28-07-2009

Ways of acquiring commercial property

1. News
2. 2009
3. July

This article has been supplied by Bryce Barnett, Managing Director of KCL Property

There has been a lot in the press recently about syndication as a form of commercial property ownership. It is believed by those actively involved in the syndication market that the current views are somewhat biased in order to benefit the interests of those promoting other forms of commercial property investment. In the following paragraphs I explore the different ways one can acquire commercial property investment, together with the ‘pros’ and ‘cons’ of each method.

I am obviously ‘pro’ syndicated property ownership, and you may well ask how I can therefore present a balanced view. However I have been personally involved in commercial property acquisition and investment for nearly 30 years and most of my personal investments are in syndicated or partnership type ownership. This is because I have seen the benefit of this form of investment as it has enabled me to spread my risk amongst various properties, tenancies and locations throughout Australia and New Zealand. I now outline the 3 methods that I have identified as the main source of acquiring commercial property.

INDIVIDUAL OWNERSHIP OF A SINGLE PROPERTY ASSET.

‘Pros’

• Full control of your own asset
• Possible to increase the debt level for additional liquidity if loan value ratios allow.

‘Cons’

• Substantial equity and exposure for one person to commit to one asset and one tenant in one location (‘all eggs in one basket’),
• A long-term asset with limited liquidity.

Comments:

This is obviously a recommended investment if the investor has substantial equity, ultimately is going to acquire a diverse portfolio and has personal experience with good property acquisition skills and management, or employs professional advice to assist.

LISTED PROPERTY TRUSTS

‘Pros’

• A form of property investment that is very liquid
• Facilitates the ability to put small amounts of capital into this type of investment, eg, as low as $5,000.

‘Cons’

• No control or influence on your investment
• Good liquidity, however, at substantial discount to the real worth of your investment (net asset backing)
• Subject to high management fees.

 Decisions to buy or sell assets are not left to the investor, but solely to management and often can be influenced by the political climate.

 Comments:

An investment opportunity that allows individuals to put in a small amount in capital and have liquidity but potentially at a substantial capital value discount.

SYNDICATED/PROPORTIONATE OWNERSHIP INVESTMENT.

‘Pros’

Allows investors with $50,000 plus, an opportunity to invest in commercial property. It is normally of a substantially higher quality, value and better leased than what can be purchased by an individual owner. Enables investments to be spread amongst various types of commercial property and different locations and tenants. Investors can have say and influence fundamental decisions in a group environment.

‘Cons’

It is a long term investment and liquidity of the capital is limited.

Comments:

Considered an ideal vehicle to develop an investment portfolio in various property mixes, locations etc. Allows an overall balance of exposure, the ability to identify with your investments and have some influence strategically in the way the asset is managed.

To find out more, go to www.kclproperty.com