Commercial Property Syndication – An alternative to Direct Property Ownership
In today’s competitive property market, with prime commercial assets priced out of the reach of many investors, participation in a Commercial Property Syndicate has presented as an increasingly popular mode of investment.
Syndicated investment is essentially passive in nature. The responsibility for identifying and negotiating the purchase of suitable properties rests with the Syndicate Manager, who undertakes an exhaustive ‘Due Diligence’ investigation of the assets prior to committing to a purchase.
The Manager also arranges for any bank financing and negotiates the terms of the purchase contract and any relevant leases. Property Syndicates are commonly structured as Unit Trusts, with individual investors being allotted Units in the proportion that their investment bears to the total subscribed capital of the Trust.
Peak Equities Pty Ltd has emerged as a significant participant in the Property Trust industry. Established some 6 years ago by the Tom and David Borsky father-and-son team, the company currently administers commercial properties valued at more than $220 million. Investors receive monthly cash distributions ranging from 8.0 % to 10.4% per annum.
Managing Director, Tom Borsky contends that the unlisted syndicate market offers more realistic asset values and greater stability of both income and capital than the publicly listed Real Estate Investment Trusts. The REITs, as they are known, are far more volatile with the value of equity more closely reflective of the overall share market than the fair value of the underlying real estate assets.
Investment in Peak Equities Syndicates is open to “wholesale” or “sophisticated” investors as defined in the Corporations Law. Intending investors are provided with an Information Memorandum setting out full details of each proposed property acquisition before applying to participate in a particular Syndicate.
Mr Borsky highlighted the following benefits of investment in Commercial Property Syndication:
1. Security Through Diversification – Investing a smaller sum in one or more Syndicates provides investors with the opportunity for greater diversification in comparison to investment in a single asset. Investment risk is further reduced by the Manager’s thorough Due Diligence process prior to committing to the purchase of each asset.
2. Quality of Assets – Investors can participate in the ownership of premium “A Grade” commercial assets that may otherwise be out of the reach of an individual investor. Investment parcels usually range from $200,000 to $1 million.
3. High Income yields with monthly income distributions – commonly 8% p.a. or better, resulting from the Manager’s expertise in asset selection and management. It is also common for a significant percentage of the Trust income to be “tax advantaged” and in most instances the yield is further improved through relative land tax advantages (intending investors should consult their professional advisor or speak with the Fund Manager for a detailed explanation.)
4. Opportunity for Capital Growth – reflecting the Manager’s expertise in selecting and managing the property and the tenants to maximum benefit.
5. Set and Forget – Every aspect of the management of your investment is the responsibility of the Fund Manager. Individual investors need not be concerned about vacancies, repairs, capital expenditure, rental collections or new lease negotiations.
Contact us today by calling (03) 9863 8380 or email info@peakequities.com.au to learn more about investing In Commercial Real Estate.
The Evolution of Industrial into a Leading Investment Class
The global industrial real estate landscape is in the midst of a major period of transition. In the current climate, Industrial assets have become a more integral part of the logistics fulfilment process and must offer more value than basic goods storage. Technological advancements and e-Commerce have been the major driver of this trend, with efficiencies achieved within storage facilities driving significant supply chain efficiencies and cost reductions. While many of the fundamentals of industrial property investments remain the same, some of the traditional characteristics of the asset class are changing rapidly. Below we have outlined some of the key themes prevailing in the Australian market, and how this should influence your commercial real estate investment considerations.
The term ‘e-Commerce’ is not new, but the maturation of technology in supply chain and logistics sectors has reached a point where it is now having significant impact on retail and manufacturing industries as a whole. According to NAB Online Retail Index, Australians spent an estimated $28.1 billion on online retail in the last year, which is approximately 8.9% of the traditional bricks and mortar spend. In addition to this, online sales grew by 15.7% over the same period, highlighting it is a trend that is continuing to expand. As the sector grows and a higher volume of retail sales are generated through digital platforms, the requirement for additional floorspace to store goods, package orders and process returns increases. Large logistics players such as Amazon, Wesfarmers, DHL and Toll are increasing their footprint focusing on high quality industrial facilities, serviced by infrastructure links, in proximity to their customers. We expect this momentum to remain over the medium to long term augmenting the investment proposition for selected industrial locations across Australia.
