ASIA NEWS: The power of timing

The increasing need to dilute a sponsor’s discretionary control in order to get opportunistic real estate investing vehicles off the ground has not been enough to deter Sydney-based Charter Hall from its first effort.

The firm, established in 1991, traditionally manages core and core-plus funds however in recent times the market it knows best has developed scope for offering more opportunistic returns.

Last month, Charter Hall launched its Special Situations Office Fund, targeting up to A$400 million (€235.5 million; $343 million), to take advantage of “assets which can be acquired at prices below historic levels of valuation and/or replacement cost”. Assets such as 275 George Street in Brisbane (pictured) which was purchased a few years ago by one of Charter Hall’s core funds, are now on the radar for its incoming vehicle.

What is driving their appetite to be represented on investment committees is having more influence over the timing of acquisitions and divestments.

David Harrison, Charter Hall

 


According to David Harrison, joint managing director and head of fund and property management at Charter Hall, the vehicle is offering a “club” style approach where investors take seats on the fund’s investment committee, effectively assuming a collective power of veto on deals sourced by the firm. “It’s a sign of the times,” he said.

Some market practitioners have labelled club structures as vehicles where the investor wants to be able vet which assets are purchased by the fund, undermining the sponsor’s position as the expert in sourcing and executing investments.

While the investors in the Special Situations Office Fund will indeed be able to block investment proposals, Harrison believes they are more concerned with being able to decide when investments are made and exited.

“None of our clients say they have the skills that our management has, which is why they employ us to be the fund manager. What is driving their appetite to be represented on investment committees is having more influence over the timing of acquisitions and divestments.”

In some historical instances some investors felt the true value of the investments they had blindly backed had not lost by poor sale timings.

We welcome that kind of scrutiny. If you are worried about that then you are probably hiding something.

David Harrison, Charter Hall

“If you ask some pension funds they are possibly a little cynical about managers not selling assets when the tea leaves suggested they should have,” Harrison said. But he added: “That is an easy thing to comment on when we’ve had a two-year devaluation cycle.”

Harrison, though, is happy to mix investors with Charter Hall executives on the fund’s investment committee: “We welcome that kind of scrutiny. If you are worried about that then you are probably hiding something.”

The need for investors to be close to timing decisions is particularly paramount to investing in Australia.

Adrian Baker, a director in LA-based CBRE Investors’ global multi manager division told PERE that sellers, such as Australia’s superannuation funds are looking to trim down their holdings, presenting investment funds with attractive buying options.

“They are currently overweight in real estate but that is correcting quickly and the window of opportunity in Australia will be very small in comparison to other markets. This is why people want to get invested quickly.” CBRE Investors is currently seeking managers to invest capital from its Asia Alpha Plus fund of funds. That vehicle held a close of $100 million in July.

The Charter Hall fund, which Harrison said has already corralled soft commitments, is expected to hold a first equity closing in the third quarter of this year. Half of the fund’s investors, Harrison predicted, will come from overseas (enquiries from Asia Pacific fund of funds have been rising), while the other half will be from domestic institutions. It will run for five years before seeking to exit its investments and will seek a debt to equity level of between 40 percent to 50 percent, slightly lower than the available maximum in the country. “The leverage is consistent with the risk profile of the fund’s mandate,” Harrison said.