_Reality check as Asian money managers take stock in Sydney metro markets
Last week I was invited to Knight Frank’s Singapore and Hong Kong offices to speak with investors regarding 33 Argyle Street – a commercial refurbishment play in the Sydney metropolitan market for AU$35 million to AU$40 million.
The outstanding impressions came from one fund manager in particular with AU$20 billion in play. With offices in the world’s major financial centres, his marketplace was limited only by target returns when shopping across the globe.
Asian investors and their money managers are watching for the fallout from Australia's recent federal leadership changes, and focusing on potential political risk that can destabilise an investment thesis overnight. All risks aren’t created equal, and a shift in national agenda will be at the top of the list as it sets a trajectory over the medium to long term.
Asian investors and their money managers are watching for the fallout from Australia's recent federal leadership changes.
After a decade of money printing worldwide, it’s no surprise that balance sheets are still heavy. Targeting risk weighted returns in a low yield environment means these mature money managers are reviewing alternate strategies through lending that give exposure to the real estate market. Product knowledge gives them comfort to play an angle other than direct investment.
Here are the two realities to keep front of mind when transacting with foreign capital:
1. Nothing beats efficient markets;
2. There’s always a limit.
When you shop globally for investment stock, core fundamentals win the day. Today’s returns, tomorrow’s growth story; and market security needs to be clear and present to attract an investor who’s external to any local market. Australian investors should take as much downside out of their commercial assets now, because a new risk is just an election away.
Competing opportunities for real estate money managers will limit downward pressure on yields despite a mountain of capital chasing limited stock. Yield compression has, in my view, reached its limits, so why chase a low yield when you can get behind someone who will take that risk and you can rely on security if it all goes pear shaped?
So what does smart money really look for? Basics. Fortunately, the Australian dollar is one of the most traded foreign exchange currencies in the world, a liquid proxy of currency manager’s world-wide. And right now the world’s favourite dollar to take a punt on (AUD) is cheap as chips.
When you shop globally for investment stock, core fundamentals win the day; today’s returns with tomorrow’s growth story.
The challenge we face for the balance of the year is managing any currency advantage with advantageous returns in other global marketplaces, and finding the thread in the conversation that gives any investor what they are really looking for, being comfort.
So wouldn’t a 100% occupied investment with a clear program to accelerate rental growth and most importantly being at the core of a metropolitan CBD where billions of investment into infrastructure has support from all sides of state and federal politics be worth your while?