As e-Commerce continues its rise, the supply chain has been forced to adapt accordingly. Last Mile Logistics has been one of the new requirements in the logistics sector in recent years, driven mainly by increasing pressure to deliver consumer products in narrow timeframes. Distributors have altered their supply chains from the traditional logistics platform that relied on regional distribution, to one that includes an urban logistics strategy revolved around serving consumer epicentres in densely populated areas. However, with populations swelling in the major cities it is becoming increasingly difficult to find sites that satisfy the logistics provider. Creating functional Last Mile fulfilment centres will be the service level differentiator for online retailers into the future. This is a challenge considering the current environment; scarcity of development sites, high rental levels and land values. Investors that are in the position to leverage off this demand for logistics space are well placed to achieve high occupancy rates and consistent rental growth.
Another interesting trend is the influence of technology and automation on the functionality of an industrial building. As automated systems become more affordable, adoption levels increase which is influencing the way industrial buildings are designed and operate. Automated solutions have the potential to move goods within the factory in shorter periods, with less labour involved. The use of robotics has many benefits – reducing the time allocated to pick, pack and dispatch items, minimising labour and admin requirements and increasing the density at which goods can be stored which increases the return per square meter of lettable space. While the demand for industrial space is expected to increase, some of this demand will be accommodated by the increased productivity of each unit of space. Prudent investors are therefore advised to focus on assets which have the ability to adapt and incorporate new automation and technology within the operational space.
The recurring theme as discussed above is that the industrial sector is evolving at a greater pace than expected. Fortunately, for the industrial market, this transition offers some exciting opportunities for savvy investors to enjoy sustained growth in rental and underlying asset values. High levels of infrastructure spend, strong projected population growth and increasing demand from new entrants are additional factors that support stable returns and are also key asset selection considerations. Peak Equities’ view is that carefully selected industrial property investments offer strong strategic value and are particularly well suited to a syndicated investment structure.
The combination of an industry in transition, increases population density in major cities and consumers who expect ever improving delivery speed and convenience, mean that well located and flexible use industrial assets are enjoying rapid increases in both strategic and underlying value. Peak Equities team of real estate investment specialists can help you select the best value assets which combine for strong-reliable income and long-term capital growth. Contact us today by calling (03) 9863 8380 or email info@peakequities.com.au.
Benefits of Rebalancing Your Portfolio With Commercial Property
Australian commercial property markets have been one of the standout investment classes since the Global Financial Crisis. The markets have delivered consistently high returns with relatively low volatility. Despite a number of downside risks beginning to emerge, capital sources continue to focus on Australia as an investment destination. With equity markets recording some fragility, a cooling residential sector, and global geopolitical risks becoming more prominent, it is critical that investors have a clear strategy in place to protect investment portfolios.
Investing in commercial real estate can act as a defensive investment class in times of volatility, generally providing a safer and more secure return profile. In this report, our team outlines several key factors solidifying this theory and explores the benefits of rebalancing your portfolio with commercial property.
For a commercial property asset to have a solid foundation for income and capital growth, positive economic indicators are essential. Australia’s 27 years of positive economic growth is a statistic we cannot ignore. This is a highly desirable characteristic, especially from a foreign investment perspective and one of the pillars to the market’s growth. Australia is also a highly transparent market, considered number two out of 100 according to the JLL Transparency Index 2018, ahead of France and Germany.
