Strengthening Your Personal Portfolio with Real Estate Co-Investment

These turbulent times have exposed the vulnerabilities of imbalanced investment portfolios.

Watch our webinar where we discuss how investors can benefit from real estate co-investing to build more resilient portfolios without sacrificing returns.

About The Speakers

Keith Ong | Co-Founder
Keith is an industry veteran with over 20 years of experience, he has transacted in excess of USD 3 billion across geographies, sectors and the entire real estate investment spectrum. He was the Assistant Director of Investment in ARA Asset Management, Director of Investment in Rockworth Capital Partners, and the Director of Investment Management and Capital Transactions for Firmus Capital.

Bryant Luo | Senior Investor Relations Manager
Bryant was a Relationship Manager, Priority Clients while in Standard Chartered Bank and the Associate Senior Relationship manager in DBS Bank.

Transcript:
0:13
Keith
Good evening, everyone and thanks for taking the time to join us today. I'm Keith, the Co-founder of RealVantage. For those who are new to us, we are an online Real Estate Investment platform. We have been running this webinar series for a while, with the aim to share with our users Real Estate investing from an institutional perspective. We seek to provide a more objective and technical approach to property investing. We hope this will be beneficial to our users.

After all, Real Estate is a very capital intensive and illiquid asset class so it's critical to get it correct. So Joining me today is Bryant, our Senior Relationship Manager. He'll be touching on the benefits of having Real Estate as an asset class in your personal portfolio, and how RealVantage will help to fortify your portfolio and provide greater diversification rate of risk. All the more important during these times, right? Bryant, handing over to you.

1:13
Bryant

Thank you, Keith.

Good evening, everyone. My name is Bryant and I'm the Relationship Manager here at RealVantage. So prior to joining RealVantage, I was a Relationship Manager at Standard Chartered Bank and DBS, where I was advising high net worth clients and accredited investors on investment products offered by the bank. So what I'll be sharing with you today comprises two parts:

First, I would like to talk about how a typical portfolio looks like in terms of asset classes, and your allocation according to risk profiles. Also, how co-investment, like what we do in RealVantage can help to strengthen and diversify your portfolio. For the second part of this webinar, I will also go through how to get started with us, the onboarding process and how to start your first investment.

Okay, so I will start by highlighting the different asset types that are typically offered and invested by retail investors out there. The asset types are depicted, as you can see here on the risk and return curve, with returns and risk raising as you move up the curve. At the lowest end of the risk return curve is cash and the highest end is private equity. So, of course, if you're 100% risk averse, you can stash your cash in your mooncake box or Milo Tin in your mattress. But this has actually no interest and also it will never grow.

So also many of our clients also ask if fixed deposit is good. The answer is yes and no. Yes, because it's normally short term. No, because the interest rate given is very low. So at the beginning of 2019 - last year, I remember that the banks were offering fixed deposits at about 1.7% per annum. And then right now, if you walk into the bank to ask about their fixed deposit rates, it is hovering around just 1%.

So, if you take into account the average inflation, it is actually 2% per annum. Such low interest rates like fixed deposits are actually working against you. And next, many people are also asking about government bonds in Singapore, the most popular one being Singapore savings bonds. But I just checked the June offering for Singapore savings bond, it is actually 0.8% average over 10 years. So, you can actually find a lot of investment easily that gives you better yield.

Okay, moving up government bonds or corporate bonds, we have Real Estate. So Real Estate as an asset class sits right in the middle of the risk return curve. It sits above our fixed income instruments, and also just below equities. Given its risk and return rewards are balanced, logically, you should actually allocate quite a huge amount into Real Estate. But just how much? - we will actually cover it with you in the next few slides.

Now let's look at how Real Estate exposure is featured in everyone's portfolio. So the chart here shows the profile of asset allocation of three different risk perspectives. Starting with conservative on the left, balance in the middle and growth to the right. This is based on a survey conducted by UBS on family office. Those who are not familiar with family office, they are essentially high net worth individuals who employ professionals to manage their personal or family wealth. According to the family office survey as seen here - across different risk appetites, it is interesting here to note that Real Estate still features prominently as an asset class.

