Archive | Property investment

Published 12 March 2009

Auckland property law specialist Knight Coldicutt has introduced a trades register and is considering offering its clients proportionate title investments to overcome tough times in the investment market.

Law firm principal Kerry Knight said the trades register would suit many people in the development industry stuck with property they don’t want, but who may see an opportunity by switching into other property. “For example, a developer may have apartments in Parnell up to $5 million and be willing to trade for a commercial building up to $10 million.

“We’re trying to negotiate those deals. It’s not like the Trade Me website, which isn’t really trading – it’s got stuff for sale.”

Mr Knight said very few agents could get their heads around trades, and the law firm had the advantage of knowing all the financial details. Over the past 3 years it had also increased its commercial expertise, making it less reliant on property business.

“For a trade, we won’t communicate the financial details to the other side unless we’re doing a deal. We think we can be more independent than the real estate agent, plus our skill set can do better at packaging things.

“We’ve got enough trade property, probably $2 billion with our clients alone, but we’re trying to match it up money we’d like to flush out.

“Take the person who bought a $3 million commercial building in Albany and now has no tenant, but is prepared to swap for a $1 million apartment that’s now worth only $800,000. Our guy who’s buying that commercial building discounts the rent to get a tenant.

“You’re refreshing your debt because your bank is sick & tired of you. Trading is just about extending your time periods, and you don’t want to sit like stunned mullets wondering what to do.”

Mr Knight was critical of most proportionate title offerings, saying they were similar to syndicates of the past, which were unable to overcome tenant strength on lease expiry.

“Out of the offerings in the market, 80% are dead-end because all they are is a cashflow during the term of the lease.”

Knight Coldicutt hoped to have its first acquisition signed up this week, a $10 million cbd office property with an international tenant and the ability to increase floorspace. “We want $5 million from investors and $5 million from the bank.

“There are many examples of properties being put into funds or proportional ownership as a way of selling down. We are not prepared to fall into that trap because you are our clients and our reputation is at stake. It is easy to find a property with 10% returns that will reduce to 5% on expiry of the lease. We would not promote such an investment. We would consider projects that have the potential to significantly increase the income by being a possible future development site or being able to add value in other ways,” Mr Knight told his clients this week.

“We envisage that the sort of property we will buy will enable investors to achieve 8-10% returns/year. Over time there will be growth as a result of the changes in the property market.

“Now is the time to buy as banks are forcing vendors to sell and, bearing in mind that capital & equity are hard to find, property prices are now at realistic levels.”

The venture comes about because lawyers can now operate as real estate agents. Knight Coldicutt already has an investment business, KC Securities Ltd, set up after the 2000 slowdown, which has increased in value from $1 to $1.15/share. All its investors are shareholders, “so we don’t have the pressure of people wanting their money back.

“It has $40 million invested, is robustly run, has independent directors and is fully audited. Investors have been consistently getting returns of 9-10% on the $1.15 value, which is about 11% on the dollar invested. This year the return will go down to 10% because we’ve put our interest rates down t help our borrowers (from 13-14% to 11-12%).”

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Attribution: Interview, story written by Bob Dey for the Bob Dey Property Report.

Published 23 October 2008

New Plymouth-based KCL Property Ltd (Bryce Barnett) proposes taking advantage of the turmoil in financial markets by launching a syndicated opportunist property fund.

“We are entering an interesting period in the property market, with many business tenants under stress and landlords re-evaluating their property portfolios, with added pressure from the banks.

“As with every downturn of this nature, there are always opportunities, which I describe as unpolished diamonds, where buildings have become vacant or where there is little of the lease term remaining and existing efforts to find tenants have been unsuccessful,” Mr Barnett told his clients last week.

“These situations often force the owners to re-evaluate their position, and it isn’t unusual for the banks to be driving events when sale of the property might reduce indebtedness or inject much-needed capital into the business itself.

“Whilst these unpolished diamonds are hard to recognise & find, we are starting to come across the odd opportunity where the underlying fundamentals are strong and, with some value-add from KCL, we believe we can deliver short- to medium-term growth despite the difficult & depressed market.”

Mr Barnett said the trouble with syndication was the prospectus requirement and the consequent lengthening of the timeframe for action. He is canvassing investors to see if they will be prepared to buy into a fund before any property purchase, so when an opportunity arises action can be taken quickly.

KCL recently put together a syndicate offering unit sizes of $500,000, and a prospectus wasn’t required. But Mr Barnett said he’d wanted for some time to offer smaller unit sizes that would take advantage of the PIE (portfolio investment entity) regime, limiting the top rate of tax for individuals to 30%.

The proposed opportunist fund would offer units upward from $50,000 and have a larger number of investors. “Our current thinking is that the fund will start off with $10-20 million and, once set up, unpolished-diamond properties will be sourced as & when the opportunity arises.

“The fund will not initially be fully invested and it may take some time to build a portfolio of properties, but the aim will be to form an investment vehicle which will invest in opportunities, unlock value by fixing the property issues, turn them into gems and deliver enhanced capital growth over the medium to longer term.”

This syndication idea is premised on KCL’s expertise in both sourcing & managing commercial property around the country. It also differs from historical syndication to small investors, where the property has usually been sourced before investment is called for, and it would also not have the gearing typical of those syndicates.

“Initially the opportunist fund will have no borrowings, as banks will tend not to fund the unpolished diamonds. However, as the properties are turned into gems, then funding could be put in place on a conservative gearing.”

Mr Barnett said cash returns would probably not eventuate in the first 3 years.

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Attribution: Company newsletter, story written by Bob Dey for the Bob Dey Property Report.