Significant infrastructure spend is also augmenting the investment proposition. For example in Sydney projects such as the Sydney Light Rail, the Metro Rail Line, the Westconnex Extension and the Western Sydney Airport are providing opportunities for existing areas to evolve but also unlocking new markets with further potential. Parramatta is a good example and a market where Real Estate Investment Trusts (REITs) and Australian property syndicates are targeting office assets with the view of Parramatta establishing itself as the second Sydney CBD.
Melbourne is also recording a buoyant infrastructure spend, with a Deloitte Access Economics report stating that over $100 billion is in the pipeline from both the public and the private sector. Some of the projects include the long-awaited train from the Melbourne CBD to the airport, and the North East link toll road, which has been allocated initial funding from the government. The private sector is also active with the largest project being the proposed third Melbourne airport in Koo Wee Rup 74km South East of Melbourne CBD. This is not only improving established and emerging property markets as mentioned above, but also bolstering the employment sector with 340,000 new jobs being created.
Another key theme supporting the sector is the strong leasing demand prevailing in selected property sectors, mainly along the eastern seaboard. Strong organic occupier growth from finance, technology, education and other business-related industries has driven office markets to record very low vacancy rates, which subsequently has pushed rental growth to record levels. While capitalisation rates over the past 6-8 years have recorded strong compression, the consistent appreciation in rents is countering this, making investment metrics more attractive.
Industrial is also recording growth off the back of the major uplift in e-Commerce and increased need for logistics space. While rental growth is positive for the industrial sector, it is not at record levels that have been recorded in the office market in Sydney and Melbourne.
The retail sector is facing several challenges and for this reason has not experienced as positive markets performance. Current re-leasing spreads are flat or negative for most retail assets which is one of the reasons why the retail investment story is less attractive in the current environment.
With the expectation that a period of greater volatility is ahead, it is important to adopt strategies to reduce risk. Security and sustainability of income are two of the key focuses for investors. Commercial leases are more prolonged than residential and tenant covenants often more superior, which can reduce income stability risk. A longer term lease guarantees return over a certain period unlike other investment classes with similar return profiles. This idiosyncratic nature of commercial property becomes very valuable in times of instability due to the more stable nature of the asset class compared to stocks and commodities. Because the investment class does not trade on the public markets, it can be relatively sheltered from short-term market volatility.
The cornerstone of Modern Portfolio theory incorporates diversification as its key principle with the aim of reducing risk. Commercial property can act as a means to provide diversification in a portfolio given its low correlation to other asset classes. The Australian market is large enough that diversifying across different markets can lower the portfolio risk profile. Each major market has its own economic characteristics and responds to different market drivers. Incorporating diversification into investment strategies can lower the exposure to singular markets and exercise capital preservation.
Risk adjusted returns provide a proxy for comparing investment classes. Commercial property investment has provided some of the highest risk adjusted returns over the last ten years. Considering the GFC was incorporated into this time period highlights the stability of income and capital returns of commercial property assets even through difficult economic periods.
There are many reasons why commercial real estate investment in Australia appeals to a wide range of investors. The strong economic fundamentals that have been underpinning the market for 27 years continue to maintain positive momentum. The major infrastructure pipeline further augments the Australian market and is providing new opportunities for growth and development. Demand for commercial space continues to prosper and drive the investment thesis. In addition, when compared to other asset classes, commercial property provides high risk adjusted returns even through times of global instability.
As the wider economy transitions into a phase of volatility and lower growth expectations, investors focus their attention to the optimal portfolio balance to protect value. Considering the Australian commercial property market is currently positioned well to support secure and stable returns, the team believe it is an essential asset class in any diversified portfolio.
Contact us today by calling (03) 9863 8380 or email info@peakequities.com.au to learn more about portfolio rebalancing.
What is a Property Syndicate?
Property syndicates, also known as Unlisted Property Trusts (UPT) or Real Estate Investment Trusts (REIT), offer qualifying, sophisticated investors, the opportunity to participate in the ownership of high quality commercial real estate that would ordinarily be beyond the reach of an individual investor.