It is the second largest allocation after equities. So the question here is, So what is the right allocation? So here we can look at this report by David Swensen. He is a highly regarded investment guru and manager for Yale Endowment. He advises investors to invest 20% of their investable monies into Real Estate in his playbook.

So personally, I often hear that many folks invest in mainly equities, bonds and Real Estate. It is either of these asset classes that take up the bulk of their investment. So from an Asian context, some may allocate up to 50-60% in Real Estate. And in the news just recently; maybe one-two weeks ago, there has been an increase in transaction of property sales in Singapore and Australia, mainly by Asian investors.

So a lot of our clients from China, they actually pump a lot of money into acquiring Real Estate in Singapore and in Australia. Because Australia is also getting very, very popular. Okay, so on this slide, I would like to compare three most common investments, clients always like to ask me.

So there are a lot of questions when it comes to such investments - When is a good time to enter? When is the right time to exit? To be very, very honest, I don’t own a crystal ball to tell me when is the best time. So we have to invest with a very clear mindset of how much growth we want to see, our risk appetite, how many losses we can bear, and also your investment horizon.

So for first - Equities, price movement actually goes by the minute. So during a market downturn a few months ago, even blue chip stocks plunged very badly. So let's take DBS for example. So DBS was trading at about $26 before COVID. And then when COVID really hit the market, it nose dived to $16. So even if they give you dividends, your capital has already taken up 40% loss, and it will take months or even years to recover back to $26 where it was.

So before you look at Equities, we need to understand clearly the business, and also there is a lot of risk, like market risk, interest rate risk, the business itself - there might be risk. So all this you really need to understand before you make a decision. And really study a company very well before you actually make that decision to buy specific equity.

So next we talk about bonds. So bonds are much different from equities. Most people buy bonds for its interest. The prices of bonds that we hear about a lot will only affect you if you are planning to trade in the secondary market. And if you hold the bond until its maturity, you will get only the face value back. So one of the biggest risks in bonds is default risk. Although we don't really see that happening in Singapore. When it does actually happen the impact is very, very big.

So mainly because the capital outlay for each bond is very high. So we are looking at 200,000 and above - 200,000 to 250,000 per bond. So, look at Hyflux, so a lot of clients are still stuck with Hyflux, not able to get their money back and it is still an ongoing case. And even if there are many bonds offered by companies, sometimes it's not advisable because it can be more risky. So one very good example for all risky mini bonds is Lehman Brothers.

So moving on to talk about Real Estate. So traditional Real Estate can be commercial property or residential property. There is capital security here. Capital security is the intrinsic value of land. So what do I mean by this? Let's say you have five year million dollars. And then you plan to buy a three-storey building in Singapore. So you rent level one out as a coffee shop, level two and three as office space. So your plan is to generate rental income.

But if let's say the business is bad, they do not pay you the rent. When they default on the rent, you still have the value of the building, right? Worst-case scenario, if your building gets burnt to ashes, the building will not be worth 5 million anymore. So it will become a land value. So the land value is the intrinsic value that is giving you the capital security here.

So, you would think how many people could actually afford 5 million to invest in such Real Estate, right? So it's like bonds and Equities. So there are actually a lot of alternatives out there. For equities and fixed income, the most popular alternative would be unit trust. People coming together and buying specific bonds, that's how you can get exposure to such asset classes. So for Real Estate, a lot of people know that REITs are very popular in Singapore. It is one of the alternatives that you can get exposure to Real Estate and now we have co-investment.

So before I actually go more into what co-investment is, like what we do at RealVantage. I want to talk before and after COVID performance on different asset classes. From what we can see here, the price of bonds is least impacted given its nature - it's more resilient and slower movement. But after COVID we still saw almost a 4% drop. So, REITs and Equities are the ones that suffered the most impact. Due to the lockdown and closure of businesses in many countries, which has suffered almost a 40% drop in their prices. So many of them have also announced cuts in dividends this year.

