May 2024 Newsletter

May 2024 saw settlement of two new facilities at Shepparton and Box Hill, both in Victoria.

Both of these investments are in the residential sector, supported by solid demand in their respective markets and continue our focus on what can broadly be described as the ‘Living Sector’ which includes residential land, houses, apartments and other housing typologies such as Build To Rent. We continue to focus on this sector due to the significant tailwinds that we feel will exist for some time due to the most significant housing shortage in Australia since post World War 2.

In recent Federal and State Budget announcements, it is clear that housing is a significant focus for all levels of government and has become a major election issue. All levels of government also realise that the issue will only be solved working with the private sector, providing incentives to build, assisting with unlocking new land supply, removing regulatory hurdles and improving planning outcomes for developers. Notwithstanding this, the National Housing Supply and Affordability Council projects that the Federal Government’s target of 1.2 million homes by 2029 will be missed by approximately 300,000 (The Australian, Housing looms as election battleground but there are no quick fixes, 29 May 2024). This will mean that undersupply across all housing typologies will exist for at least the next 5 years and likely beyond, supporting ongoing investment.

Ark Bedrock Mortgage Fund

After six months of trading, Bedrock continues to attract significant investor capital inflows and in early June should achieve Funds Under Management (FUM) of approximately $35 million. The Fund continues to get strong interest from new and existing Ark investors attracted to the returns that have been consistently in excess of 11.25% p.a. net to investors, derived from a diversified portfolio of Ark mortgage investments. Building on receipt of the Investment Grade rating issued by SQM Research in April, and supported by the continued significant fund inflows, application is now underway to instate the Fund onto two investment platforms, providing easier access for investors who are directed via wealth advisors.

Residential Property Market ‘remarkably resilient’

Globally, private debt has seen extraordinary growth with a fourfold increase over the last decade and 60% since 2020. (The Golden Age of Private Debt, Nicola Wealth April 2024). The growth in private commercial real estate (CRE) debt has been similar. In Australia (which lags Europe and North America), private CRE debt has more than doubled over the last decade to approximately $74 billion representing 18-19% of the Australian CRE debt market.

The conditions that have supported this growth have been late onset regulation imposed on the major Australian banks in response to the GFC, changes in central banking policy that has led to increased central bank cash rates and a growing awareness from borrowers and investors in the asset class. In private CRE debt, these conditions have led to higher interest rates/returns, improved security metrics, growth in the quantum and type of deals being funded and more conservative facility structures, all improving the quality of the asset class for investors. This is likely to continue as Australia follows the trends in the European and North American debt markets where private CRE debt makes up more like 50% of the market.

Company Updates

Investment and Performance

Deal Settled: 22

Funds under management: $301.3 Million

Weighted Average LVR (Current): 62.57%

Forecast Investor Rate: 11.16% p.a.

Investment Updates

As an overview, residential projects/investments in southeast Queensland, South Australia and Western Australia are benefiting from relatively strong markets being driven by population growth and affordability advantages compared with Melbourne and Sydney.

Likewise major regional markets in Victoria and New South Wales are benefiting from affordability differences when compared to their capital city counterparts.

In Melbourne and Sydney, underlying demand for new residential dwellings is sound although input costs and taxes remain elevated meaning that sales trajectories are slower although this is not impacting underlying valuations.

Conditions in the Industrial sector generally remain sound with an ongoing underlying shortage of land; as well as the Social (health and childcare) sector where significant government support underpins occupiers.

The latest investment updates are set out within the link below with all projects progressing steadily.

Bedrock Mortgage Fund Update

Ark’s pooled mortgage fund Ark Bedrock continues to grow, with nearly $29m in Funds invested in May24. Pleasing the fund continues to prove popular with many of Ark’s long-term investors, who currently represent approximately 45% of the FUM. To us, this is a vote of confidence not only in the Bedrock Fund, but also the pooled fund investment model, and the broader Ark team and its management of our investor’s funds. Ark’s unwavering focus on capital preservation whilst delivering great returns is well understood by our existing investors, and as we grow the Bedrock fund, our new investors.

In April Ark Bedrock delivered an annualised 11.27% return, bringing the YTD return to 11.31%, and the month of May, which is nearing its end is likely to see an 11.30% annualised result. This performance continues to be driven by the Fund Manager’s micro-focus on model portfolio construction, managing cash deployment and cost management.

Available to: Wholesale investors 
Min invest: $50,000
Distributions: Paid Monthly
Redemptions: Quarterly after minimum initial term of 6 months
DRP: Distribution Reinvestment IS available
Unit Issues: First day of each calendar month
Updates: Annual distribution statements and quarterly updates of the Fund’s performance
Investments: At least 85% in registered 1st mortgage securities with up to 15% potentially invested in registered 2^nd mortgages
LVR: Average 65% across the 1st Mortgage investments
Fees: 0.75% Fund Manager fee
Direct Costs: Up to 0.25% direct costs