What You Need To Know Before Investing in Commercial Real Estate in 2018
As we move into the new financial year, continuing strong market conditions have made it more challenging for investors to find high-quality commercial assets that represent attractive long-term value. With the appropriate patience and research however, good opportunities remain.
Successful commercial property investing requires an advanced understanding of market segments (retail, office, industrial etc) as well as broader market, economic and interest rate trends. Asset selection based on these factors and their associated risks can add stability and value to an investor’s portfolio.
What then are the broad market drivers that investors – particularly those in pursuit of secure income and capital growth in commercial property – need to be aware of?
Fleet-Footed Economy
A strong economy is fundamental to the sustained value of any property investment. Australia is on track to record a 27th consecutive year without a recession against a global backdrop of uncertainty around trade, politics and interest rates.
While economic shocks from overseas events can immediately impact equity markets and other liquidly traded asset classes, direct commercial real estate investments, if selected carefully, can avoid some of the effects of short term volatility and sustain strong income and growth.
A robust Australian economy, backed by an improved budgetary position – that ratings agencies advise has eased pressure on the country’s triple-A credit rating – is fuelling sustained value and investor confidence in commercial real estate.
In a clear sign of this confidence, US private equity giant Blackstone recently made a US$3.14 billion cash bid for Investa’s listed office fund, which has been well-received by analysts and the Australian fund.
The expansion of Amazon into Australia is also having a flow-on effect, increasing demand for warehouse space, particularly as the online retail sector and associated third-party logistics industries grow to support the increased activity.
Potential in Less Visible Areas
In a market where property values have been appreciating for some years, it can be challenging to find good quality, low risk commercial assets with attractive long-term prospects. Accessing these attractive opportunities can be even more challenging for private investors as a many of these kinds of deals occur off-market or between funds, and so are not made available to private individuals
Intense competition and high prices in capital cities – seen most significantly in inner Sydney and Melbourne – mean higher yielding investment opportunities are more readily found in regional centres or smaller capital cities. While strong and varied economic and demographic fundamentals can lower risk in these areas, asset selection becomes more critical as there is often less depth/demand in these leasing markets, making them more sensitive to negative economic and business sentiment.
It’s always prudent to look for areas where growth is being driven by a multifaceted local economy, factors including population, employment and real wage growth. The development of infrastructure in such areas, including roads, public transport, airports and housing, is also a strong leading indicator of sustained growth which feeds into low vacancies, strong rental growth and ultimately property values.
Good access to transport also provides incentive for companies to shift or retain their warehousing facilities, offices and retail stores.
Identifying the right commercial asset in the right area is no easy task, accordingly, seeking advice from a professional is highly recommended. It is also worth considering different investment structures, including real estate investment trusts (REITs) or syndicated investments as a way to participate in the ownership of assets of this kind and enjoy the potential benefits of income and growth not usually on offer to private individuals.
For the best advice regarding commercial real estate investment, contact us today by calling (03) 9863 8380 or email info@peakequities.com.au.
Understanding Commercial Real Estate Property Types
Successful investing in commercial property requires an understanding of the myriad factors that contribute to the value and risk as well as a long-term plan to sustain and add value through strengthening the tenancy mix, extending lease expiry profile or investing in capital expenditure to retain tenants and increasing the achievable rent per square meter of space.
While these factors increase the complexity of the investment consideration in comparison to other asset classes, they also mean that there is value to be captured by undertaking detailed and considered research, planning and investigations.
The Characteristics of Different Property Types
Bricks-and-mortar retail is going through a period of adaptation as a result of the ongoing growth and lower overheads of the online retail sector. Strip shopping centres are also increasingly making way for large-scale retailers and ‘bulky goods centres’ of the Bunnings Warehouse and Harvey Norman variety. This trend needs to be considered when investing in retail assets.
