SMSF investors flock to Folkestone Wollongong unlisted office fund offering 10.5% return
Listed real estate manager and developer Folkestone has raised $15.5 million for a new unlisted property fund that owns a six-level office building in Wollongong.
Investors included those with self-managed super funds attracted to a forecast 10.5% distribution in the first year and with the building anchor tenanted by commonwealth and state government agencies.
Unlisted property funds and single-asset property syndicates have made a resurgence in recent times after investors lost faith following the GFC when many mortgage and property funds were frozen.
Funds offering returns in excess of 8% and with strong tenants and long leases have proved popular with Centuria and Cromwell among those to find willing investors and close offerings oversubscribed.
The Folkestone Real Estate Income Fund at Wollongong closed around 50% oversubscribed.
As a result, Folkestone increased the amount of equity raised by $1 million, from $14.5 million to $15.5 million, to assist in satisfying part of this excess demand.
The forecast 2014 financial year distribution remains unchanged at 10.5% due in part to the lower initial gearing (47% down to 43%) and the debt being secured for three years at 5.55%, 10 basis points lower than forecast in the product disclosure statement.
Investors have bought into a six level commercial office building with 90 car spaces at 43 Burelli Street and 34 Stewart Street, Wollongong.
It is in the heart of the Wollongong CBD, about 200 metres from the Crown Street Mall and GPT's Wollongong Central retail centre.
The property is anchor tenanted by Commonwealth and state government tenants – representing aroundy 79% of the building’s income.
Folkestone acquired the building on April 10 and the offer to invest in the fund closed on June 20.
The sale price was not disclosed. The building previously sold for $9.75 million in 1998.
“The success of the capital raising demonstrates that investors continue to seek investments with strong income returns and quality covenants,” said Folkestone managing director, Greg Paramor.
He said the forecast distribution of 10.5% offers investors, particularly self-managed superannuation funds, with an attractive risk-adjusted return.”
"Our distribution network continues to grow as illustrated by the strong support from both financial planners and private client investors. Given the continued appetite for quality, yield orientated investments, Folkestone plans to launch the third in its series of real estate income funds in the next few months" Paramor said.
Folkestone’s balance sheet underwrote $8 million of the equity raising to assist in the acquisition which has now been repaid from investor applications.