Investors need to think long-term and strategically when embarking on a syndicate investment and align with like-minded individuals.
A syndicated group of investors with the right advice can stand to make significant returns, providing they undertake their due diligence. Interestingly enough, it is not all about making sure that the numbers stack up on the excel spreadsheet.
Working with Beller Property Group, we identify and advise on property investments for high net worth individuals. Director of the Beller Group, Andrew Fawell agrees with this slightly unorthodox approach and believes that generally not enough due diligence is done on the state of the market and street sentiment.
It’s about the X factors as well. These X factors are the word on the street, market sentiment, and the tenants that occupy the buildings. And in commercial property investments, without a tenant you haven’t got an income, without an income, you haven’t got an investment.
This is why I insist on meeting tenants of potential investments prior, to get a better understanding as to where their ‘head space’ is at. As a Chartered Accountant working professionally for 40 years, I'm well aware of the risks involved in syndicate investing and my philosophy is to provide investors with the highest risk mitigated returns possible; I am myopically focused on the highest risk-mitigated return, not just the highest possible return.
Investors need to think long-term and strategically when embarking on a syndicate investment and align with like-minded individuals. This ‘like-minded’ philosophy is reflected in the working relationship with Beller where we ensure that there is a commonality of purpose between all the investors expectations.
Unlike a stockmarket portfolio or singular investments, the life of a syndicated property investment trust is seven years. Much like a marriage, you can separate when the seven-year itch sets in. During the term of the seven year trust, Quintessential Equity usually delivers a return of mid 20% (including capital gain) per annum. This exceptional return is the result of basing the entire investment strategy around ‘capital preservation’.
“Don’t risk the capital“ is my modus operandi and base for every decision. Quintessential Equity preserves the capital by adopting the following criteria:
* The first golden rule is to buy a property well under its replacement cost. This allows buildings to be more competitive with new buildings and gives the syndicate wriggle room when having to spend capital expenditure.
* Be aware of what potential capital expenditure might need to go into a building to attract tenants; keep in mind that it is now a legal requirement to state a NABARS rating and NABARS of 4 .5 and above will attract more long term, blue chip tenants. If the building is perceived as a premium building in a attractive location, it will be desirable and landlords will not need to pay much (or any) incentive to secure tenants.
* Don’t be blinded by yield. If it is too high or too low, you will need to weigh the risks. Ask yourself, will you have the opportunity in the next few years to get the yield high so it will become a valuable asset?
* Be aware of the level of incentives that may be required to attract other new tenants or to retain existing tenants and calculate these figures into the long term projection.
* Work hard to retain existing tenants, meet them regularly and determine their needs to ensure that the building is always functioning up to (and beyond) the tenants’ expectations.
Before advising on potential investments and to mitigate risk as much as possible, I seek the advice of the likes of Beller to get the real ‘here and now’ market intel, following which, I go out and meet people. The tenants. We work on loving the tenant. Certainly not a sentiment espoused by most landlords. We meet the tenant as part of the due diligence and every quarter we personally meet with the tenant to make sure they are happy. Our track record at Quintessential Equity proves that this is a highly effective strategy with 96.8% leases renewed on 20,000 SQM of office space.
It doesn’t stop here. Every Christmas we put a Christmas tree in the foyer and request tenants nominate a favourite charity that we make a donation to. Furthermore every single tenant within the building receives a gift on their desk. We are about goodwill and recognition and without happy tenants you have not got a great investment. We will never buy a property simply because it has high yield. If the tenants leave and the property is not in a position to be attractive to future tenants means that the ongoing yield is in jeopardy, that have a substantial impact on the capital value of the investment.