Landowners can spend a lifetime learning about their industry and understanding the land they own. So when it comes time to leave the orchard or farm, the biggest challenge is often what to do next for the owners. Landowners are keen to invest a certain amount of equity in what they know best about land, but are unsure which structure is best to do it.
Likewise, landowners may want to expand their land holdings but do not yet have the equity to buy their next farm or orchard.
Part of the solution could be investing in commercial real estate as a physical asset that can be seen and touched.
With expertise and involvement in the rural, residential and commercial sectors, Bayleys is well positioned to advise and position them on property investments that fit their new phase of life.
Ryan Johnson, Bayley’s National Director Commercial and Industrial, says that despite these physical similarities, there are also other factors to consider when investing in commercial real estate, particularly the strength of the tenants, the type of building, the location, the land / zoning, rental conditions and equipment.
Commercial real estate investors also have several choices about how to invest and to what extent to conduct their own due diligence. This includes buying shares in real estate companies listed on the New Zealand Stock Exchange, opting for a syndicate and owning part of a property, or buying it directly yourself.
“One of the“ hands-off ”forms of commercial real estate investing is buying shares in real estate companies that are listed on the NZX, although of course there are brokerage fees and managers pay fees.
“One of the advantages of publicly traded companies is their diversity of assets and their geographical distribution. Companies like Property For Industry and Goodman Property specialize in prime industrial real estate with a strong focus on Auckland. Kiwi Property and Precinct Properties are primarily involved in office and retail properties in Auckland and Wellington. “
Another option is to invest in a fund that holds shares in publicly traded companies, such as Forsyth Barr’s Listed Property Fund.
Real estate syndicates are another popular form of commercial investing that, because of their structure, often generates higher returns, Johnson says.
Syndications typically offer one to two percent higher returns than listed company stocks and significantly more than current bank deposits. Some of the most recent syndications have offered returns of around five percent.
Real estate syndications generally offer packages of units or shares generally between $ 10,000 and $ 50,000 for an ownership interest in a commercial property and the formation fees are set out on the investment schedules. Syndication properties can vary from supermarkets to standalone retail, industrial and office properties.
In the past few years, several specialist commercial property syndication firms have dominated the market, including Centuria (formerly Augusta), Oyster Property, Silverfin Capital, and Erskine + Owen, to name a few. Given Bayleys’ longstanding association with commercial real estate syndication, Bayleys can offer investors a number of options currently available in the market.
Another form of commercial real estate investment is for investors to buy and own either as individuals or through a proprietary company or trust fund established for that purpose.
Johnson says the total return on direct real estate investments averaged 10.2 percent over the past 10 years, making them attractive to retirees, pension funds, or investors looking for retirement income. Investors and buyers can range from individuals to trusts and partnerships.
A reliable tenant underpins the income streams, which are usually paid monthly, and the underlying lease terms ensure that rental income is stable and tied for a period specified in the lease (usually six years or more for larger tenants). As a rule, the lease contains annual minimum increases in line with inflation, which means that the property also tends to increase in value at the same time.
“Strong demand and a stable economy have resulted in strong commercial property growth in recent years, and many direct property owners like to see the bricks and mortar they have invested in,” says Johnson.
As farmers and fruit growers give up their land holdings, the reasons for keeping some of that share of land remain compelling, with capital gains securing their future value while good commercial lease rates ensure stable monthly returns that are essential in retirement years.
Bayleys’ national director for rural areas, Nick Hawken, says for anyone who has been devoted to land ownership for a lifetime, abandoning it entirely can be unattractive and risky later in life.
“Bayleys has extensive expertise in both commercial real estate and syndicate investments to provide farmers and fruit growers with viable land ownership options beyond the gate. We can provide access to resources to help these landowners transition to commercial property so that their land investment remains an attractive option. “
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