News and Insights

Market volatility and economic uncertainty can erode the risk weighted value of traditional investments like equities. Real estate debt, on the other hand, offers an appealing alternative, blending steady income with mortgage-backed security. As an investment, real estate debt can reduce risk and provide a cushion during market downturns, a point highlighted by The Reserve Bank of Australia. 

We’ve created robust risk assessment and management processes to keep your investments secure. It’s part of what has allowed us to achieve weighted average returns of greater than 10% p.a. across ~$1bn of investments throughout our ~10 year history.

Real estate debt involves lending funds to property developers or owners, secured against the development itself. This asset-backed approach ensures that even in adverse scenarios, your capital retains the protection of the underlying land and project value. According to CoreLogic, Australian real estate continues to demonstrate resilience, making it an attractive sector for investors prioritising security. 

One of the key benefits of real estate debt is its ability to offer higher yields compared to traditional fixed-income securities, all while maintaining a lower risk profile by virtue of its being secured. As noted by The Australian Financial Review, the growth of Australia’s private credit market underscores the increasing demand for these tailored financial solutions. 

Incorporating real estate debt into your portfolio is one way to achieve diversification, which can reduce overall risk exposure. Non-bank lending opportunities, in particular, provide streamlined access to this growing sector, as noted by Australian Broker News.

Real estate debt offers a balanced approach to capital protection and growth. Together, we can explore how this innovative investment can strengthen your portfolio while keeping your financial goals on track. Contact us today to learn more about how you can incorporate it into your portfolio.

As an active real estate investment manager, we’ve built our investment strategy around a distinctive approach to market analysis. Rather than pursuing simple market timing, we focus on identifying whether a market is trending upward or downward across different regions and sectors. The crucial question isn’t whether market conditions are good or bad but whether they’re improving or deteriorating.

Ark’s methodology drives our investment decisions across our portfolio, which spans key market segments, primarily in;

1. residential,
2. commercial, and
3. industrial assets.

To maintain current market intelligence, we operate a dedicated team that maintains an active presence in target markets, constantly analysing, and talking to the key stakeholders and market participants. This is supplemented by our research partnership with Urbis, producing bi-annual market outlooks that inform us of macro and micro factors that are impacting geographies, sectors and asset types. 

For example, our approach to the Western Australian residential market illustrates this in action. In 2021, our research and on–the–ground presence helped us form the view that due to the factors of relative affordability, strong population growth, limited supply and a strong state economic base, we liked the residential land sector. We then made our first investment in early 2022, which has become one of our strongest land development deals, including being the fastest selling land subdivision in the Ark book. We have since made two further investments in the WA market, both supported by these ongoing strong fundamentals.

Our analysis of the Australian residential market identified divergent opportunities across regions, with Southeast Queensland, Adelaide and Perth showing strong growth patterns while Sydney remained flat, and Melbourne experienced negative growth.

The Melbourne market has proven particularly instructive. Despite positive fundamentals including strong population growth and restricted supply, the market has faced headwinds from government policy, taxation settings and declining consumer confidence.

Meanwhile, Southeast Queensland has benefited from affordability advantages and strong economic fundamentals with additional momentum in the lead up to the 2032 Olympics.

Over the last 2-4 years, we’ve had a strong appetite for good quality residential land investments in Brisbane, Adelaide and Western Australia. These markets have proven our investment thesis correct, with these investments generally delivering on or ahead of program and on or above investment returns.

For every opportunity, we ask ourselves: are conditions getting better or worse in this market? This question drives not only investment decisions but also how individual investments are structured. As market conditions continue to evolve, we will continue to apply our methodology driven approach to market analysis.

We believe the best investment decisions are built on insight, not instinct. If you’re curious about how to navigate the complexities of real estate investment across changing market cycles, we’d love to connect. Get in touch to learn how you can achieve stronger more resilient returns.

The two new facilities are an industrial land and construction loan in Adelaide; and a land loan secured by two residential development sites, also in Adelaide. This continues our focus on Adelaide as a market that we have seen opportunity in across the residential and industrial sectors for some time. Our one maturity and repayment in October was the APH Mt Albert facility which was repaid early after the property was put to the market and sold albeit at a discount to the most recent valuation. The sale resulted in 100% repayment of all principal, interest and fees which was a very good outcome given the liquidity issues that the APH Group have been experiencing.

New Melbourne Office

During the month the Melbourne team moved into its new office located in 33 Stewart Street Richmond, a new state of the art building developed by Slimform Australia and with an exceptional new fitout designed by Cera Stribley. The office will position Ark well to continue to deliver high performance outcomes to our investors and development partners as we continue to grow the team and our funds under management.

Ark Urbis Macroeconomic & Property Outlook

The inaugural Ark Urbis Macroeconomic & Property Outlook report for Spring 2024 was released on 29 October. We were pleased to host a number of our current and prospective wealth managers over lunch to present the report and the Ark investment settings which are informed by the collaboration with Urbis, one of Australia’s pre-eminent multi-disciplinary real estate advisory and research groups.

The property markets and sectors in Australia that Ark invests in are dynamic and are influenced by different factors depending on geographic, macroeconomic and demographic factors. Ark is constantly reviewing these markets and sectors to identify risk and opportunity. The current Ark investment settings formally updated in October are summarised below.

Finally, what seems like the longest running election process we have ever experienced is over and the world is preparing for the second coming of President Trump. What does it mean for the Australian economy and importantly interest rates? Time will tell although you can always get a good feel from the markets which are suggesting that the next Trump government is likely to be likely to be challenging for economic growth in Australia and higher for longer interest rates.

As it became clear that Trump was not only going to win the presidency but also control of the House of Representatives and Senate, the Australian dollar slumped 2 cents to US65 cents, and the yield curve on bond rates jumped higher. The market is clearly saying that Trump’s inflationary policies including significant corporate and personal tax cuts, increased defence spending, deporting migrant workers and bigger budget deficits are going to make it much harder for the US Federal Reserve to maintain inflation within target range. Inflation and interest rates in the world’s biggest economy have a ripple effect across the world supporting the higher for longer thesis.

The impact on Australia is more nuanced due to Trump’s intention to also impose 60% tariffs on China and a weaker Chinese economy has significant impact on our economy given that they are our largest trading partner. Australia exports $200 billion or 37% of annual exports to China and therefore a weaker China means a weaker Australia. This is largely why the Australian $ fell during the week, also adding to the concerns about elevated local inflation.

A second Trump presidency was always going to be interesting and now we will see what happens! Ark will maintain a conservative approach to interest rates, ensuring our rates are variable, linked to the RBA cash rate and with structured rate floors

We continue to focus on our core sectors of land and land subdivision in the residential and industrial markets and assess opportunities outside of these with caution.

We have previously provided commentary on the pressures facing developers in Victoria and NSW in particular and noted that for some time now Ark has focused on South Australia, Southeast Queensland, Western Australia and the ACT. Accordingly, the current pipeline of opportunities is heavily weighted towards these locations.

Notwithstanding this we continue to conduct detailed due diligence on potential investments in Victoria and NSW, and as noted in last months newsletter, markets can become attractive when settings change or are influenced by other factors. Melbourne in particular is a market that we are keeping a close watch on.