A conversation with Michael Hynes at Stamford Capital Investments

In this conversation, CEO Mark Hurley sits down with Michael Hynes of Stamford Capital Investments, the investment arm of Stamford Capital, about leveraging debt origination insights to inform investment decisions, navigating challenging market cycles through strategic portfolio positioning, and the outlook for Australian commercial property over the coming years.

Michael, Stamford Capital has built an impressive track settling over $2.5 billion in capital assets for your clients across Australia in the last financial year. How does operating at this scale inform your investment decision-making, and what unique insights does your debt origination business provide when evaluating opportunities?

Across our debt origination business, we’ve settled over $2 billion in loan volume in each of the past three financial years. This side of the business continues to scale, and we expect to reach approximately $4 billion this financial year.

From that funnel of transactions, we only invest around $100 to $200 million of equity capital, so the volume of investment relative to debt origination is quite small. We are highly selective in what we invest in.

Because of the scale of origination deals we see, we’re able to use this data to inform our investment decisions. Debt is a constantly shifting element in the market, giving us a heightened awareness of how it’s priced for risk, which asset classes are attracting lending interest, and where leverage sits. Geographies and sectors that draw deeper capital pools tend to indicate market strength.

We also collect significant data from valuations, quantity surveyors, and cost consultants across a diverse range of projects nationwide. On the revenue side, we observe transactional activity and forecast returns across various asset classes and regions. This information gives us detailed insights that consistently shape our investment approach.

Your portfolio spans diverse property types—from office and retail to industrial and healthcare assets. How does this diversification strategy benefit your investors, and what criteria do you use when evaluating new acquisition opportunities across these different sectors?

We are relatively agnostic regarding property type but tend to be fairly vanilla about what we invest into. Our exposure includes residential development, exclusively build-to-sell, as well as commercial office, industrial, and small-scale retail and bulky goods.

Diversification operates differently across our investment vehicles. Some of our investments are housed in asset-specific trusts, representing a conviction position on a particular asset. So, the question of diversification sits with the individual investor and their portfolio.

In our Core Partners Fund series, where we’re more focused on portfolio management, we take a diversified approach. Each of those funds will typically be exposed to anywhere up to a dozen assets, and we’re always conscious of how much capital we allocate to any one asset relative to the fund’s total size. We also consider geography and asset type carefully. If we perceive concentration risk within a fund, we might still pursue the opportunity but structure it as a standalone vehicle, isolating that position from the broader portfolio while allowing investors to participate directly.

Stamford Capital emphasises active asset management to drive value creation. Could you elaborate on your approach to enhancing property performance post-acquisition, and share an example of how this hands-on strategy has delivered measurable results for investors?

While we’re principally an equity investor, we do occasionally provide structured credit. Regardless, our focus across the board is achieving equity-type returns on our capital. Our average net return since inception, almost 15 years ago, is just under 18% net to investors.

Practically everything that we invest in is high touch by nature. Development projects involve active management across leasing, construction, and delivery. Even when acquiring existing assets, we’re rarely a core investor; our strategy aligns more with the “core-plus” end of spectrum, encompassing refurbishment, leasing, repositioning, and re-letting – all with the aim of unlocking rental growth or value uplift.

We’re an informed, hands-on manager and always back operating partners when we’re in the market as a principal. With more than 100 assets invested in over the years, we bring to the table considerable experience and operational insights. Additionally, our deep understanding of debt markets and how they can work most efficiently and most appropriately for a project.

The commercial property market has faced significant headwinds in recent years, from rising interest rates to changing workplace patterns. How has Stamford Capital Investments adapted its investment approach to navigate these challenges whilst continuing to deliver strong returns for investors?

The last few years have marked one of the more demanding periods in the cycle, perhaps the most challenging since the Global Financial Crisis, though luckily not to the same extent as 2009-2011.

