Eureka invests in and manages real estate based on the philosophy that it is a commodity to which no emotional attachment should be made. The philosophy of buy cheap and sell well is as applicable to real estate as it is to other more liquid investment asset classes.
Eureka’s investment philosophy recognises that property is a cyclical asset class with the various drivers both macro, such as interest rates and inflation, and micro, such as local market competitive factors needing to be understood in order to make effective investment decisions.
Property must also be understood from the perspective of capital flows into and out of the asset class, the interaction between listed and direct property and the position and pricing of property relative to other asset classes.
Eureka seeks to add value to its clients’ investments recognising that property is an inefficient asset class. Eureka’s strategy is to invest in assets where it can utilise the experience and expertise of its management team to reposition, refurbish, lease and improve the value of an asset. Eureka, in its analysis of investment opportunities, seeks to exploit differences between appraisal based valuations and Eureka’s own evaluation of an opportunity.
Relationship management, both in terms of co-owners and development partners is also a key attribute of any group which wishes to be active in the property markets. Having an outsourcing philosophy, as Eureka does, in terms of property management, project management and property agency means that industry participants are more likely to see Eureka as a compatible independent group. As a result, industry participants are more likely to network with Eureka in terms of business opportunities.
Eureka applies a disciplined investment approach which, coupled with the experience and expertise of the Eureka management team, is designed to provide a robust platform for investment decision making. In all investment activity, identifying, quantifying and evaluating risk is fundamental. Effective risk assessment represents the difference between upside and downside in investment return, relative to the base acquisition assumptions which are applied to investments.
There are two main areas in which Eureka will invest in real estate. These are "investment real estate", where Eureka acquires completed physical assets on behalf of its clients for both income and capital return; and "opportunistic real estate" where significant value add is possible through management expertise in the development and repositioning of property where returns are principally derived from capital gain. Eureka’s Investment Real Estate Funds can invest in Australia and New Zealand whereas the Opportunistic Real Estate Funds invest in Australia only.
Clean Energy
Eureka have been working since April 2007 on the establishment of a new Fund to be known as the Eureka Clean Energy Fund. This Fund will focus on renewable energy projects in Australia, mainly wind farms, where the technology is mature and proven. Subject to further research and appropriate economic returns, there may be scope to invest in other renewable technologies.
The evolution of Eureka’s thinking in relation to the Clean Energy Fund has come from a number of different directions. Firstly, since 2005, Eureka has seen the rising cost of electricity, pressure on water usage and focus by both investors and tenants on sustainability issues in relation to investing and/or occupying real estate assets. Furthermore, it is possible in the not too distant future that institutional investors, including Superannuation Funds, will have to account for their carbon footprint and its liability.
The traditional investment approach of seeking diversification by mixing different asset classes such as cash, bonds, property, infrastructure and equities may not be as applicable in this new world of climate change risk. The majority of traditional investment sectors are likely to be experiencing negative impacts due to climate change and its effects. In addition to the diversification benefits of the Clean Energy Sector, investments in renewable energy offer unique hedging benefit against traditional investment sectors.
Eureka sees investment in the Clean Energy sector as one of the few true hedges against some of the downside scenarios that may emerge if the environmental consequences prove to be greater than consensus forecasts.
Eureka believes that there is likely to be significant upside associated with investments in renewable energy, particularly in the scenarios where bad outcomes from climate change ensue and in which the Australian Federal Government’s 20% renewable energy target, which is driving all of the forecasting, proves to be inadequate.