Effectively managing property investments through property cycles

Investment in property can provide stable income returns and capital appreciation over time; however, property markets are cyclical, which can pose both opportunities and challenges through the various phases. For example, when property values are depressed – reflecting a lack of buyers in the market – property investments can become relatively illiquid until the cycle improves. Knowing how to navigate such issues in property cycles, as well as understanding the underlying forces that influence property market outcomes, is pivotal in ensuring positive investment outcomes.

Cromwell Funds Management Directors, Graeme Ross and Jane Lloyd, explained how their knowledge and experience informs CFM’s navigation of property cycles.

Decisions based on in-depth experience and real-time knowledge

“To successfully navigate real estate cycles, it’s important to closely observe underlying change in market conditions on a regular basis and take prudent steps to anticipate risks and identify emerging opportunities,” said Graeme Ross.

Cromwell’s integrated property platform undertakes a broad cross-section of management functions in the property markets – from buying and selling; capital raising; leasing; and property management – allowing access to unique insights into market conditions in real-time. It is this data-backed approach that allows the business to pivot, when necessary, to achieve optimum outcomes.

“Our research team provides data on broader macro themes, such as shifts in consumer and geographic trends and technological change,” said Mr Ross.

“All this information is provided to the Cromwell Funds Management team and Board, who assess and weigh these insights to arrive at informed and prudent decisions that are in the best interests of investors – and allow sustained risk adjusted returns for our funds.”

Fellow CFM Director, Jane Lloyd, added that taking a tactical, considered approach to decision-making is critical, particularly when markets are down in the cycle.

“I tend to be conservative – it’s important not to react without a plan. Property is a long-term asset class, so being patient is a big part of risk management. This accords with the CFM approach, where investors are top of mind,” said Ms Lloyd.

Building on past experience

According to Mr Ross, experience of past cycles is a critical input – while current cycles may be different in terms of cause or nature, past experience gives insights about how certain forces may translate to property market outcomes.

For instance, the forces that drove property market cycles in commercial real estate markets during the Global Financial Crisis are quite different to the forces impacting these markets today, arising from a rapid rise in interest rates and other underlying social trends.

Nevertheless, the behaviour of market participants in those cycles can give insight into behaviour in current market conditions and hence allow suitable strategies to be adopted to manage risk and take advantage of opportunities.

“I joined the workforce in arguably the worst downturn in property in the last fifty years. Those experiences stay with you, inform you how to make decisions and provide insight as to what to look for in falling and rising markets,” said Ms Lloyd, reflecting on her experience through a number of property cycles while working across different asset classes and locations.

“My whole career has been in property and includes early experience working on building sites through to asset development and funds management, both in Australia and overseas. I have been in both the detail and at the strategic level. That depth of knowledge allows me to think about the issues we face on a range of levels and question both the strategic thinking for the portfolio and the “traps for young players”. I ask a lot of questions and I appreciate teasing out a problem, so the team has thought through an issue to the end. A long career helps you think about the implications of early decisions in a process.”

Focusing on the fundamentals

“While it’s important to seek opportunities in volatile markets, it’s always top of mind to ensure that, to the extent possible, capital is preserved, assets are managed well, and income is maximised,” said Ms Lloyd.

Cromwell’s integrated property management model ensures that assets are managed in accordance with the interests of our investors and to the expectations of our tenants.

Many competitors outsource responsibility for the day-to-day management of their properties, whereas Cromwell actively manages all Australian property assets in-house, creating a link between investors, the assets, and our tenants. This integrated property management model is one of Cromwell’s key competitive advantages.

Our asset management team oversees the strategy for each property, aiming to ensure that tenants are content, space is leased, buildings are operating efficiently, and projects are delivered on time and on budget. We are also experts in value-add projects, such as end-of-trip facilities and “third spaces” (communal, multi-purpose areas that people can utilise as they desire – including for work) that improve value for both our tenants and our investors.