Property Portfolio

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SPONSORED POST
When talking property investment most people generally think residential real estate, often giving little or no thought to commercial property as a viable investment solution.
But a growing number of everyday Australians are recognising the potential of this sector and are cashing in.
In particular, a flood of mum and dad investors utilising self-managed superannuation funds are investing in small commercial properties, in what has become an extremely competitive market, but for good reason.
Commercial real estate, classified as property assets primarily used for business purposes, consists of three sectors – retail, office and industrial. Each with a range of asset classes, these sectors have their own cycle representing often very different risks and rewards.
Although some commercial properties offer investors yields akin to residential property, around 4 percent, others can achieve a return of up to 10 percent, after costs, depending on the asset class and risk rating.
The benefit of investing in commercial property is that it is characterised by longer leasing covenants than residential property – typically three, five or 10 years – with fixed or CPI annual increases and the added benefit of the tenant meeting the cost of all outgoings, including land tax if the tenant is publicly listed.
Furthermore, commercial tenants will generally take better care of a property, ensuring it is maintained and presentable.  But while also offering potential for high capital growth, the high return from commercial property investment is not without risks.
Historically, commercial property is far less predictable than residential property markets, with the potential for longer vacancy periods and poor resale for some specialised assets, influenced significantly by economic factors such as unemployment and consumer confidence.
Additionally, investment in the commercial market can sometimes be difficult due to stricter lending conditions, which may require buyers to have a minimum 30 to 50 percent deposit.
For the average investor diversifying into commercial property there are several important factors to consider. Similar to investing in residential property, location is key.
The type of commercial asset you purchase should be strategically located, paying particular attention to zoning restrictions that govern the sites potential highest and best use. Furthermore, consider the development potential of both the site and the building in instances where the current use ceases to be viable.
There are many commercial investment options, including mixed use dwellings, such as a retail shop with dwelling, which offers a double income stream, small industrial factories, strata-titled offices, retail strip shops, fast-food outlets and service stations. While the risks associated with commercial property are higher than residential, the benefits can be significantly greater.
For more information, <a href="https://bs.serving-sys.com/BurstingPipe/adServer.bs?cn=tf&amp;c=20&amp;mc=click&amp;pli=18755997&amp;PluID=0&amp;ord=%5Btimestamp%5D" target="_blank">click here</a>.
ABOUT REALCOMMERCIAL.COM.AU: realcommercial.com.au is the leading website in Australia for commercial property, attracting an average of 1.7 million visitors a month (Source: Nielsen Online Market Intelligence, Total Traffic, average calculation May-July 2015, includes app traffic from Omniture Site Catalyst as Nielsen doesn’t report on app). It is owned and operated by realestate.com.au Pty Ltd, a subsidiary of ASX-listed REA Group Limited ACN 068 349 066 (ASX:REA).
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Property investment: Commercial or residential?

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GUEST OBSERVER
Regardless of their size, investors and fund managers such as superannuation funds, syndicators, listed property trusts, charitable trusts or larger high net worth families, are often out on the market looking for the same type of investment product - properties that are ‘accretive’. 
Put simply, this means that several tick boxes need to be ticked for the ideal investment property, such as:
<ul>
<li>
Lease term - ideally needs to be longer than the average Weighted Average Lease Term (WALT) of the portfolio (generally this is 4-5 years)</li>
<li>
Yield – ideally needs to be higher than the running average return and higher than debt costs </li>
<li>
Building Quality / Location – this typically means relatively modern in an established location</li>
</ul>
 
