When choosing to invest in shares, equities or unit trusts most people safely rely on the advice of their financial planner or wealth manager. However, when it comes to investing in commercial property who is the best placed expert to honestly and accurately guide a buyer in the decision-making process?
“Investing in commercial property as a strategic investment decision offers great long-term results, but it makes sense to have property managers involved in the lifespan of a property investment from the beginning in order to maximise the return on this investment and be sure that you are making the right choices from the outset,” says Paul.Most prospective buyers will rely solely on the input and advice of the broker selling the property, or from the seller themselves.
However, according to Sean Paul of Spire Property Management it is wise to also consult with a local property manager. “They are after all the ones who have to run the properties, and know where the further pitfalls or opportunities may lie.”
Due diligence is a varied path
Paul advises that buyers doing their due diligence should ask questions such as:
- Is the property in the right location/area for its purpose and target audience?
- What are the current rental returns and can these be improved?
- Does the property require renovations and will these renovations bring in higher rental returns/value?
- In the case of retail properties – is the tenant mix right?
- What is the strength of the leases?
- Will this property add value to a buyer’s property portfolio?
“These and many other points should be considered before deciding to purchase a commercial property. However, when doing such research buyers need to consider carefully which professionals to liaise with in order to obtain objective information on the particular property, and its long-term investment value.”
Many of the professionals involved at the time of sale are not involved after transfer, or after the development project, he says. “Ideally the buyer should work with a professional such as a property manager who is able to see the investment decisions from inception through the project phase to finality, and then manage this investment in line with the strategy thereafter.”
Who to ask for accurate and unbiased property advice?
“Surprisingly, few people think to involve property managers in their decision making process, mistakenly thinking that the property managers’ role only enters the picture once rentals need to be collected,” says Paul. “This is very much not the case and good property managers such as Spire’s portfolio team, are perfectly positioned to give accurate and independent advice on a commercial property and its investment appeal.”
Paul explains that Spire offers a specialised service to their existing clients as well as other non-client investors looking to purchase a commercial property whereby they provide a full analyses of the cost versus return ratio on a building.
“As part of this service we benchmark the property against other similar buildings to ascertain its appeal, performance, current rentals etc. We assess the area in which the building is situated as location and access to transport for example are very important. Sometimes the area that a building is situated in has evolved over time and the property may no longer be meeting the needs of the surrounding area - meaning that it too needs to evolve.”
He says the assessment of a potential property purchase also includes the risks, if any, of over-capitalising through renovations, and an analyses of the current tenant mix and how this can be improved if necessary.
“Taking all of this into account, we supply a full projection of the possible rental returns that can be achieved by a particular property,” says Paul.
Guidance and assistance going forward
For new owners of a commercial building, the need for guidance and assistance in optimising their new asset does not end once they have signed on the dotted line.
Property managers are perfectly situated to work hand-in-hand with the buyer and the contractor when it comes to the rolling out of any refurbishments and renovations to the newly purchased building, explains Paul.
“Property Managers have a vested interest in the long-term optimisation of a building, and so cutting corners when it comes to refurbishments is not an option as we are left with the problems afterwards. Things such as poor plumbing, ineffective sound proofing, faulty electrics, etc. can arise when contractors are not well managed, and because of this our team step in from the beginning to ensure this is not the case for our clients’ buildings.”
Paul goes on to say that following the completion of the refurbishments they are then able to assist with any tenant reshuffling, lease agreements, tenant fit-outs, and the securing of a suitable tenant mix to optimise returns. “For example, having a long-term lease with a national company in place will push the value of the property up for the investor.”
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