risk and means they don't rely on a small number of properties. You can also invest in REITs, and other property-related investment trusts, directly. But it's possible for the shares in the REIT or investment trust to trade below or above the value of the properties they invest in.

This is known as trading at a discount or premium. Investment trusts can also borrow money to invest, often called gearing. We think investors who want to invest in a specialist area should make sure it forms a small portion of a diversified portfolio. Investment notes Please remember past performance is not a guide to future returns. Where no data is shown, figures are not available. This information is provided to help you choose your own investments, remember they can fall as well as rise in value so you may not get back the original amount invested.

The past two years have proved a challenge for most funds, and property funds were no exception. This recovery is likely to be staggered though. This means some sectors, in the short term, could surge ahead while others take a back seat. Hybrid working has sapped demand for prime office real estate. There are some who feel the sector is past the worst though. Easing restrictions and the subsequent return to work has helped lower the vacancy levels seen at the start of the pandemic.

In some cases, businesses that are growing quickly, or have less cash constraints, like some tech companies, scoop up the prime office spaces. Retail faces similar challenges. The lingering effects of the pandemic and the delay in opening the economy hurt the parts of retail that rely on foot traffic, like some physical stores, malls and high streets. The spread of the Omicron variant just before Christmas meant retailers continued to suffer, especially against their online competitors.

Many businesses adapted to this new reality by boosting their online presence to reduce dependence on physical stores. That said, some physical sites may be more resilient, despite the prevailing theme of online shopping. Some supermarkets for example have taken the opportunity to expand their store presence. The industrial sector was the standout performer in the property space last year though.

Continued demand from internet retailers meant warehouses and logistics centres performed well. Direct property fund suspensions A number of UK property funds suspended trading in March , meaning investors were unable to access their money. This happened because market turbulence made it difficult to value the assets held in direct property funds.

Without accurate property valuations, fund managers can't properly calculate a fund's unit price.

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The minimum ticket size normally stays within multiples of lakhs. Based on their risk appetite and funds, individual retail investors can own one or more fractions of an asset, granting them a portion of the ownership. Returns from rent and capital appreciation are paid out in the ratio of the ownership of each investor. The major difference between the two modes is simple — in a REIT, whether you like it or not, a part of your investment could be sitting idle in an asset that does not attract tenants for some reason.

The only way to prevent your investment from being a costly paperweight will be to withdraw from the fund completely. Whereas fractional ownership gives you complete control over your choice of the asset. In fractional ownership, you can still stay invested in other profit-making assets and stop, sell, or trade your ownership fraction of a non-performing asset with another.

Goal-based investment works almost the same way as an investment in any other traditional model. CRE is ideal for long-term investment goals. So, if you are looking to invest for anything less than three years at a stretch, you should probably look elsewhere. In long-term investments, goals are bigger, well-planned, and comparatively laid out across five years or multiples thereof. The easiest and most readily available option to invest in CRE at any given time is commercial office space, closely followed by warehouses.

The rarer variety turns up in laboratories, manufacturing units, or assembly floors. Office Spaces: Office spaces generally tend to be stable investments for four to five years at least if the business has not set up a head office or corporate office. In such cases, the lease tenure could go up to 10 years with the possibility of subsequent renewal, which will be requested by the tenant.

Warehouses: General-purpose warehouses are used for storing goods in transit, as a supply hub or as a support for a manufacturing or industrial unit nearby. If the tenant is an established e-commerce player, and the business is good in the surrounding area, you can rest easy on the stability of the investment for a long period such as 15 years. If not, most warehouses come with a lock-in period of five years and a lease tenure of years.

Laboratories, manufacturing units, or assembly floors: The last category of manufacturing, research, and industrial spaces are rarely vacated by tenants. The only opportunities that you can get for investing in them is when new assets crop up or some tenant decides to sublet a portion of the asset. The occupancy stays steady as a rock, with tenures crossing 20 years or more. Capital appreciation is steady and rental returns continue.

Based on what you are looking for, you can choose to invest in any of these subclasses as per your ideal financial goal. As with any kind of investment, proper research should go into the factors that are crucial for CRE assets.

Here are the top factors that you should bear in mind before investing in commercial real estate: 1. Location Location plays a big role in deciding how your asset performs. This holds true for residential as well as commercial real estate. Accessibility via roads and railroads, major highways, proximity to airports, and seaports are factors that can make or break the value of the asset and how much it can appreciate over the course of time.

A well-connected spot close to harbors and ports might be great for tenants who are into manufacturing and either export to or import from other countries. The same location will not work great for businesses that deal in software operations. When investing in a major urban market, make sure you also keep a tab on the micro-markets in and around the asset you are interested in, for any changes that might affect your investment.

Tenancy The existing tenants, their financial condition, and the terms that they are currently on, are factors that can tell you a great deal about the viability of the asset for the long-term and how far your investment is going to be beneficial. Historical data about the lease terms and vacancy will give you an idea of what to be prepared for in case there is a gap in the tenancy during the period you decide to invest. General-purpose office space is likely to have more chances of getting occupied compared to a special purpose warehouse or laboratory.

However, the latter can score over the former through better capital appreciation and a much more stable tenancy. Market Dynamics It is true that commercial real estate does not suffer from the same market shifts as most other traditional investment options. However, changes in the market do affect the vacancy rate, the rentals, and the stability of occupancy. A very relevant case can be made from the Covid pandemic. With people not going to office spaces to work, quite a few markets saw dips in the rentals from commercial office spaces.

Arguably this is a better structure for a company investing in properties, since there is no need to raise cash if investors want to sell. However, since such funds may trade at either a discount or a premium to the value of the assets they hold, the value of the shares may fall if sentiment towards the sector changes.

Property investment trusts have traded at as much as a 30 percent discount to book value but have also recently traded at a premium as investors looking for sustainable income have targeted the sector. Closed-ended funds can also use debt to finance their investment.

That makes them higher risk than open-ended funds, which are not allowed to borrow. While highly indebted REITs can present an opportunity for high returns in the event of a successful turnaround, only experienced investors who are willing to do their own research should take that chance. A portfolio focused on long-term income growth should exclude any companies whose balance sheets look stretched, or where debt service costs are more than half the total rent roll.

Both types of funds pay regular dividends; the yield on such investments is generally higher than on other shares and funds. Because commercial leases are generally long-term, the dividends are also reasonably secure. REITs are legally obliged to pay a certain percentage of their earnings out in dividends; management cannot decide to cut the dividend below that level.

By picking a basket of five or six different funds, investors can create a portfolio that generates steady income and is diverse enough to reduce overall risk.