“We aim to be considered the ‘safe pair of hands’ when investors look to invest in Specialist Disability Accommodation,” says Barwon’s Joss Engebretsen.
Building a fund in an emerging asset class fundamentally relies on getting out from under the desk, understanding how the sector works from the bottom up and building the right relationships according to Joss Engebretsen, portfolio manager of the Barwon Disability Accommodation Fund (BDAF).
For Engebretsen, cultivating these connections is not just a task – it’s been an essential part of his role in establishing both the fund and Barwon’s presence as a trusted capital partner to the Specialist Disability Accommodation (SDA) sector.
SDA is a relatively new real-estate asset class, and is a sub-sector of the burgeoning living sector. SDA dwellings provide housing for those who have severe functional impairment, generally requiring very high levels of care, and are also eligible for funding to support their accommodation needs under the National Disability Insurance Scheme (NDIS).
Catering for some 23,000 residents today, the SDA sector is both small and complex but can deliver attractive uncorrelated returns alongside enabling a substantial positive social outcome through the improvement in quality of life for people with disabilities who qualify for their housing.
“Given its complexity, the only way to invest well in the sector is to show up with a lot of heart and shoe leather, and put the experience of the NDIS participant, our resident, at the centre,” Engebretsen tells The Inside Adviser.
He says it’s important to engage directly with those connected to the sector’s assets, including SDA providers, participants, families and others involved with providing services to participants in the NDIS ecosystem.
“In this fund we are the landlord, not the operator, so it’s crucial to understand the quality of the businesses operating the assets on our behalf and ultimately the residents who are going to live in our properties,” he says. “If you look closely at my shoes, you’ll notice they’re pretty beat-up.”
Given the care-centric nature of the industry, establishing trust with stakeholders is vital. Engebretsen’s consistent presence at disability conventions and industry events along with regular personal engagement with the broader disability care community has been instrumental in fostering these relationships.
“There are terrific people right across the sector, this really is a relationship-driven industry,” he notes. “We are all focused on delivering support for a vulnerable cohort of our community and so you have to build relationships with the right people who are genuinely committed to achieving good outcomes for participants and be a trusted partner to them.”
Through these efforts, Barwon identifies opportunities to enhance its portfolio.
“Just last week I was at the Sydney Disability Expo, engaging with providers and learning about art therapy, behavioural management services, transport options and the various services supporting NDIS participants daily,” he recalls. “It’s terrific to see familiar faces and learn about how other organisations are growing and developing to better support their clients. From a fund perspective, I’ve actually identified potential acquisitions simply by conversing with providers who manage properties or may know an owner considering a sale.”
The network Engebretsen has cultivated is a key factor behind the robust returns the BDAF delivers to its investors, including a 9.03 per cent total return in FY24 and 8.94 per cent p.a. over the past 24 months to 31 July 2024.
“Good returns reward early investors which hopefully will help us attract more capital to the sector, allowing us to be increase our offering of more high-quality housing to the disability community”. Engebretsen says.
The fund has approached the sector a bit differently than others preferring to acquire pre-existing, operating properties, with a track history of financial returns and stable financial outlook instead of developing the properties from the get-go.
“Over this prior period of escalating building costs, elevated interest rates and concerns about attracting tenants to SDA properties, we’ve found better risk-adjusted returns by acquiring existing assets to shield our investors from development, leasing, and construction risks,” Engebretsen explains. “This approach has allowed us to generate both income and capital returns for investors. Our income returns to date have been 100% tax deferred, given the high levels of depreciation from new buildings in the portfolio, providing tax efficient quarterly distributions for our investors.”
Engebretsen remains very optimistic on the further outlook of the Fund and is keen to see the Fund grow with more wholesale and institutional investors now reviewing the sector. “Given the increasing understanding of the sector and with the Fund established, our relationships, deep sector expertise and a more stable outlook for the macro environment we are well poised to grow the fund sensibly and dip our toe in creating new SDA opportunistic developments in great locations that to-date have been underserviced by the market.”
However, Engebretsen reaffirms BDAF’s cautious and diligent approach takes in its investments. “Our investor base consists primarily of high-net-worth, wholesale investors who prioritise capital preservation, and so do we,” he says. “We aim to be considered the ‘safe pair of hands’ when investors look to invest in the Specialist Disability Accommodation sector providing consistent, tax-effective income returns with the opportunity for capital growth.”