This is a link to the interview I did on February 11th 2014 with Ian Guider on www.newstalk.ie The piece starts around 16 minutes. (press the little play triangle on the right of the banner) Below that is a FAQ on commercial property funds.
Irish Commercial Property Funds – What are they?
A property fund is where a group of people pool their money together to buy properties. Typically a fund is made up of several different properties with larger funds having more than 50 and some smaller funds might only hold a handful. In the main the properties are usually a mix of office, industrial and retail. The fund provider is usually a life company but there are also other providers in this arena.
What type of properties would people know that are in these types of funds?
Properties like the ILAC centre, which stands for Irish life Assurance Company, St Stephens Green Shopping Centre, Hume House, 1 Riverside IFSC, B&Q in Liffey Valley and some other prestigious properties around the country.
How have the funds performed in recent years?
As you might imagine Irish Commercial property took a very serious hit during the global financial crisis. The contraction of lending combined with our deep recession resulted in transactions almost coming to a complete standstill.
Mid 2012 is considered now to have been the bottom of the market. Long term average returns for this sector are in the region of 10.2% and 2012 posted a return of 12.4% growth.
Last year things really started to heat up. The introduction of two new REIT funds which resulted in €700 million of predominantly US money landing on our shores combined with some changes to CGT and our improving economy meant that 2013 was the best year since 2007.
Some funds managed to post a return of in excess of 30% last year. This could be attributed to the strength of the properties they hold combined with some strong rent reviews that took place or you could argue that is was due to them coming from a lower base. Personally I believe it is a combination of the two.
What’s interesting is there are many predictions for the coming years for growth. Aviva investors for example are predicting 15% growth per annum for the next 3 years.
How can somebody participate in this growth?
There are several different ways to get involved. Most of the funds have minimum investment amounts of €10,000. You can invest either using your pension or directly and some of the funds allow regular investment.
Recent regulatory changes have also resulted in a few new providers coming on stream under the AIFM rules. (alternative investment fund manager) For example one the two REITS launched last year has recently been appointed as an AIFM. Some of these funds will accept smaller amounts of pension money but direct investors would need a minimum of €125,000.
There is also the ability for a group of individuals to come together, identify a property themselves and then by pooling their pension funds they can buy that property.
Are there any pitfalls people need to look out for?
There are issues surrounding liquidity. The life companies tend to have a clause that allows them to delay you getting your money out for a period of 6 months if cash outflows are greater than cash inflows.
This is designed to protect investors when the fund is haemorrhaging cash which could result in the need to sell properties to meet the outflow. This can also result in an immediate drop in values of up to 14-15%, which happened around 2007/2008.
People also need to look out for how much cash is held in the fund, particularly at the moment. Good prestigious properties are not readily available in Ireland. As there are a lot of players in the current market some managers are holding a lot of cash as they look for good properties. If you want to invest in cash, put it on deposit yourself!
Lastly Investing in a fund like this is not as transparent as going off and buying a 3 bed semi in Galway. Some life companies have previously been fined for not providing accurate valuations to clients.
Where can people get more information?
Life companies and banks will offer you information on the funds they have access to, however an independent financial advisor will be able to give you details on all the funds in the market including the smaller funds which can provide solid returns.
A good advisor will also be able to guide you on how to use your pension to buy a property yourself or how to pool your pension with some of your buddies to buy a property.
As always contact us on firstname.lastname@example.org if you want further details or would like to be added to our mailing list.