Selling out a $24.8 million commercial property syndicate at the height of COVID-19 was a big ask. But that’s exactly what we did. Here are the biggest lessons we learnt from our largest property syndicate.
Pathway Twelve Unit Trust is our latest commercial property investment. It gives our investors a high-yielding, secure and long-term income stream, underpinned by government tenants and ASX 20 subsidiaries.
It’s also our largest syndicate, with three properties combining for a total value of $24.8 million.
We opened this investment in the months leading up to COVID-19. So, as you can imagine, we had some hurdles to jump in order to close out the biggest commercial property investment we’d offered in our seven-year history.
Here’s what we learnt.
1. Investors want a safe haven
We learnt that thanks to COVID-19, investors want even more certainty than what commercial property usually offers.
That’s right, more certainty than the ironclad lease agreements, the guaranteed income and the robust land value they’ll usually see in commercial property investment.
In addition to two industrial properties, Pathway Twelve Unit Trust contains a multi-tenanted office property with government-backed tenants, including Centrelink.
We found this tenancy mix gave investors that extra dose of certainty. Why? Because these businesses are essential services.
Despite coronavirus impacting over 60 per cent of commercial tenants around Australia, our Centrelink tenant continued paying rent in full and on time. Centrelink had lines around the corner during COVID-19 and staff were run off their feet assisting out-of-work Australians.
In the same property, we entered into a new lease agreement with another stable government-backed tenant, adding circa $75,000 to the annual Trust income and improving the property value by approx. $1,000,000.
These are the types of tenants that will give investors the safe haven they crave, and the type of tenants we want in our property portfolio.
2. Industrial is a winner
In June 2020, our website traffic spoke loud and clear…
And a month later, it was JLL who summed up the renewed interest in industrial real estate, stating industrial was the most resilient commercial real estate sector during COVID-19.
Investors want industrial real estate, like two of the three properties held in Pathway Twelve Unit Trust, and the reasons are mounting up.
Industrial property holds many essential service tenants, such as logistics, that have turned retail headwinds into industrial tailwinds during COVID-19.
Land value is another reason industrial is in the spotlight. Given the typically small land to building ratio in industrial assets, investors can worry less about deteriorating building values and instead reward themselves with strong, appreciating land values.
3. Safety outweighs flexibility
When we completed our first round of investment for Pathway Twelve Unit Trust, we offered our existing Pathway Twelve investors to bump up their initial investment.
Were we surprised? No. Because 90 per cent of investors from completed syndicates have reinvested in future Properties & Pathways syndicates.
What we did learn is that amidst the uncertainty of COVID-19, investors are still willing to lock away their funds for the next three to five years.
They won’t have the flexibility to quickly liquidate their investment, like shares. But they will know they are participating in a safe, secure investment environment, despite what crises or pandemics the world throws at it.
4. Tenant relationships are more important than ever
Understanding tenant needs is crucial to successful commercial property investment. Landlords should listen to tenants carefully and decide how to confront the occupant’s problem. That is how the tenant-landlord relationship is built.
When the coronavirus hit and some of our tenants looked for help, we listened. And this is the beauty of having an in-house property manager – we’re able to build a relationship with tenants instead of simply hand-balling their issues to an external party.
We offered deferred rental payments for several tenants, knowing they had the legs to get through COVID-19, and kept the option open for rental relief for those businesses who said they didn’t currently need it.
By listening to our tenants we grew our relationship with them, and this means greater transparency during events like lease extensions and lease negotiations.
5. Investors need good communication
We’re not afraid to give bad news (and thankfully, we barely need to).
So, when our annual investor distributions for Pathway Twelve were reduced from 8.00 per cent to 6.65 per cent – a direct result of the coronavirus – we immediately alerted our investors through investor communications.
The response to this was actually glowing, because we were honest and transparent (transparency is what we’re all about).
Some investors had been dealing with investment advisers for over 25 years and said they’d never come across a group like ours.
We are proud of this. We are proud of our open and frequent communication. And we were even more proud to deliver good news not long after the reduction of investor distributions.
The following investor communications set out that there would be a reconciliation distribution from June 2020. The reconciliation would be larger than previous distributions, which meant we could actually resume the original return of 8.00 per cent.
Our next commercial property investment is in the works. If you’re interested in taking part or hearing more about it, schedule a meeting with our Investor Relations Manager Guy Doggett today.