Timelines

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Watch those date changes! @blueskyfunds talks up good property record, but big East Brisbane project is quietly delayed.

It was dirt block in March with sales display of another Blue Sky development on it. Returns on 2 other projects tapering too. $BLAhttps://t.co/sSV0UhRPeV pic.twitter.com/2S0ruLn5Lo
— Liam Walsh (@liamiwalsh) April 28, 2018



ONE of under-fire fund-manager Blue Sky’s big apartment projects has missed deadlines and remains a block of dirt in East Brisbane.

The setbacks come as another major development — called the Duke which overlooks Brisbane’s **ba cricket ground — also looks poised to post lower returns than the spectacular gains once envisaged for investors.

The Duke is still paying out dividends, and sources with knowledge of the situation say Blue Sky Alternative Assets feels it is posting strong results for investors in the crowded Brisbane apartment market.

Blue Sky oversees funds with assets from apartment blocks to shoe-sellers. But its shares have been pounded from $11.43 last month to $3.12 on Friday.

That came after short-seller Glaucus, which makes money from stock prices falling, published a critique last month of the Brisbane-based fund manager.

Glaucus’s allegations included that Blue Sky was overstating investment performance, which the Brisbane company denied.

Performance is important because Blue Sky attracts investors with proclamations of overall returns of 15 per cent annually — although that includes estimates about the performance of assets yet to be sold.

Blue Sky’s portfolio includes overseeing $2 billion in real-estate assets, and successes have included a Milton project posting a 75 per cent return on equity — a profit measure — which is better than initial targets proposed to that fund’s investors of 51 per cent.

A 69-apartment project in Woollongabba also posted 68 per cent returns when the initial aim was 55 per cent.

TIMELINE SHIFTS
But one delayed project is a planned 146-room venture in East Brisbane, for which Blue Sky raised money via two trusts in September 2015 and November 2015 aiming for returns of roughly 50 per cent.

Among those pumping in cash was Blue Sky’s own stockmarket-listed fund. That fund’s monthly disclosures show between December 2016 and January 2017, dates quietly blew out for when the trusts would be exited — a reference to apartment sales occurring.

The first trust, representing stage one of 71 apartments, and was initially targeted to have been wound up by financial year 2018’s first half. The second trust, for the second stage of 75 apartments, had a finish target of financial year 2018’s second half.

But both targets moved to the 2019 financial year.

Then by December last year, Blue Sky was saying construction should begin in financial 2019’s first half and a market launch would start in calendar 2018’s first quarter. Blue Sky’s website of upcoming projects does not yet list the East Brisbane venture.

Blue Sky in December also reviewed the values of both East Brisbane funds among 15 entities. The specific result for the property funds is not clear but the result for all 15 funds was “an overall uplift”, Blue Sky said.

THE DUKE
Just down the road from East Brisbane is the Duke, a 125-apartment project boasting a “high desirable subtropical urban residence” that finished construction last year. Property records show as of late February, seven apartments were still listed in Blue Sky’s name.

Blue Sky has raised funds in 2014 with aims for investors of a 48 per cent return.
Sources say Blue Sky thinks the final result will be below the initial case, but it still remain strong given a “difficult residential development market”.

Meanwhile, a 53-room development on Logan Road in Greenslopes was, according to Blue Sky’s stockmarket listed fund in June 2017, predicted to return more than 1.5 times investors’ money.
But in December last year, Blue Sky’s stockmarket listed fund listed a lower estimated return of 1.35 times for that project. Money was parked in fund in August 2014.

BIG RETURNS OFFERED ON LOANS FOR APARTMENTS
Blue Sky did not answer queries, but it has offered reassuring sounds about its exposure to the property market. In August 2017, the company said that remaining development sites in Queensland’s southeast corner represented 5 per cent of $3.25 billion then in assets.

Blue Sky developments are funded via equity, which investors provide to funds; senior debt, provided by established lenders; and an uncommon form of mezzanine finance, in which a person or private company makes a loan and earns an apartment in return.

Marketing documents seen by The Courier-Mail show those mezzanine loans, which are a risky form of finance, were marketed as offering up to a 40 per cent return to the lender.

For apartments at the Duke, for example, a person offering a $367,000 loan would obtain a two-bedroom unit marketed to everyday buyers for at least $515,000.

“(Blue Sky) anticipates that this window of opportunity will close over the next few years as increasing investor demand translates to higher property prices and less compelling development opportunities in the medium term,” the documents said.
Email: Liam Walsh

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