Next we can look at Real Estate itself. So, Real Estate meaning property prices. So, now we are not looking at rates, we are looking at specific property prices. Now this comparison is based on Green Street’s Commercial Property Price Index. So, we are looking at a 10% decrease after COVID. What we actually see in the Real Estate market normally has a lagged impact. What happens to the market can happen overnight.

But when we look at property prices, it's a lagged effect from what happened in the market - you can only see the price being impacted like maybe a few months later. So, seeing that Real Estate investment is a very important asset class in your portfolio and how to gain exposure or seeing that REITs is still easily impacted by market movement, you can actually look at co- investment to gain exposure in Real Estate.

So, what exactly is co-investment? So co-investment for Real Estate seems like a pretty new concept, but in fact it is really something very popular in the US. So what we do here is to give our investors access to multiple deals by fractional ownership. This way you can diversify across different Real Estate categories like Commercial Real Estate, Residential Real Estate, office buildings, etc. So you can also diversify across geographically and also different strategies. We will discuss more about the strategies later. So for RealVantage, we take pride in managing properties ourselves with our local partner.

Unlike other crowdfunding platforms, we don't do capital matching. That means we don't just bring investors and match capital to the vendors and just hands off after that - we don't do that. We manage it ourselves. Especially when our founders personally invest in every single deal that we release online. And our asset managers will then continue to manage the asset throughout the investment period. And also we provide updates to our investors on a quarterly basis.

So all our deals are Institutional Quality, meaning that they are not just deals that you know individuals can get access to easily. You can look at our past webinars to understand how we source for our deals and what factors we evaluate before listing them on our platform for our investors.

Investment strategy - in co-investment we have different strategies that cater to investors with different risk profiles as well. So, mainly they are Core, Value-Add or Opportunity, similar to the risk reward spectrum earlier on in the presentation. Core deals are projects that have secured a long-term canon and are typically income-producing assets like a petrol station or office building leased to government agencies.

So next we have Value-Add deals that can be newly furnished office buildings, re-redeveloping of vacant space for rent. And then lastly on the right of Risk - Return Spectrum - Opportunistic deals. This carries slightly more risk.

So, opportunistic deals offer the highest capital returns, also high on the risk spectrum. These deals can be development deals of new apartments, distressed assets for immediate sale. So, if you are wondering what kind of deals are they specifically, I have an example to share later in our presentation. So now that you know what co-investment is, let's do some comparison to REITs. So there is no capital security for REITs, given that it is listed on the capital markets.

The price movement of REIT is very dynamic and volatile, and one restriction of REIT is the investment strategy itself. Because the assets owned by REIT must be income producing to generate the dividends for investors, they are limited to Core deals. So, capital appreciation tends to be slower and investors have no control over specific properties. And also because REIT is quite similar to Equities, REITs also carry dilution risk where the fund manager actually issues more stocks and dilutes the percentage of ownership for all investors.

For quick investment, we don't have such a risk because we use the SPV to own the specific property and the percentage of ownership will never change once the SPV is incorporated. Also co-investment is unlike REIT, the Capital security is the intrinsic value of the land. So, this is something I mentioned earlier.

Okay, so along with our capital appreciation, Core, Value-Add deals actually give more income and more investment opportunity to see growth in your capital for our investors. So one very, very important fact for co-investment is that investors have the power to choose exactly which property they want to invest in. For example, in Singapore, Jurong Point is an extremely popular shopping centre, but not all shopping centres in Singapore are doing as well. So if I want to gain exposure to Jurong Point by investing in REITs, I have to consider the fact that this is just a property part of a very big portfolio.

