Super funds seed property fund with $200m

Two large super funds have become the first, and only, investors in the St Hilliers Funds Management ‘development to core’ property fund.

REST Superannuation and First State Super have each tipped $100 million into the fund as cornerstone investors. REST chief executive Damian Hill said the investment had been funded from cashflow and would form part of REST’s property allocation. St Hilliers’ ‘development to core’ fund is open-ended in the sense that there will be an opportunity to increase the size of investments and the time horizon, but it is now closed to other investors (aside from St Hilliers which will hold a 5 per cent stake). The investors will be involved in the ‘development phase’; the first third of the fund’s seven-year life in which the properties generate no income, but hope to make capital gains of around 18 per cent per annum. Once developed, the properties enter the core phase, deriving income from tenants and capital growth for a forecasted annual return of 8-9 per cent. The fund develops non-residential (commercial office, industrial, bulky goods and retail) properties ranging in value from $25 – $150 million. Two commercial properties have already been acquired in North Ryde and Parramatta using half of the seed capital, and the fund is in the process of looking for other opportunities to fill the remaining $100 million of the mandate. St Hilliers’ general manager – funds management, Nicholas Ridgwell, said that participating in the development process allowed the funds to access the portfolio at cost rather than market price. The development to core fund is St Hilliers’ fourth property fund and represents its largest equity raising to close to date.