Market pressures have been pronounced, particularly rising construction costs following widespread inflation. Certain asset classes have seen pricing compression as yields and interest rates have risen, reducing values. The notable exception is the residential space – especially the luxury segment – which defies gravity and logic and continues to perform strongly.

Our Core Partners Fund 2 (CPF2) was most exposed to this phase of the cycle. It was launched in early 2022 with an 11% target return, which was low relative to our historic rate of return. However, at the time we raised, the cash rate was 10 basis points, meaning we were still 1,000 over the risk-free rate of return.

Recognising that we were at the start of the interest rate hike cycle, we could see the risk in sitting in equity and tilted the fund more heavily toward structured credit, which is reflected in the returns. We hit a few bumps in the road that we dealt with – and bumps are quite common for property in general – but we’re actually quite proud of the return for that Fund given the time period that it was invested in. Certainly, if we had taken equity positions in assets, we would have seen capital loss, however, today, the Fund has returned all investor capital plus some, and should generate a high single digit net return for the investor pool.

Where we did take on equity positions in CPF2, we looked to lock in revenue and take pricing risk off the table. One of the last assets in that Fund was a purpose-built industrial facility in Brisbane for a known user, which we pre-sold to an institutional buyer. That locked in the revenue before we commenced it, and while it was softer than we might have liked, we removed the risk. Given that some of those values have continued to diminish in the time since we locked that revenue, we’re thankful of that decision.

In terms of continuing to deliver strong returns to investors, the results have been cyclical: CPF1 has returns around 18%, CPF2 is sitting at high single digits, CPF3 and CPF4 are both tracking towards mid-teens returns, so we’re back at the point in the cycle where we can operate at a return that’s fairly consistent with our long-term performance average.

Investor communication and transparency are increasingly important in fund management. How does Stamford Capital Investments approach investor relations, and what role does technology play in keeping your investor base informed and engaged with their investments?

Transparent, proactive communication is central to our investor relations strategy. Technology plays an integral role in supporting this, enabling real-time knowledge of our investor base and efficient, consistent engagement.

We have structured reporting across all our assets on a quarterly basis, and we issue additional reporting as needed, whether that’s on an asset-by-asset or fund basis. We find that informed investors are happy investors. Regardless of what the news is, we get it out and known. We’d always rather be clear and honest in our communication with investors.

We see the benefit of that approach through our loyal following, and we’re both protective and conscious of that. We’re always accessible, and we have regular dialogue with many of our investors outside of our formal reporting cycle. The phone is always on, and when investors call – we're always available to have a conversation.

When it comes to bad news, we do find that ‘a problem shared is a problem halved’. There’s no benefit in shielding our investors from reality. In saying that, we prefer to shed light on issues that we might be encountering once we’ve also formed a solution, and then the conversation is around what it means in terms of returns, the timing of returns, and the flow of capital.

Looking ahead over the next 3-5 years, what trends do you see shaping the Australian commercial property landscape? Where do you believe the most compelling opportunities lie for property syndicators like Stamford Capital, and how are you positioning your portfolio to capitalise on these?

Holistically, Australia remains a very good place to be. It’s worth stepping back and reminding ourselves of that from time to time. We have a growing population base, which isn’t the case in many developed countries where populations are ageing or declining. This growth sustains long-term demand not only for housing but also for supporting infrastructure and ancillary development.

The last few years have evidently been turbulent. The inflation question is still not fully resolved and just recently, the RBA quelled hopes of further rate cuts. That all talks to valuations and we’ll probably see yields hold at current levels, maintaining some margin to the risk-free rate of return.

Globally, investor capital remains abundant, and Australia remains an attractive destination for it given its legal system and broader economy. The opportunity will be for investors to put money into good assets that have defensible income streams and the potential for capital growth.

The big-picture outlook for Australia makes sense, and managers who can syndicate that type of opportunity to investors should operate well over the next cycle. We anticipate the next three to five years will be a more active and constructive period for private syndicators, compared to the last three we’ve seen.