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Finding value in a frontier property market

Reid Kirchenbauer, fund manager of the Khmer Ventures Property Fund and managing partner of InvestAsean consulting firm. Photo supplied
Reid Kirchenbauer, fund manager of the Khmer Ventures Property Fund and managing partner of InvestAsean consulting firm. Photo supplied

Finding value in a frontier property market

The Khmer Ventures Property Fund is the first fund to invest exclusively in Cambodian real estate. The Post’s Cam McGrath spoke to the fund’s manager, Reid Kirchenbauer, about what inspired him to start the fund and its potential for growth.

When and why did you start the Khmer Ventures fund?

I started Khmer Ventures in July of 2016. Having invested in Southeast Asia for over a decade and living in the region for around six years, I’ve spent a good chunk of that time investing in real estate – for both myself and others.

My belief is that Cambodia is Asia’s best real estate market. Population growth is driving urbanisation, which should greatly boost the value of centrally located property over time. In addition, Phnom Penh is the only capital city I know of where you can buy prime, city centre real estate for less than $1,000 per square metre.

I see Cambodia as being in a similar place as Vietnam 15 years ago and Thailand 30 years ago. If real estate in Phnom Penh performs at a level even vaguely near these two markets during their “boom years”, it should be a good long-term investment.

How many investors does the fund currently have and what property assets are under its management?

We currently have 10 investors, including myself as a minority shareholder, owning $336,160 worth of assets and three properties totalling a bit over 360 square metres. However, I don’t plan on us being small for too long and we expect a lot of investment during our first full year of operation. Our goal for this year is to have $1 million under management.

Most speculative property investments by foreigners in Cambodia have been geared toward condominiums, yet you’re buying and flipping or renting out shophouses. Why do you think this is the best investment route for the fund?

The condominiums in Phnom Penh are, in my opinion, very overpriced. Prices per square metre are comparable to those seen in more developed cities such as Bangkok and Kuala Lumpur. In contrast, shophouse apartments can be bought for roughly a quarter of the price and are often in even more central locations.

What do you look for in a potential property asset?

I look for a combination of rental yields and capital appreciation potential. Khmer Ventures only buys properties yielding above 10 percent. Yields in the double digits are getting harder to find, but are still very possible. There are certain areas which I believe will have few, if any, low-rise buildings after the next decade. I especially target these areas for long-term growth and the potential for having our units bought at a premium by a large developer.

How do you add value to the properties?

Most of the furniture in our first three apartments is made of solid, reclaimed teak hardwood. It’s durable for tenants, looks great, and is not as expensive as similar furniture in Western countries. Other things we do to add value include repainting the common staircase and installing a gate outside the entrance, for extra security, when possible. We also install water purifiers in the kitchen sinks of all our apartments. At around $100, they’re not very expensive and go a long way considering the water safety concerns.

Combine all this with the fact that labour in Cambodia is inexpensive and that most of our materials are sourced locally. The result is that we can renovate apartments in a modern style for less than what some people might think.

How is the fund structured, and what do shareholders actually own?
The fund is structured as a Cambodian LLC which directly owns the properties. Our investors own shares in the company, and thus own property through the company.

How is the fund’s net asset value assessed, and is it independently verifiable?
The fund’s net asset value is calculated based on the appraised value of our properties, and dividends by default are paid quarterly. At the end of each year, all our properties are appraised by an independent third party. We use one of Cambodia’s largest real estate firms for our appraisals.

How has the fund performed so far?
We had operated for only six months as of our first appraisal in December, but our first three properties appreciated by 15.2 percent during this time. More noteworthy is the fact that this was just through appreciation. None of our apartments were rented out until this year because of time spent searching and renovating.

How can new investors enter and existing investors cash out?
New investors can buy shares in Khmer Ventures by visiting our website. We seek capital in rounds and the second round of fundraising, with a maximum of $500,000, just began last month. The size of these rounds depends on the amount of investment-worthy supply in Phnom Penh at the time.

Existing investors can sell their shares to any third party, including other investors in the fund, at any time. The fund is also often willing to buy back shares at a small discount – not much higher than what a real estate agent would charge on a sale commission – for added convenience.

Being a real estate investment, there’s less liquidity than in some other asset classes. But our liquidity is high for a property fund. Under most circumstances, investors can sell their shares faster and at a similar cost as they could with owning a physical apartment.

This interview has been edited for length and clarity.

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