Investment spotlight: what are we looking at in 2018?

Looking at investment opportunities for 2018, it’s going to be a year of debt, debt and more debt. Last quarter we saw residential prices fall in Sydney for the first time in years, and with commercial assets selling at all time low yields, we are of the view that asset prices have peaked over the short run. For this reason, we believe investing in debt is compelling. We also have some opportunistic equity deals we’re working on – all with well-known, quality sponsors that our team understands and have had relationships with over decades operating in niche markets.

How we identify a good opportunity
At Stamford Capital Investments, the decision-making process behind any investment opportunity comes down to ticking off three key components:

Trusted sponsors
Quality of the asset
Leverage.

And we place our heaviest weighting towards the quality of the sponsors we deal with. When you’re deciding to invest capital, it’s critically important to work with a manager who is an expert in the asset class they’re investing in.

We’re privileged to have decades of experience behind us – and paired with our depth of relationships across commercial real estate investment markets, we’re able to quickly determine if an asset or sponsor is worth investing in.

Once we’ve established that both of these are positive, it then comes down to pricing for risk.

Our approach to pricing for risk
There is no leader board or exchange when pricing for risk in real estate markets. But our business is diverse and sees deal flow from across the country, so we can benchmark pricing and terms on deals based off our broad exposure to markets.

Looking at risk for 2018, we’re of the view that overall, the markets look reasonably full. And that’s not just real estate, but bonds and equities too.

This means any long-term investment needs to be considered and weighed up very carefully. And this is why we favour debt – as it provides a natural buffer against any downside risk.

Stamford Capital Investments can price for risk whether it be as a first mortgage, subordinated capital or equity. It’s then down to underwriting standards and we have great processes and consultants we use to ensure the investment decisions we make are optimised.

Our focus for 2018
Draw on credit expertise:
We look at every deal from a downside risk perspective before we make any investment decisions.

Make the most of our proprietary deal access:
Through our Stamford Capital Australia arm, we can cherry pick deals we want to invest in and make the best possible decisions for our investors.

Stay focused on niche investment opportunities:
We tend to invest in deals in the $5million to $10million space with a preference for secured senior debt investments over junior debt. The transaction size is well below the focus of some of our competitors, which gives us better risk adjusted yield given the lack of capital available.

Keep an eye on our illiquid assets:
As active managers of largely illiquid assets, we still have an exceptionally clean book with no legacy assets – and most importantly a proven track record of achieving or exceeding our forecast Internal Rate of Return.
We think 2018 is going to be a big year for credit and we expect to see great risk adjusted opportunities emerging this year.

To find out more about opportunities with Stamford Capital Investments this year, please get in touch. domenic.losurdo@stamfordcapital.com.au