Sure, opportunities to grab a lasting commercial property investment still exist. But the best opportunities right now could sit in your existing portfolio.
Australians are bound by strange new guidelines. We’re at home instead of the office. We’re working from the kitchen table instead of a desk. We’re looking after our kids instead of meeting up with clients. We’re looking at what we already own instead of what we could own.
This is what’s happening to commercial property investors. In these early days of the coronavirus lockdown, it’s more about staying at home and looking after what you have than it is about kicking down doors for the next investment opportunity.
When the world changes, so do the rules. So, here are the dos and don’ts of commercial property investing during the COVID-19 pandemic period.
DO consider a holding strategy
If you were to buy an asset right now, you might not receive any rent.
COVID-19’s impact on commercial property leases has dealt a knockout blow to many tenants. Thousands of businesses are asking landlords for rental relief and of particular heartbreak in the commercial property industry is that many businesses are closing their doors for good.
So, if investors aren’t careful, they could purchase a commercial property that will keep moths in their wallets for months.
This is of course dependant on the tenant. Some industries, like mining, logistics and supermarkets, are seeing as much as 20 per cent growth to their year-on-year business activity. Properties that house these essential businesses can still be a good investment.
DO take a conservative approach with rental income
Whether you’re looking at purchasing an asset or focusing on an existing portfolio, take assumptions – conservative ones – that rental income will be reduced.
No matter how unlikely it is, keep in the back of your head that tenants could ask for rental relief. Being prepared is just good investing.
DO consider a delayed settlement
If you’re going to buy an asset, think about delaying settlement. Perhaps a six-month delay from the date the contract is signed.
A delayed settlement means you acquire the asset at today’s price. You then go “unconditional” on the property and receive legal entitlement to it. But you settle on a date a few pages over the calendar.
A delayed settlement will hopefully allow time for tenants to rebuild their pre-pandemic muscle.
DO revisit your investment strategy
What was a good buy one month ago is not necessarily so today. Which means it’s time to refresh your investment strategy.
If buying, you’ll perhaps want to look at a Core asset in a Core location.
Look for a tried and tested precinct and a property with strong, reliable tenants (ideally a national or multi-national company, or a tenant backed by one).
Businesses that provide essential services, like grocery stores or government departments, are dream tenants in these uncertain times.
DON’T neglect your own portfolio
If you’re a landlord, the time is now to look after the eggs already in your basket.
Keep a watchful eye on rental income, tenant strength and maintaining the property value.
This month at Properties & Pathways, we haven’t been hunting down new investment opportunities. That’s not to say if something comes along our desk, we won’t look at it. But our focus right now is firmly on our assets under management.
We’re also focused on our investors. We’re sending regular updates on their investments and tuning in to their requests and concerns.
DON’T avoid talking and building relationships with your tenants
As you’ve probably figured out, commercial property landlords should be focused on their tenants.
Small-to-Medium Enterprises (SMEs) are struggling. Over 110,000 small businesses have already applied for the JobKeeper wage subsidy to help pay wages for the next six months.
Owners have an opportunity and an obligation to sit down with their tenants and aid their survival.
Whether rent relief or rent deferral, there is now help for tenants to survive COVID-19 with only mild symptoms.
DO talk to your bank
Banks are offering interest deferrals and interest capitalisation to commercial property owners.
This is based on the character of the owner. A bank needs to trust that not only is the property fundamentally sound, but that the party applying for the loan restructure is in good standing.
Loan interest is likely to be capitalised (or added) on to the existing loan. This means the lower your Loan-To-Value Ratio (calculated as the mortgage value divided by the property value) the better.
DO invest using good property fundamentals
There’s no foolproof way of investing in commercial property while COVID-19 keeps Australia’s borders and businesses shut. But you can count on smart investors continuing to apply good property fundamentals.
While opportunities to grab a lasting investment are still out there, the best opportunities right now could sit in your existing portfolio.
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