Menu
Asset Management
A Refreshing Change
29/May/2014
Becoming, being a landlord will change you. In the driving seat, no longer a passenger, will shift you into a different state of mind. Investment does that to people: the feeling that others are paying you is enlightening. A business plan is rarely straightforward; at a higher more focussed level of understanding, your way forward will be clearer. What next to do for the best is less likely to be an issue.
The taking of advice and help is still necessary, but not from anyone. What’s needed is advice and practical help from people who really do know what they are doing, what is happening at a deep level of understanding. New ways of thinking are emerging, advancement in technology sees to that, but the fundamental principles are unchanged. Professional advisers have a dual-role: to act for you and guide you through the complexity of the property system, the law and valuation and to extricate you from your mistakes. Good advice will point out the pitfalls and prevent falling into them; wise advice will help prevent making mistakes in the first place.
With commercial property, mistakes are readily available. They serve as a reminder a landlord is not infallible. Anyone can buy what they fancy, but beauty is not necessarily packaged to appear obvious. There may be hidden qualities in the discarded and neglected – as anyone that paid next-to-nothing for commercial property in run-down parts of East and North London can testify now that prices have shot through the roof. Anyone can read a lease but literally is not necessarily the correct conclusion. Legislation can override, so too can case-law.
Investment may be a passive, you can buy to hold, come what may, but what to buy is a challenge. All property is owned by someone somewhere but it doesn’t have to be you. Statistics are averages. For the long term, you have to get your choice of a particular property right from the start or over time you could find yourself out of pocket.
For successful investment it pays to be pro-active. With business tenancy asset management, problems can crop up all the time, often when least expected, frequently when least convenient. A difference between a passive and pro-active investor is the ability to transform problems into opportunities.
Tenants may be corporate entities but are run by people; and people have feelings. If already in your nature then it may not hurt to be accommodating of tenant requests, but nevertheless it will pain if your approach does not lead to you becoming better off. Business tenants are very good at getting what they want at the expense of the landlord. You will have to be firm in your dealings with them, possibly tougher than you normally are with others. To call a bluff, you may have to be willing to let go of the existing tenant, no matter how tempting to hang on. You may have to leap into the unknown and risk a void to improve your prospects. Wise advice from a professional sounding-board will prove a good investment.
Property does not perform, people do. Performance is a measure of achievement. “Wealth is the product of man’s capacity to think”. How wealthy you become depends upon thinking like a wealthy person. Property is not simply a commodity, land and buildings for occupation, it can also double as a store of money. Play the property game well and substantial amounts of money can come your way. You can jump on the bandwagon whenever excitement is in the air, but the big money comes from listening. Listening to wise advisers, listening to what you don’t want to hear, listening to yourself.
When you listen, you hear timing. Successful investment and all that entails is about the art of timing. When to say yes, when to say no. Indecision and choice become things of the past. The more adept, the more you trust your intuition at all times, not just in emergencies and in crisis as do most people. Most people lurch, thinking problems are normal. Essentially, a problem is about direction, a helpful signal in a tangible form. Letting go of wanting to be like other people will result in being yourself. Being yourself is the first step in knowing what to do, to whom to turn for help and guidance.
Anyone can become a property investor by putting their money and mind to it, but there’s a cut-off point, a limit after which things start to go downhill. The point of no return is to warn you. To change your approach to investment. When something comes naturally, you are made for each other, well-suited. All property belongs to someone somewhere but not all property comes onto the market. At any time, the selection of property for sale may not be the property for you. You may have to bide your time, to be patient, perhaps extremely, until the right moment arrives for you to strike while the iron is hot.
People generally are impatient. Most people are scared of going it alone because they are inhibited by a desire to be popular. Lacking emotional self-confidence, they follow the crowd. As Warren Buffett said of equities, “you pay a very high price in the stock market for a cheery consensus.”
To swim against the current of common opinion is contrarian, but to succeed in commercial property investment requires a different mindset. Serious research and a thorough understanding of the principles and forces at work to ensure the crowd is wrong or else the signs can be misinterpreted. The market is so distorted by sentiment and eagerness that long-gone are the days when low yield could be interpreted as certain growth or high yield meaning trouble ahead. Impatience will cause you to become involved regardless. Impatience is an addiction, it takes hold of you and habitually destroys your capacity to think.
Be yourself and you will have one strategy in common with successful investors – let the market bring the deals to you, rather than you chasing after them.
The taking of advice and help is still necessary, but not from anyone. What’s needed is advice and practical help from people who really do know what they are doing, what is happening at a deep level of understanding. New ways of thinking are emerging, advancement in technology sees to that, but the fundamental principles are unchanged. Professional advisers have a dual-role: to act for you and guide you through the complexity of the property system, the law and valuation and to extricate you from your mistakes. Good advice will point out the pitfalls and prevent falling into them; wise advice will help prevent making mistakes in the first place.
With commercial property, mistakes are readily available. They serve as a reminder a landlord is not infallible. Anyone can buy what they fancy, but beauty is not necessarily packaged to appear obvious. There may be hidden qualities in the discarded and neglected – as anyone that paid next-to-nothing for commercial property in run-down parts of East and North London can testify now that prices have shot through the roof. Anyone can read a lease but literally is not necessarily the correct conclusion. Legislation can override, so too can case-law.
Investment may be a passive, you can buy to hold, come what may, but what to buy is a challenge. All property is owned by someone somewhere but it doesn’t have to be you. Statistics are averages. For the long term, you have to get your choice of a particular property right from the start or over time you could find yourself out of pocket.
