The global COVID-19 pandemic has been a torrid time for investors across the board, but one Melbourne property fund management firm has proven that a solid strategy can still buck the trend.
While the market impact of the pandemic has hit hard in recent months, with the Australian listed property sector plummeting almost 20 percent from January 1 to July 31, Melbourne-based CF Property Capital’s Chiodo Diversified Property Development Strategy has managed to hold firm amidst one of the toughest downturns in modern history.
As reported on Money Management’s Investment Centre the fund has remained stable throughout the period, dipping just 1.4 percent, providing optimism for the months ahead.
*Source: MoneyManagement – Investment Centre
CF Property Capital Executive Director Ilya Frolov explained that the nature of the Chiodo Diversified Property Development Strategy meant that it was built to be stable in times of crisis evidenced through the COVID-19 pandemic.
“Because we’re an unlisted property fund, our projects are re-valued at certain milestones of their construction phase as an unlisted portfolio, whereas shares of listed property funds are revalued daily,” he said.
“This means our investors are less exposed to the impacts of the share market and COVID-19 even after we’ve imposed a five percent decrease in our asset portfolio,” he added.
What is the Chiodo Diversified Property Fund (CDPF) and how is it thriving while other funds falter in the face of the global coronavirus pandemic?
The Chiodo Diversified Property Fund focuses on unlisted property schemes, mainly in low-risk, high-growth residential developments, but also across other construction projects like hotels, industrial, commercial, office complexes and more.
The CDPF differs from other property funds in that it doesn’t rely on current asset values or rental returns. Because the CDPF is an unlisted property fund, there are no shares to be regularly valued and the projects are sold at the completion of construction to deliver returns for investors as part of a long term strategy designed to cover a range of developments over several years.
Whereas in times of crisis, typical property investors can be often exposed to daily market valuations and lower rentals yield that impact returns.
“Our risks are linked to final valuations, settlements and property market dynamics. We evaluate each risk with our expected returns based on a portfolio, not an individual property level. This gives us the flexibility to make the right decisions based on our expected returns,” Mr Frolov said.
The Chiodo Fund’s most recent Quarterly Property Report highlighted the success of the fund’s strategy. “We are currently in a position where volatility for our fund is stable, as we have longer-term projects, with some in construction and others settling.”
COVID-19 also presents opportunities under the CDPF strategy that benefit investors
Not only has the Chiodo Diversified Property Fund been able to remain stable today, but the fund is likely to deliver even high returns for investors in the future due to the knock-on effects produced by the pandemic.
Falling property prices present opportunities for cheaper acquisition of land which often means construction can begin today and the sale in the future will deliver higher yields because the price of land will likely have recovered.
“When there is a crisis there is that opportunity for cheaper acquisitions which means potentially higher returns when we get out of the crisis,” Mr Frolov added.
“There is an opportunity to acquire land at a discount. That’s where we sit, we’re not in a rush, either way, we can always hold off a little – from three to six months, again holding on to stock and waiting for the market to pick up a bit again.”
Investors wanting to take their money and run will not impact the fund – CF Capital
With such uncertainty and economic turmoil, it comes as no surprise that many investors are looking to withdraw their funds awaiting a recovery in the property market.
There is always the risk that a rush of investors withdrawing funds could mean that assets will need to be sold, reducing returns for others in the fund.
That is not the case with the CDPF as the goal is to ultimately sell the property. Mr Frolov explains: “We’re slightly at a better advantage than just going and selling an asset because we have to sell them anyway.”
“We also have positioned ourself to hold enough cash for investors looking for redemptions, or who have triggered their $10k super withdrawal, to support their personal financial needs.”
The CDPF fund has been a star performer for investors, outstripping the property sector with average returns of 16.8 percent per annum over the last three years.
And it is on track to perform strongly for investors once again, with the Chiodo Diversified Property Development Strategy class recording growth of 4.40 percent in the last 12 months (despite the pandemic) while major competitors involved in traditional property investment have recorded double-digit losses – some more than 20 percent.