It is useful to understand this trend in the context of the risks and opportunities it creates. Strategies to mitigate these risks include learning as much as possible about the trading strength of tenants in an immediate area, tenant retention and turnover rates and levels of foot traffic at different times of day. The presence of a strong national brand ‘big box’ anchor tenant can also be a positive indicator of strength.
Industrial spaces can offer flexibility as mixed-use premises. With a shift from manufacturing activity to storage and distribution, and in some instances, research and development space, industrial buildings configured, zoned and fitted out in a way that supports multiple uses can lower the risk of vacancy therefore increasing the security. For those looking for a safer long-term investment, a flexible facility – one that can be easily configured to accommodate its tenant’s expansion or different office space configurations – is a good option.
Given Australia’s robust services sector – the growth in popularity of co-working office spaces, and the ongoing repurposing of office space for residential developments – demand for commercial office space is expected to remain strong in the foreseeable future.
With technology allowing people to work and collaborate from nearly anywhere, location (while still critical) should no longer be the sole consideration for real estate investment, as people choose to work closer to home, rather in dense central business districts. Younger participants in today’s workforce tend also look for ‘smart’ buildings with enhanced features and amenities. Key attributes to consider for these kinds of assets include parking and public transport access, sustainability in design and fittings, local eateries, coffee and amenities, superfast internet speeds, views and surrounding properties.
The Returns Speak For Themselves
As with any investment, there is an element of risk that is usually positively correlated with returns. Commercial real estate can provide higher returns than other classes relative to the underlying risk on the basis that the risk is driven by the complexity of owning and managing such assets, rather than the underlying market or income volatility.
With expert asset selection and management, commercial real estate can offer enhanced returns and capital growth as well as significant tax and depreciation benefits.
At Peak Equities, commercial syndicate investments deliver strong monthly income. With the company’s focus on security and conservative capital growth, the historic total annual average return to investors has been in excess of 11%.
The Benefits of Commercial Real Estate Investment
1. Security and Control
Income security is an important consideration in investment decisions (particularly for superannuation funds which rely on recurring income), commercial real estate investing can be more attractive than residential equivalents as longer lease terms and stronger underlying guarantees mean that, in the context of an economic downturn, owners can continue to enjoy the same income level through the cycle.
“Unlike residential property, commercial property is generally still there performing for you, even if the economy does slow down. However, when the economy performs well, commercial property grows in value and provides steady income; it places operators in far greater control over the outcomes of their investments,” says Michael Yardney in Property Update.
2. Diversification
In an uncertain economic and global political climate, diversifying investments across many different asset classes and types is a prudent measure to lower overall risk. “Real estate is no exception,” declares Yardney. “In commercial real estate, there’s almost no limit to what to invest in or where to invest. And investing through a real estate investment trust means a great deal of support in terms of information and advice.”
Taking advantage of the research, insights and experience of professional commercial property syndicators can further lower risk by avoiding mistakes, missteps or miscalculations.
3. Projecting Performance
There’s no one-size-fits-all approach to investing in commercial property. While there are general factors to consider in all cases, every asset has its strengths, weaknesses, opportunities and threats based on a variety of factors.
The strategies employed by a real estate investment trust (REIT) should be anchored in data and rationality – the strength of an investment is judged according to extensive criteria including but not limited to location, asset class, market trends as well as an intimate understanding of the tenants, the strength of their business as well as their market sector in general.
These complex and multifaceted considerations can be beyond the capability of all but the most experienced private investors. For this reason, it can be prudent to leverage the expertise of a professional investment advisor or financial planner.
For the best advice regarding commercial property investment, contact us today by calling (03) 9863 8380 or email info@peakequities.com.au.
5 Reasons Why Commercial Property is a Great Source of Stable Retirement Income
With the strength of the residential real estate markets in Melbourne and Sydney, many investors associate ‘property’ with ‘residential’ while overlooking the opportunities that commercial assets can offer.
