What Type of Investor Typically Invests in Commercial Property?
Are Permitted Developments from Commercial to Residential a Good Idea?
How does Property Partner Select their Commercial Properties?
The UK’s Commercial Property Market and the Rest of the World
Rob: In today’s video we are going to be looking at, how do Property Partner select their commercial properties, Xavier? What due diligence do you look at, specifically, within the commercial space?
Xavier: I suppose, from my experience, the simple litmus-paper-test is a given. Now, to me, that is normal, work in progress. Somebody else might find that a bit of a struggle. So, in terms of its location, the kind of sector we are talking about and the tenant. What may or may not be as attractive as a long-term investment.
To give you an example, there was a long conversation about the fact that there is a huge need for retirement living. So, there was a big, retirement portfolio that was traded recently and I was very sceptical about that. If you are going to invest in commercial property and you don’t have an in-house management capability, to handle something like a retirement home…
Rob: Which is, surely, something that is quite intensive.
Xavier: It is very intensive. You need to know that the tenants are not going to default. It could be disastrous. You are dealing with peoples’ relatives and stuff like that. So, that to me is just not on.
There are certain, obvious things that I would just avoid.
I think, from the investor base, they are looking for security and all the rest of it. So, I mentioned the convenience store, aspects of that are really good.
Another thing we do, apart from the serious due diligence, the company structuring is critical, financing, matching the property, itself, is essential. The income, the covenant, the type of building it is.
And then, in the worst event, you are looking for another tenant to come in. So, it has got to be the right place, for anybody else to occupy it. These are the things you need to be looking at.
Rob: You go through stages to get to a position where you are comfortable with it.
Xavier: Yes, exactly.
Then, of course, is the pricing, so, you have got to make sure it is going to deliver the right kind of returns, after all this.
Rob: Is that tough, in today’s market? Is there a lot of competition around commercial, in general?
Xavier: It is really funny because it is polarised to covenant, now. People have really focussed on covenant so that is driving things. All the demand there is for these areas, like Mcdonald’s drive-throughs, Costa Coffee, which will be a great covenant.
There is a huge demand for this and that has driven prices down to make it quite competitive. We are out there, combing these things so we do get the odd thing that comes along and that is really good.
Going forward, I think there is tremendous merit in partnering with experts in the field. So, I do a bit of that, personally. These are people I know and have got to know, really well, through the business.
The more adventurous kind of opportunities is certainly out there, driven by experts in the field of commercial property, either developers or asset managers. There is some, tremendous expertise out there and I’d like to think, that down the road, we could be partnering with some of these people and giving access to that to our investor base.
Rob: It gives you access, not only to properties, that the mainstream investor might not be able to access, that even, some of the larger firms might not be able to access if it is contact-led.
Xavier: Exactly. So, these are the very things that institutions or public, property companies, substantial companies, would be looking at and buying, both for capital, mainly for capital growth and income and by working those two things together you can get some spectacular returns.
So, perhaps we could be coat-tailing on the back of that, using our internal expertise, to make sure that these are the sort of opportunities we could be offering to our investors and take them through that process. It’s interesting, going down the road.
Rob: Some interesting opportunities coming up.
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