Investment Philosophy

Ray White Invest is a ‘value’ style investor with a generalist and opportunistic approach to investment.  We will consider different types of transactions across a wide range of property sectors.

We employ a very much ‘bottom up’ approach to property investment.  Consistent with our entry into funds management from a direct property investment background, we are regularly provided with investment opportunities from the Ray White Group as well as our many other industry relationships (including other agencies and development groups) across the broad investment market. We assess each opportunity on its particular merits, considering its specific attributes and the sub-market in which it is located and the quality and experience of the project sponsor (if applicable).

The experience of the Ray White Group over the past 103 years has ensured that we understand the danger of generalising property markets.  Each market category has its own particular cycles.  Each location has slightly different supply, pricing and demand drivers making it very important to focus on the specifics of the drivers impacting on the relevant market.  Our approach is to assess each project in its micro-market using ‘on the ground’ information, and then considering it in the macro sense with respect to the broader market influences and our own sector weighting.

To date, the properties acquired by Ray White Invest have displayed the following key attributes:

• Properties that have the potential for growth in income over time;
  
• A purchase price on a rate per sq metre basis that compares favourably both with replacement cost and comparable recent market evidence;
  
• Flexible properties, that are well designed for their intended use;
  
• Properties that are generally in demand, that are not oversupplied in a particular market; and
  
• Properties that are well located for their intended use, including proximity to desired population catchments, transport infrastructure (both existing and proposed) and general services.
  

Investments in development projects require additional analysis to be undertaken, including:

• Review of the historic return and risk profile for the particular development partner, both on a sector and geographic basis;
  
• Consideration of the composition of the various entities who plan to participate in the development and their respective market experience;
  
• Analysis of the various risk issues for the project, including planning, construction, leasing, funding, insurance protection and exit risk;
  
• Understanding the processes required to be implemented to ensure the potential investment returns can be optimised through the successful management of the regulatory, compliance and risk issues of the project; and
  
• Utilisation of trusted and experienced external consultants with which we have built strong proven relationships.
  

An important element of our investment philosophy is to build and maintain close working relationships with leading private development companies.  We seek to add value to these developers through active participation at a strategic level and on specific projects.  We believe that a proactive approach to investing is the best way to ensure the performance of a particular investment.

Always our focus is on project performance, sponsor quality, and reputation risk. These factors are critical to achieving a strong outcome for our investor clients.

Development investment structures

A core element of our investment model is to work closely with developers to create value from the successful execution of a development strategy. We have worked with over 60 developers since 2001 across a broad range of investments.  We undertake our investments into development in the capacity as responsible entity for a development trust, with the developer being contractually engaged by the trust as development manager. In structuring our relationships with the developer, we seek the following:

• Ensuring that any development management fees that are paid are directly attributable to value being added;
  
• The developer’s responsibilities are clearly understood by all parties, and that the key individuals within the development company are adequately tied into the process;
  
• A contribution of cash or other assets of the developer to the investment, ranking equally with the capital contributed by the other investors in the transaction;
  
• A profit share arrangement that rewards the developer only after the equity investors have received a base return suitable for the risk profile of the particular investment. This base return generally ranges from 8 p.a. The profit share arrangement above this base return will again depend upon the specifics of the particular investment, and may be tiered return structures ranging from 30% - 70% of the balance of profit above the base return; and
  
• If we are undertaking a development or re-development of a property that we intend to hold for the medium to long term past completion of the works, we seek for the developer to be “paid” its development profit share as units in the trust.  This helps ensure alignment of interests between ourselves and the developer.
  

We also invest in development projects using debt structures. A debt structure may be required for a practical reason such as the developer has already contracted the property prior to our involvement and the statutory costs associated with a transfer of the property into a new ownership structure are prohibitive. In such cases, should the developer prefer to proceed with an equity partner in the development, the debt structure used reflects as far as possible an equity structure (i.e. quasi-equity).  Accordingly, it is difficult to generalise the particular terms of each debt investment:

• The expected interest rate of return will be higher for the quasi-equity product than the traditional mezzanine debt investment.  Mezzanine investments generally target returns from 15% p.a. – 18% p.a. The quasi-equity investments generally seek a higher return being a greater portion of the expected development profit.
  
• Mezzanine investments generally compare the layer of capital between 70% - 90% of total development costs and generally have a strong level of risk-mitigants in place at date of settlement. The quasi-equity investments may fund a larger percentage of development costs and may not have the same degree of risk mitigants in place.
  
• The traditional mezzanine debt structures are generally supported by guarantees from the developers related companies and directors. The quasi-equity investment generally don’t have this additional security.