But if let's say I am able to gain access to the shopping centre, this specific Jurong Point Shopping Centre by co-investment, then I'm only invested in that one project. So this is the difference between REITs and co-investment. So yes, our co-investment seems very attractive now but we do have one drawback which is that the minimum investment sum for co-investment is typically higher than REITs. So using $1,000 you're able to invest in REITs but for co-investment the minimum investment sum normally goes from 10,000 and above for every investment.

Additionally, co-investment platforms around the world can only accept accredited investors. So for RealVantage at this time, we are only able to accept accredited investors. So, what are accredited investors? This one is something I will cover in the next part of this presentation during the onboarding process.

So next let me share with you. This is one of our deals that we closed earlier in the year. Just an example. So this is a Value-Add deal, right? And this is the heritage building that sits right in the centre of Adelaide, CBD. It is a three years investment term giving our investors a projected return of 12% per annum or 36% real returns at the end of three years.

So this is actually very special - It's a heritage building, but it was poorly maintained. The tenancy was only 29%. So what we actually did is, we acquired the building; we stepped in to enhance this building by refurbishing it and also adding some retail space on the ground floor. So after all this refurbishment and touch up works, we actually foresee more traffic. And this will attract new tenants.

So the reason why I'm actually highlighting this specific deal to illustrate is because you can actually use a 10,000 to gain access to such an opportunity, which is not something that regular investors can actually just go into Adelaide and decide to buy this building. And also through diversifying the Real Estate section of your portfolio, you gain access to other markets. You also reduce the volatility as well and also diversify with lower quantum instead of buying a residential apartment in Melbourne or in the US where your down payment is 500 to $1 million not factoring in stamp duty or other tax. So I hope that I covered enough here about co-investment and how you can use co-investment to enhance your portfolio.

If you have any questions, you can also add it into our chat section here. And I will address this together with Keith at the end of this presentation. So just feel free to keep your questions coming.

So the next part of our webinar we will be going through on how to get started with us. If you don't already have an account with us, you can go to RealVantage - Your Real Estate Investing Edge and create an account, then go to your email to verify the email address that you have entered for registration. So after you have done that, you will have to update your personal particulars with us. You'll come to this page where you can actually complete your details.

Source of wealth is important to fill in because this is for compliance record and also to understand where your wealth derives from. So for me, I will put just an example here. For income, you can just put a description here like the savings of salary over the years of income. Next will be are you a politically exposed person? So if you are closely related to any political parties such as ministers or you yourself as a minister holding a political office position, please let us know. If not, you can just click No and continue.

To verify your identity you will have to upload your NRIC or your passport. For Singaporeans and PRs where you have NRIC, you can just upload them under this portion named ‘NRIC’. For other nationalities you can just upload a copy of your passport. So make sure that the document is clear. So that we will be able to see every information on your IC clearly. So attach the front and back on NRIC and for the following step you just have to key in your IC number.

Next will be your residential address. So if you're a Singaporean or PR holder, you can re-upload the back of your NRIC for this part. If you're using your passport, you will need you to submit another additional proof of your residential address. This can come in the form of your bank statement, utility, or your phone bill within the past three months. So for me I’m going to upload the back of my NRIC again. So key in address again, you can just make sure that address is the same as the one that you have uploaded previously, make sure that they both tally.

So the next question here is, are you an accredited investor? To qualify as an accredited investor, you need either one of these three qualifying criteria. For personal assets exceeding 2 million, meaning that if you have cash, Real Estate investments amounting to up to 2 million you will be able to qualify. Do note that if you are using the residential property that you are currently staying to qualify for this criterion itself - the maximum value you can take is only 1 million.

So, for example, if your current residing property is both 2 million and you have another property worth 1.5 million, you will be able to qualify as your residing properties are valued maximum 1 million plus your second property 1.5 million. That makes 2.5 million so you'll be able to qualify, so you can send us a proof of ownership like a purchase agreement, or your property tax bill. If you have any questions regarding how you can use different asset types to qualify for this, you can just reach out to RealVantage, one of our Relationship Managers will get in touch with you to help you go through to help you to qualify as an accredited investor.