For baby boomers look to secure their future retirement income, commercial real estate investment can be an excellent option. Offering a consistent income stream and a low risk opportunity for long term capital gains, there are five key factors which underpin commercial real estate investment syndication as the most advantageous retirement investment option.
1. Higher Income Returns
One benefit of investing in commercial real estate is that income can be significantly higher than residential equivalents. While the 30 year returns on residential and commercial property historically are similar, a far greater proportion of commercial returns are due to income rather than capital growth. This combined with longer and more secure commercial leases make investing in the class particularly attractive for people looking for a secure, tax effective income stream in retirement.
While commercial assets can be significantly more expensive than residential alternatives, there are investment products which make participation in assets of this kind possible. One such product is a Real Estate Syndicate also known as a Real Estate Investment Trust.
Before jumping into a residential investment, it is worth considering how a commercial property syndicate may better suit your wealth creation, risk reduction or diversification investment strategy. Peak Equities can answer all your questions about how a commercial property syndicate works.
2. Stable Income Stream
A particularly attractive feature of investing in commercial real estate is the stable income stream, generated from long term secured leases, with lease terms for commercial properties generally ranging between 3 and 10 years. Additionally, and unlike most residential leases, commercial leases include annual fixed rental increases or a fixed amount greater than CPI plus a flat margin. Such agreements allow for future financial planning and certainty.
Commercial properties are often occupied by established businesses, ASX-listed or otherwise who respect and take care of their rented premises. By contrast, the high turnover of renters in the residential leasing sector leads to greater chance of property damage, vacancy, re-leasing complications and day to day hassles.
When considering retirement investment options, a commercial real estate syndicate can reduce the admin and management burden, lower risk and enhance the stability of retirement income.
3. Portfolio Diversification
In a volatile market, income streams associated with commercial property investment generally remain stable compared with residential investments, due to the length of lease agreements. When a downturn occurs, underlying property values can be adversely affected across both commercial and residential sectors but, income levels will be slower to move because rental income does not change in the short term.
Another reason why commercial investment funds can be less risky during a downturn is that they are subject to stringent compliance, reporting and transparency requirements and decisions are made on the basis of detailed research and conservatism.
As a compliment to direct equities (shares), residential property and other investment grade asset classes, commercial property is a useful way to reduce overall risk and increase security through diversification.
4. Inflation Hedge
The rising tide of inflation poses an ongoing challenge to maintaining the underlying value of retirement savings, while still generating sufficient retirement income. Diversification, strong underlying value, risk minimisation and low gearing are all useful strategies in pursuit of this goal.
In many instances, commercial property syndicate investments, particularly those offered by Peak Equities, can achieve many of these goals.
Another reason why commercial real estate can be a hedge against inflation is that, as living costs and day to day item prices increase due to inflation, the increases over time tend to extend to higher rents and rising land values. Historically, commercial property values have appreciated at a greater rate than inflation.
For these reasons and more, commercial real estate syndicated investments are worth considering to preserve and enhance security in retirement.
5. Optimistic Outlook In The Commercial Property Sector
Considering commercial property returns in recent years, strong economic conditions overall and historically low interest rates (expected to remain low in the short-medium term), the outlook for commercial real estate is positive. Accordingly, for retirees, this is an asset class worthy of consideration when trying to achieve low risk, stable portfolio growth and strong income.
At Peak Equities, commercial syndicate investments deliver 8.5%-9% income p.a. (paid monthly) while focusing on security and conservative capital growth, often increasing the overall annual return to 11% or 12%.
For the best advice regarding commercial property investment for retirement income, contact Tom Borsky or David Borsky at Peak Equities today by calling (03) 9863 8380 or email info@peakequities.com.au.
Understanding the Different Classes of Commercial Real Estate
Commercial Real Estate is an attractive asset class for investment, offering strong returns and capital growth. Each segment within this class has its own particular characteristics and complexities. The first step in navigating these unique challenges is to be aware of the salient details of each major segment within the class.