With many buyers searching for the same type of investment, the competition quickly becomes crowded for property that ticks all the boxes, and the above criteria becomes an investment hurdle.
This is where Core Plus investments come in
As the investment hurdles can be difficult to overcome, some investors are turning to Core Plus investments.
Core Plus is a value-add story, where the core is the initial yield on which the property is bought and the plus relates to an immediate increase in the property’s value.
Investopedia defines Core Plus as a fixed-income investment management style that permits managers to add instruments with greater risk and greater potential return to core portfolios. This type of investment is considered moderate risk/moderate return, and is slightly higher on the risk scale due to the additional enhancements needed to bring the property to value.
Supplementing the core yield
The core yield may be supplemented by any one or a number of the following:
<ul>
<li>
Surplus Land – where a building provides the initial running yield but surplus land can be developed or sold to increase the return</li>
<li>
Lease Extension – where the tenant may have a long right of lease renewal or no renewal at all and the purchaser backs themselves to be able to renegotiate a better lease position offering immediate upside value </li>
<li>
Under Rented – when the passing rent is less than the estimated rental value. After purchase,  the investor backs themselves to increase the rent to achieve a better running yield</li>
<li>
Change of Use – where a building is zoned as one type but then redeveloped as another (for example an industrial building can be redeveloped to accommodate retail to provide higher rents, or even residential where “air space” can be developed) </li>
<li>
Land Fragmentation – where a large unsubdivided or englobo block of land is subdivided into small parcels where the end result is a higher overall value</li>
<li>
Land/Building Purchase – where the ‘existing’ building on the site is deemed obsolete or unleasable, so the investor purchases at land value with the building free</li>
</ul>
Investment hurdles are difficult to move past, so Core Plus is becoming an innovative way for investors to take on increased risk to boost their portfolios. The reality is that investors are using Core Plus as an alternative investment formula.
Paddy Callesen is a managing director of the Savills Auckland office and can be contacted <a href="https://www.savills.com.au" target="_blank">here</a>.
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Adding the ‘plus’ into core plus investments: Paddy Callesen

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The Oporto burger business co-founder Gary Linz is thinking of upgrading on Campbell Parade, Bondi Beach. Presumably into his brother's Allen's recently completed joint development, the Bondi Pacific.
So he's selling his eastern suburbs prestige property portfolio.
His 155 sqm Bondi apartment is for sale through Barry Goldman and Martine Harvey of Raine &amp; Horne.
They sold his neighbouring apartment sold for $2.7 million late last year.
Last weekend his <a href="https://www.realestate.com.au/property-house-nsw-tamarama-121783190" target="_blank">luxury Tamarama property sold</a> prior to auction having been listed with $4 million plus hopes.
Linz bought the house for $3.52 million in 2010 and briefly leased it with a $4,000 a week asking price.
Architecturally designed, the freestanding home has been converted from four bedrooms to three, the master retreat now including a sitting room, sandstone terrace and marble spa ensuite.
Set on 266 sqm, the property features an entertainer's cabana beside the heated mosaic tiled pool and jacuzzi.
Gary is the son of Sam Linz who founded Barbecues Galore.
Gary's newest venture, Monsters in Darlinghurst which slow cooks its burger meats for 12 hours and has the marketing tagline 'the fastest slow food in town'.
He other endeavours since Oporto included Kings Cross rib and chicken restaurant SGT. Sams.
This article was first published in the Saturday Daily Telegraph.
 
 
 
 
 
 
 
 
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Oporto co-founder Linz selling prestige property portfolio