Next one is financial assets to qualify. Financial assets are pretty straightforward. If you have liquid cash or investments like stocks and shares totalling up to 1 million, you will qualify. So for this you just have to submit your bank statement or maybe your CDP account statement to show that the total liquid assets here is more than 1 million.

The last criteria that you can use to qualify for credit investor is Income. So if your Notice of Assessment, your income is 300,000 or more in the preceding 12 months, you'll be able to qualify. So the eligible documents for this will be your Notice of Assessments from IRAS or your past three months latest computerised case slip. So let's say I'm using this to qualify. Our job is to upload the document here.

Once you have submitted this, give us about one to two days to complete all our AML and KYC checks. This is for compliance reasons because we are highly regulated by MAS as well. Once you clear your KYC and AML check you pass, you'll be able to make your first investment. For demonstration purposes, let's say I would like to invest in this opportunity, right? So we just click into it. And for this opportunity that we are looking at here, the minimal investment is 25,000. So I'll just key into the 25000 here that I'm going to invest.

So key in your legal name as per your NRIC, and a letter of offer will be generated for you. After you submit, we will reserve the indicated amount for you and you will have three days to fund your account. Since I have no money in my rehabilitation account because it's a new account, I will have to deposit the indicated investment amount separately. I just have to key in that I am using zero dollars from my RealVantage account and an additional deposit of 25000 will be deposited over the next few days okay.

So, I confirm here that I will be depositing 25,000 Aussie dollars okay. We will need to make sure that the amount of money that is coming from you is from your bank account. So, you will need to give us your bank details - which account that you will be transferring from. To add a bank account is very simple, key in the name of the account holder, which account is it and which bank it is from.

The bank code will differ for every bank and the branch code is always standard - the first three numbers of your account number. So we will need you to upload your bank account statement as well. This will show your full name, your address and it must be within the last three months of issuance of this letter and of your bank statements right. And this has to show your bank account number. So let me just use this, for example.

Now that you have uploaded your bank account statement and indicated how much money you'll be transferring to deposit, this will be our wiring instructions here. Our Escrow account here is managed by our lawyers. So, there is some difference in the name so don't be confused. Legal works is our Escrow agent.

They will handle our escrow account to make sure that there is no commingling of funds. This is to make sure that you have indicated that you are putting $25,000 into this specific deal. Once you deposit the money - $25,000 will be secured for this deal. It will not be commingled with other purposes. So once you have transferred the money, just come back into the website to indicate to us that you have transferred.

Give us about two to three working days, we will update your RealVantage account to reflect that we have already received your deposit. And you will go into the chosen opportunity deal here again to confirm your investment. From there on, you will receive an Investor Participation Agreement. Inside, it will indicate your ownership percentage as well. So this will not change.

I have come to the end of the demonstration here, how to get started with us and also how to make your first investment. If you encounter any problems during this whole process, or you can just reach out to us anytime and we will help you immediately. So I'm done here. And let me have Keith back out to join us for Q&A. If you have any questions at this time, please feel free to go into our chat box and just type your questions there.

Transcribed by https://otter.ai

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About RealVantage

RealVantage is a leading real estate co-investment platform, licensed and regulated by the Monetary Authority of Singapore (MAS), that allows our investors to diversify across markets, overseas properties, sectors and investment strategies.

The team at RealVantage are highly qualified professionals who brings about a multi-disciplinary vision and approach in their respective fields towards business development, management, and client satisfaction. The team is led by distinguished Board of Advisors and advisory committee who provide cross-functional and multi-disciplinary expertise to the RealVantage team ranging from real estate, corporate finance, technology, venture capital, and startups growth. The team's philosophy, core values, and technological edge help clients build a diversified and high-performing real estate investment portfolio.

Get in touch with RealVantage today to see how they can help you in your real estate investment journey.

Disclaimer: The information and/or documents contained in this article does not constitute financial advice and is meant for educational purposes. Please consult your financial advisor, accountant, and/or attorney before proceeding with any financial/real estate investments.