Interest grows in unlisted funds

Sharemarket volatility is fuelling demand for unlisted property funds, which offer the safe haven characteristics of real estate without the uncertainty of sudden price movements.

Sharemarket volatility is fuelling demand for unlisted property funds, which offer the safe haven characteristics of real estate without the uncertainty of sudden price movements.

Results from the Unlisted Retail Property Fund Index, released by IPD, an MSCI brand, and sponsored by the Property Funds Association of Australia, showed total returns over the past 12 months have stayed at about 7 to 8 per cent, with the latest quarterly result indicating a 7.2 per cent total return for the year to March.

On an individual basis, unlisted wholesale funds, managed by listed real estate investment trusts, have been active. On Monday, the DEXUS Wholesale Property Fund unveiled expansion plans for the Westfield Miranda shopping centre, in which it has a half share. Analysts have forecast that wholesale funds will be more active in developments and acquisitions in the coming year than their listed counterparts. There is also anticipation as to the course of action that Mirvac's chief executive, Susan Lloyd-Hurwitz, may take in the unlisted funds sector.

Mirvac has established two funds, Australian Office Partnership and Australian Residential Partnership, and the group is in discussions with capital partners.

According to the chief executive of Centuria Property Funds, Jason Huljich, the unlisted sector is responding to investor focus on simpler vehicle structures and is looking more attractive as an investment prospect. Most new unlisted vehicles raising funds in the market are providing "back-to-basics" closed-end syndicates with a single asset and quality tenant, and a long lease expiry.

A Lonsec Research report said pre-tax yields for unlisted funds ranged from 7.5 to 10 per cent. Gearing levels ranged from 40 to 55 per cent, down from 55 to 66 per cent.

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