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Property investors have been urged to conduct an annual property portfolio review to make sure they are getting the most from their property investment.
The financial services company Direct Property Network has posted a four stage procedure to ensure all portfolios are kept running like a "well-oiled machine".
Access further equity
One of the most advantageous features of investing in property is the fact that it's a direct route into further real estate investment. The equity you hold in your portfolio can be leveraged to borrow for another property, further growing this equity and continuing the cycle. By conducting an annual portfolio review, you'll know if you've built up sufficient equity in one or more of your assets in order to purchase another property, and can start putting your plans into motion.
Restructure your portfolio
Even if your portfolio as a whole is doing well, that doesn't mean every single property is performing to your preferred standard. One or more properties could be seeing stalled or even stagnating value growth, while others might not be delivering the same kind of rental revenue as they were before. Through an annual review, you'll be able to identify any potential issues before they become bigger problems, and gain insight into which properties you need to sell. 
Revise your finance
Any mortgage expert will tell you about the usefulness of re-examining your financial structuring. Refinancing a home loan to take advantage of recent interest rate cuts, for instance, can save you thousands of dollars. You can also restructure a mortgage to insulate yourself from changes in your financial circumstances, such as by splitting your home loan between a fixed and variable rate. The ultimate goal is to make sure your rental income continues to offset the expense of your own home mortgage, so incorporate this into your annual portfolio review.
Ensure you're on track
No one should start building a portfolio without a cohesive property investment plan in place. This plan should be based on a concrete goal or aim that you want to achieve through investing - saving for retirement, for instance, or making enough to open and run a particular business. Your annual review will let you see if you're still on track for meeting this goal and if not, why and how you can change course. If your goal was more tentative when you began, then this could be an opportunity to clarify it. 
No matter the reason you decide to start reviewing your portfolio on an annual basis, be sure to work with experienced professionals. Not only can they help you determine the next course of action to take, but they can also use their industry knowledge to measure and identify the true performance of your portfolio - often easier said than done.
For more information, <a href="https://www.directpropertynetwork.com.au" target="_blank">click here</a>.
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Property 101: Top 4 reasons you need to carry out an annual portfolio review

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Boutique advisory firm Moelis &amp; Co is closing in on a deal to buy pubs portfolio Redcape Hotel Group, according to the well-placed Street Talk column in the Australian Financia Review.
It is understood Moelis and Redcape have signed a heads of agreement, which will allow final due diligence.
Moelis reduced its offer for Redcape earlier this month after share market volatility meant the initial public offering was off the table.
It was suggested the current offer price is around $620 million compared to $650 million.
An ASX listing was considered last year with hedge funds York Capital and Varde Partners cashing out. 
Redcape owns 23 pubs in NSW.
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Moelis in Redcape deal?

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Investment platform BrickX, which allows investors to acquire a slice of property through its ‘bricks’, has seen 13,393 bricks change hands in the last three months.
The platform was officially launched in September 2016 and has acquired properties in Bondi Beach, Double Bay, Enmore, Annandale and Mosman in Sydney and at Port Melbourne and Prahran in Melbourne. The combined value of all its properties is about $8,685,000.
Its investor count is at 2,845, according to its website, up around 100 since last week.
BrickX offers relevant data about a property to prospective investors to help them make a decision.
For example, a two-bedroom unit in Double Bay the company bought last year for $1,395,000 has 32 percent debt ($445,000) and an equity of $950,000. The initial brick price was $95, because each property is divided into 10,000 ‘bricks’.
The unit is currently rented for $1,000 per week and BrickX says the estimated rental yield is 2.1% pa. It paid a distribution of $0.15 per brick for February into investors’ digital wallets. So far, there are 1,305 investors in the property.
The five-year growth average for Double Bay is 12.06 percent, according to CoreLogic, and the estimated return on investment is 19.81 percent.
Investors can earn rental income from their property in proportion to their investment, or ‘bricks’ they own. They can also make capital gains by selling bricks owned by them. 
The current price for the Double Bay property's 'brick' was $97, as per the website.
Prices of bricks currently range from $68 per brick for its one-bedroom property in Enmore to $158 per brick for a two-bedroom house in Melbourne. 
The most expensive property in the portfolio is a two-bedroom house at Port Melbourne, which BrickX bought for $1.57 million.
The estimated net rental yield for these properties, as shown on its website, ranges from 1.48 percent to 2.93 percent.
BrickX charges a 1.75% transaction fee when you buy or sell your Bricks. The company says on its website that it has no other charges such as for funds under management, performance, contribution, service, or withdrawal fees. There are of course, monthly expenses associated with a property that owners of bricks have to factor in, just like any other investment property.
Its advisory panel includes CoreLogic’s head of Research, Tim Lawless and Nerida Conisbee, chief economist at realestate.com.au.  
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