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Office
Office buildings small or large can be ideal investment grade assets, but a sound understanding is critical to making an informed investment decision. Office buildings can be found in CBDs, CBD fringes, urban or regional areas each with differing market conditions, trends, demand levels, tenant expectations etc. Assets of this kind can be sold as freehold, leasehold, strata titled or unencumbered, each of which will significantly affect the market value, management requirement and future saleability.
Competition to find or retain tenants in the sector can be fierce. Accordingly, an investor must understand trends including; per square meter market rentals, standard incentives, net absorption rates and more. Usually with multiple tenants to manage and a high standard of maintenance required, investors must also have a good working knowledge of a property’s mechanical systems, including but not limited to lifts, air conditioning, electrical and fire safety. Finally, understanding the tenant’s business, who the decision maker is, whether it is a head or satellite office, ASX listed company or smaller operation will have implications for end of lease negotiations and the prospects of retention.
Professional investment companies offering participation to Sophisticated Investors such as Peak Equities are renowned for their assessment of assets of this kind.
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Industrial
Industrial assets can offer strong returns, strategic land holding and relatively low management inputs. The counter to these attributes is that their value can be volatile and particularly sensitive to tenant movements and the length of leases. Different industrial asset types include warehouses, logistics facilities, cold storage, manufacturing centres and more and the implications of owning and managing each kind can be very different. The specific zoning and permitted use of an industrial asset will limit the kind of tenants that can be accommodated, while the activity that a tenant intends to conduct on site will affect the risk and insurability of the asset. The span and height of a warehouse as well as its accessibility for large vehicles will also materially affect an asset’s ability to attract or retain tenants, rent levels that can be achieved and future development prospects.
While many investors consider industrial assets attractive owing to the fact that tenants frequently commit to long term leases, vacancies can take months or even years to fill and require considerable incentive payments, and if repairs or remediation works (particularly with regard to asbestos or soil contamination) are required, they can involve considerable expense, particularly with large or ageing assets.
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Retail
Retail assets vary greatly in their nature, size, location and the type of use. Size and location can broadly be broken down into bulky goods, shopping strip, shopping centre or stand-alone shop, while business operation can include everything from services, food, fashion, entertainment or lifestyle, each with different preferences, priorities and needs. Retail investments can offer diversified tenant risk and lease expiry profiles, the corollary to which will often result in more involved management requirements.
When considering or owning a retail asset, familiarity with the Retail Leases Act in the asset’s particular state or territory is required as retail leases impose obligations on landlords which office or industrial leases do not. As with other asset categories, knowledge of current market conditions, market lease rates, incentives and vacancy rates are also critical to maximising the value of an investment. The mix of tenants in a strip or shopping centre is critical to the sustainability of tenant businesses, too many similar or non-complimentary tenants can be an obstacle to the viability of a tenant’s business and ability to pay rent. In some cases, offering tenants exclusivity over a particular product category or service offering can be a useful approach.
Finally, an anchor tenant (such as a Coles or Woolworths) on a long lease can be particularly valuable in a shopping strip or centre to drive traffic to the centre, extend the lease expiry profile and add considerable value overall.
At its core, successful commercial real estate investing requires learning everything that can be learned about an asset; analysing and understanding the prevailing market conditions; risk factors and management requirements; and understanding the path to preserve and enhance value. Real Estate Investment Trusts (REITs) are entities which own income producing real estate and which are often managed by professional trustees or licensed real estate investment managers. Organisations of this type can be invaluable in lowering the risk and management burden while also adding value for investors/unit holders.
For a confidential discussion about commercial real estate investment opportunities, speak to the team at Peak Equities directly by calling (03) 9863 8380 or email info@peakequities.com.au and always seek independent investment advice from a licensed professional before making any decisions.
Commercial Real Estate Investing in 2018
With strong market conditions and finite inventory in 2018, the search for high quality and secure commercial property investments, with good long-term prospects, can be challenging. While there remains value in the current market, a keen eye, skilled research, sound investment strategy and expert asset selection are required for the best chance of success. Here are some insights from the team at Peak Equities.
