As the financial year end is upon us, some might be considering how to invest in these uncertain times. Many New Zealanders invest in residential property and for many it is a way of saving for retirement. Last year it was made a lot more difficult following legislative and regulatory changes making this form of investment less desirable. What are the alternatives?
Investing in commercial property could be a great option, but how do you go about it?
There are numerous ways to purchase part of a commercial building. Commercial buildings traditionally include retail, office and industrial properties but there’s also alternative sectors such as hotel/leisure and healthcare. Many of these sectors have proved to be resilient during lockdown, in particular the industrial sector. Most New Zealanders like the bricks and mortar of property ownership as you can physically see what you are investing in, unlike the share market. A commercial property provides a regular income return or dividend and potential capital return when selling your investment.
What is the difference between a property fund and a property syndicate?
A property fund can be listed or unlisted. Shares are purchased in a property fund, which can be arranged through a financial advisor or directly using online platforms. The entry level is typically smaller amounts, ranging from $500 to $10,000. There is often the option to invest in a sector or a diversified portfolio, which would include a large number of properties. The properties would be in various locations with a mix of tenants and different lease lengths.
In a property syndicate you would be part owner of a single property or group of properties in a private fund. Typically, the entry level is higher than a property fund and attracts experienced investors. If you own a part share in a single property you would have selected that property on its merits, including location, quality of the property and occupiers. It is a very transparent investment, unlike a property fund where there is often significant property scale and returns based on a portfolio average.
A recap on what we do at DABS…
At DABS we identify a single commercial property through our stringent due diligence criteria. We then offer the property to wholesale investors. Typical investments start at $250,000. We are not developers. Each of our 12 properties is held in Limited Partnerships; nine are in Auckland, including five on the North Shore. We invest in quality properties with strong occupier demand, in locations with population growth and close to motorways and transport hubs.
Following purchase, our strength is our ability to work with both investors and tenants in order to enhance the performance of the property. We understand that occupier requirements need to be met. We provide a dedicated property management service and work closely with our occupiers. If we can meet occupier expectations, there is an increased probability they will exercise their right of renewal or be prepared to negotiate a new lease in advance of expiry.
On the flip side, we regularly communicate with our investors providing updates on market conditions, occupier relationships, refurbishments, re-letting activity, potential occupier incentives and planned capital expenditure. Across the Limited Partnerships we manage, monthly dividends range from 5% to 9% per annum on the amount invested.
We are aware that there may be a perception that property syndication means selling your investment is not easy, although in many ways, it is not dissimilar to selling any residential or commercial property. Typically, when selling a property the first step is obtaining advice on market price and agreeing a sales strategy. This is followed by a marketing campaign, receiving an offer to purchase, negotiating the price, due diligence and completing the sale. When selling part of a commercial property the strategy might be a little different. Should an investor wish to sell, we would first present the opportunity to the existing investors in the Limited Partnership, followed by our investor database. This has proved very successful. There is also the option of the secondary online market, which has been effective for many property syndicates.
Our Limited Partnerships are managed by a dedicated team, generate monthly distributions and have the potential for capital gains. If you are looking to invest in commercial property, we would welcome the opportunity to meet with you. We are local after all, located conveniently in Milford.
For further information or to register your interest for the next syndicate, please contact us. You can also register your details via our website.
m. 021 230 5989
145 Kitchener Road, Milford