The benefits of a commercial property fund structure
26 February 2018
With a change to a Labour-led Government in 2017 came the promise of building more homes, reducing foreign ownership, slowing immigration and in the process, a hope to make it easier for Kiwis to own their own home.
While none of these election promises have come into effect yet, these coupled with tougher landlord conditions, are starting to make residential property investment less attractive.
Small-time landlords are having to deal with the prospect of a capital gains tax, as well as debt-to-income restriction. There have also been changes to the Healthy Homes Guarantee Act 2017 and there are fears of how methamphetamine contamination could ruin their retirement planning.
There are also growing concerns around the costs landlords face to make their investment properties compliant with new legislation, as well as promises to tenants from the new Labour Government – particularly the promise to increase the no-reason 90-day termination notice to 180 days.
As a result we are starting to see growing numbers of retail ’mum and dad’ investors looking to sell their residential property investments.
With the above points in mind, it is timely to reflect on the benefits of making a passive investment. PMG’s professionally managed commercial property funds deliver regular income and typically 7% or higher returns without investors having to lift a finger.
As a direct response to investors’ requests for less risk, increased diversity and more liquidity, PMG has organised its real estate investments into dedicated managed funds. Offering multiple, quality properties within single investment funds, creates robust investment vehicles with a diversity of buildings and tenants.
A diversified fund spreads the risk should one tenant leave a property, or a single property does not perform as expected; the performance of the other properties in the fund minimise the impact.
Therefore, a fund structure provides strong and more sustainable and reliable cashflows. Diversified portfolios usually mean more investors, which is certainly true in the case of PMG’s investment funds, which in turn generates improved liquidity if you want to sell some or all of your holdings. We recommend approaching your investment in commercial property with a long-term investment horizon.
From a management perspective, a professionally managed commercial property fund means investors won’t have to change light bulbs, mop up floods, re-negotiate leases or wade through changing legislation to understand the implications for their investment.
While ups and downs in the market are entirely normal and may cause investors to worry about their investments, it has been shown over time that a diversified portfolio is a good defensive strategy to stay prepared. It has also been shown that investors who switch in and out of investments in an attempt to ‘time’ the market perform worse than those who simply held the investments over time.
PMG Case Study
PMG has been managing commercial property for 25 years and are passionate about getting the most value out of a property for both investors and tenants. For example we recently transformed a newly-vacant 5,000m2, single-tenant industrial property into a ten-tenant, mixed used building offering owners less tenant risk and more sustainable income. The property is now fully leased with rental yield per sqm increased by 58% and the property’s valuation by 46%.
For investors looking to dip their toe in commercial property ownership, PMG has a range of solid unlisted investment funds to consider. Investors may choose from PMG Direct Office Fund, PMG Direct Childcare Fund or Pacific Property Fund Limited - a diversified fund comprised of industrial, retail and office assets.
For those with a greater risk appetite there is also a PMG Capital Fund, a private equity fund which facilitates the acquisition of quality property for our investment funds. (See www.propertymgr.co.nz for more information on our investment funds).
Further, to help ease the pressure of managing investments in a volatile market, it is highly likely that investors will benefit from a diversified, professionally managed fund which will assist longer-term goals such as retirement.
Daniel Lem, Director