Don’t be blinded by the appeal of inner city projects
Many Real Estate investors focus their attention on same-city Real Estate opportunities, assets they can see, drive past or visit with ease. It is worth keeping in mind however, that proximity can limit one’s perspective, reduce the range of available opportunities and ultimately make a sound investment decision more difficult. Melbourne and Sydney Commercial Real Estate markets have been strong for some time with yields as low as 3% being achieved by vendors. Accordingly, it is prudent to consider alternative regions with strong demographic trends, robust growth or centres with multiple economic drivers before an investment decision is made.
Understand the value of secure tenancies
Buying commercial Real Estate for investment purposes requires consideration of the ‘entire story’. The strength and reliability of an asset’s income stream is the major driver of an investment grade assets value. In pursuit of value creation and preservation, getting to know sitting tenants, taking an active interest in their business and supporting their success where possible are all significant areas where value can be added to the relationship and by extension, the asset. Additionally, based on an investor’s expected holding period, the longer WALE (weighted average lease expiry) that can be achieved at the point you intend to sell the asset, the more valuable the income stream will be considered.
Ongoing repairs, maintenance and capital improvements are critical
For preservation of equity, sustainability of income, tenant satisfaction and ultimately the saleability of the asset, investment decisions should include consideration of, and comprehensive planning for capital expenditure requirements. This is especially pertinent in the context of new constructions coming to market and in the planning stages which are often accompanied by significant incentives for tenants prepared to move.
Seek support from experts
Wherever possible, learn and benefit from the experience of professionals. It is always recommended to seek the advice of a licensed Financial Planner or Advisor before making an investment decision. It is also recommended to consult an experienced accountant as part of the process. Professionals of this kind can assist with finance, structuring, gearing, tax, risk management and investment decisions. Post purchase; diligent financial management, budgeting, reporting as well as compliance with all relevant fire safety, mechanical, OH&S and building codes are also critical to being successful in this space. With a proven track record expertise in these areas, Peak Equities offers confidence and peace of mind for those looking for a passive and secure investment.
Off-market opportunities can be found through property syndicators
Before deciding how to structure and manage your commercial Real Estate investment, you are invited to speak to the team at Peak Equities. As commercial property syndicator and investment specialist, Peak Equities not only offers participation in passive investments not usually available to private investors, but also often gains access to off-market deals and high-level opportunities.
For confidential and personal advice regarding syndicated investment opportunities, speak to a Peak Equities professional directly by calling (03) 9863 8380 or email info@peakequities.com.au.
Peak Equities – 2018 Investment Strategy
We maintain strict adherence to our core investment criteria. Each of our assets must exhibit the following key characteristics:
- Desirable location, and a good position within that broader area;
- Secure and reliable income stream; and
- Genuine prospects for capital growth.
We remain committed to monthly income distributions to investors at greater than 8.5% per annum. Yields on capital city and inner-suburban commercial assets sit at around 5%, and as such cannot be accommodated within our investment model.
Our attention is therefore directed to smaller capitals such as Adelaide and significant regional centres, where there is often a lag between property values and yields compared to the East Coast capitals. With a primary focus on population growth areas, we favour areas such as the north-south growth corridor between Coolangatta and the Sunshine Coast, as well as significant regional centres such as Wollongong, Newcastle, Geelong and Townsville.
Our decision-making is strongly influenced by reference to detailed demographic and historical information, and validated by a thorough due diligence investigation before we commit to any purchase.
In 2018 we will seek to steadily increase our portfolio with the acquisition of two or three high-quality assets. As our investor base grows, so will the value of individual assets in which we take an interest.
Wherever possible we look at acquiring assets off-market, as competition for publicly offered properties is intense. We will also explore property development opportunities where we consider they can be de-risked to a level that meets the expectations of investors.
