Innovative approach to residential property development and funding delivering 12% fixed returns to investors in a market seeking yield based alternatives
CFMG Capital is helping investors access a fixed 12% per annum return (net of all fees) via its market leading CFMG Land & Opportunity Fund.
The innovative approach taken by the developer and fund manager allows investment in the development of residential land subdivisions that are near major capital cities, infrastructure and jobs – and that benefit from population growth.
Where CFMG Capital differ from other operators in this space is that they are not just the lender or borrower, they are also the developer – which uniquely aligns their interests with those of investors. By controlling the funding parameters and also controlling the development process, CFMG Capital have directly aligned investor interests with their own by contractually fixing the return to investors at an attractive 12% per annum. By doing so, they are essentially ranking their own returns and profits from each development last, as the responsible entity will earn no fees or profits until investors have been paid their returns.
“We believe the CFMG Land & Opportunity Fund is a fairly unique offering, not just in the way it is structured with a fixed return, but also in the sense that we are not just a fund lending out to other developers and relying on their assumptions and reports, we are also the developer who controls the project and the project outcomes,” says CFMG Capital General Manager – Andrew Thomson. “Unlike other residential property, land syndication or mortgage-backed securities funds, the fund’s return is contractually fixed and investors and the manager have uniquely aligned interest as investors are paid out in full ahead of the responsible entity, effectively ranking CFMG Capital last when it comes to returns, this means we are more motivated than ever to deliver fixed returns in order to ensure each project is a profitable venture not just for investors, but for CFMG Capital, gone are the structures that are fee driven regardless of the project outcomes – we have backed ourselves to continue to deliver consistent returns.”
The CFMG Land & Opportunity Fund has several benefits. By providing a fixed return, the fund offers greater certainty for investors. Competing products typically promote a forecast return based on the issuer’s assumptions, thus adding risk for investors. Further, the managing entity usually earns a fixed management fee regardless of performance of the project and in most cases with property funds of this nature, there is a lender and a developer who both have competing interests.
The fund’s duration further enhances certainty. Investors receive the return on their investment when it matures, typically after 18 to 36 months. In contrast, returns on direct property investment can be volatile and take longer to achieve.
The fund’s 12% return(net of fees) is attractive compared to other asset classes. Residential investment property returned 8.1 per cent annually over 10 years to December 2016, the 2017 ASX/Russell Investments Long-Term Investing Report shows.
Australian shares returned 4.3 per cent annually over this period, Australian listed property had a zero return and cash returned 2.8 per cent. Further, recent economic changes in Australia over the last 12 months have further compressed yields in most traditional asset classes, leaving investors looking for alternatives like CFMG Capital with a strong and stable track record.
“The return on the CFMG Land & Opportunity Fund appeals to investors that are getting lower returns from cash, shares or direct property investment,” says Thomson, “Or having to take greater risks and risking potential capital loss, to achieve a double-digit return.”
Attractive risk-adjusted returns
Diversification is another benefit of the fund. An investor that invests directly in residential property is typically exposed to a single asset, like a basic home that is then made available for rent. The CFMG Land & Opportunity Fund provides exposure to dozens of blocks of land in a subdivision and across multiple markets should the investor opt to spread their capital across multiple projects.
Thomson says risk is reduced by the fund’s exposure to residential land near capital cities. “The typical buyer of this land is a young family or a builder who sells house/land packages. This market tends to be less volatile than, say, investing in inner-city apartments that often attract speculators who are forced to sell during property downturns.”
Risk is further reduced by the fund’s capital structure. Should a CFMG Capital project suffer poor performance, banks that provided debt for the project are repaid first, then investors in the fund. CFMG Capital is paid last. The firm earns no fees or profits until investor capital and returns are paid. “The risks primarily sit with us as the developer,” says Thomson. “Also, our projects have conservative debt levels. There would need to a severe crash in capital-city land values for any of them to suffer a loss.”
The fund makes it easier for investors to invest in property by removing several complications, says Watson. “You don’t have issues of having to seek further debt to buy property; you’re not dealing with banks that are cutting back on lending for investment properties; and there are no tenants, agents, ongoing maintenance costs or other hassles.”
Typical investors attracted to fund
Since its 2008 launch, CFMG Capital has attracted more than $100 million of investment from a tick over 1,000 investors. A large proportion of these investors do so via their SMSF, but there are also a mix of other investment types and entities. “Many people who invest in the CFMG Land & Opportunity Fund are repeat investors who invest each time an opportunity emerges.”
Thomson says interest in the fund from traditional investors, SMSF trustees and financial advisers is growing. “They see the fund as a simple way to get attractive, reliable returns from residential property. “
But the fund does not suit all investors, says Thomson. “It’s designed for conservative investors rather than speculators, and appeals to those who want a steady return. It’s also important to note that it’s not an annuity type product and doesn’t pay a regular dividend, the funds are in the most part paid out on maturity, so those seeking regular investment income are not suited to the structure we have.”
He says residential land in capital cities suits the profile of investors that typically have a multi-year or decade investment horizon. “Strong expected population growth in Sydney, Melbourne and Brisbane will underpin rising demand for residential land. There will always be property ups and downs, but the long-term outlook for land demand is positive and there is a likelihood of greater shortages in quality land supply.”
Thomson says the fund’s fixed 12% per annum return works both way. During a property boom, investors might achieve higher returns by investing directly in the sector. “Our fund appeals to investors who are prepared to sacrifice some return in rising markets, to achieve return certainty in flatter to counter cyclical markets. CFMG Capital is able to stand behind their fixed return because we are confident in our ability to generate returns throughout any stage in the property cycle.”
Available to all investors
Small and large investors can access the CFMG Land & Opportunity Fund. The minimum investment is $25,000 and CFMG Capital invites new investment as it launches projects. Investors can invest in one residential land subdivision development or spread funds across several developments through CFMG Capital’s available opportunities.
CFMG Capital has an expanding project pipeline. The firm typically sells 400-500 blocks of land each year, develops another 400-500 for sale and has that many blocks again waiting for development the following year. “There are typically opportunities for investors to invest in our subdivisions through the year, though in some cases we won’t have an open offer for new investors for several months, as our strong track record and subsequent investor loyalty has seen several of our recent opportunities fully subscribed by our existing investor network before public release”
Thomson is proud of CFMG Capital’s achievements since launch and its focus on steady, sustainable growth. “We’ve never wanted to grow too quickly or be the biggest in our market. Our goal is to identify the right projects, do quality sub-divisions and provide reliable returns for our investors with a little something in it for us too.”
Thomson says prospective investors should read the fund’s product disclosure statement and/or talk to their financial adviser to see if the CFMG Land and Opportunity Fund is right for them.
To learn more about CFMG Capital, visit www.cfmgcapital.com.au