For successful investment it pays to be pro-active. With business tenancy asset management, problems can crop up all the time, often when least expected, frequently when least convenient. A difference between a passive and pro-active investor is the ability to transform problems into opportunities.
Tenants may be corporate entities but are run by people; and people have feelings. If already in your nature then it may not hurt to be accommodating of tenant requests, but nevertheless it will pain if your approach does not lead to you becoming better off. Business tenants are very good at getting what they want at the expense of the landlord. You will have to be firm in your dealings with them, possibly tougher than you normally are with others. To call a bluff, you may have to be willing to let go of the existing tenant, no matter how tempting to hang on. You may have to leap into the unknown and risk a void to improve your prospects. Wise advice from a professional sounding-board will prove a good investment.
Property does not perform, people do. Performance is a measure of achievement. “Wealth is the product of man’s capacity to think”. How wealthy you become depends upon thinking like a wealthy person. Property is not simply a commodity, land and buildings for occupation, it can also double as a store of money. Play the property game well and substantial amounts of money can come your way. You can jump on the bandwagon whenever excitement is in the air, but the big money comes from listening. Listening to wise advisers, listening to what you don’t want to hear, listening to yourself.
When you listen, you hear timing. Successful investment and all that entails is about the art of timing. When to say yes, when to say no. Indecision and choice become things of the past. The more adept, the more you trust your intuition at all times, not just in emergencies and in crisis as do most people. Most people lurch, thinking problems are normal. Essentially, a problem is about direction, a helpful signal in a tangible form. Letting go of wanting to be like other people will result in being yourself. Being yourself is the first step in knowing what to do, to whom to turn for help and guidance.
Anyone can become a property investor by putting their money and mind to it, but there’s a cut-off point, a limit after which things start to go downhill. The point of no return is to warn you. To change your approach to investment. When something comes naturally, you are made for each other, well-suited. All property belongs to someone somewhere but not all property comes onto the market. At any time, the selection of property for sale may not be the property for you. You may have to bide your time, to be patient, perhaps extremely, until the right moment arrives for you to strike while the iron is hot.
People generally are impatient. Most people are scared of going it alone because they are inhibited by a desire to be popular. Lacking emotional self-confidence, they follow the crowd. As Warren Buffett said of equities, “you pay a very high price in the stock market for a cheery consensus.”
To swim against the current of common opinion is contrarian, but to succeed in commercial property investment requires a different mindset. Serious research and a thorough understanding of the principles and forces at work to ensure the crowd is wrong or else the signs can be misinterpreted. The market is so distorted by sentiment and eagerness that long-gone are the days when low yield could be interpreted as certain growth or high yield meaning trouble ahead. Impatience will cause you to become involved regardless. Impatience is an addiction, it takes hold of you and habitually destroys your capacity to think.
Be yourself and you will have one strategy in common with successful investors – let the market bring the deals to you, rather than you chasing after them.
Asset Strippers
21/November/2013
Investment in shop property is very rewarding provided you know what you are doing. Many private investors, particularly novices, do not understand how to go about it. Instead of formulating and sticking to a clearly defined strategy, in which expectations for property performance respect business tenancy principles, most investors have a scatter–gun approach, alighting upon anything that takes the fancy within their price range.
A challenge for any investor whose source of funding demands that the passing rent should at least cover the cost of the bank loan is that, unless the timing of the purchase coincides with the bottom of the market or the proposition really is a bargain and not just dressed up to look like one, higher–yielding propositions rarely come with any chance of capital growth, or at least not enough to offset inflation.
Without capital growth, which to be maintained is a product of rental increase and pro–active asset management, rather than the vagaries of investment market momentum, the asset is likely to depreciate in value through a combination of inflation, non-recoverable costs during ownership, shortening lease term, shifting trading positions and multiple–retailer branch closure. In my opinion, most peripheral trading positions have gone ex–growth. The only trading position (by which I mean actual location, not tenant covenant) to buy into is 100% prime: anything else is on a hiding to nothing, a downward spiral in the making.
Whenever I’m asked whether I think the asking price for an investment property is reasonable, my stock answer is that property generally is overpriced by about 50%. The difference is in the value of the layer of borrowing that, by virtue of the difference between the value of a property with vacant possession and the same property let on a mortgageable lease, has come into existence because the banks are comfortable with lending against cash-flow. Go back in time before property was thought of as a store of value and in a bygone era the value of land, buildings, bricks and mortar was what the real estate could be used for by the owner, as distinct from what it might fetch if sold to someone that could afford to buy provided someone else would lend the buyer the money.
Buying covenant makes sense in the context of improving the chances of getting the rent in on time, but retailers whose financial standing counts for something in the investment market are not daft. Property–cost reduction and minimising tenancy–liabilities is the mantra. Canniness is apparent with the capital–releasing of ex–growth property using sale–and–leaseback where a building let to a well–known company on a long lease with rent reviews at regular intervals is a mouthwatering prospect, tailor–made for a mortgage, guaranteed to attract keen demand and commensurate price.
Unlike the local trader whose financial decisions are likely to be curtailed by resources, whether or not the tenant has a surveyor acting for him, so may cave-in under pressure, the multiple retailer is usually in a stronger position to argue and resist; most multiple retailers have more resources at their disposal than do many of their landlords. Consequently, surveyors acting for inexperienced investors against multiple–retailers in non–core trading positions know full well that the likelihood of the landlords’ rental expectations being met are going to be slim. Managing client expectations calls for a sensitive approach in the wording of recommendation, (a skill which incidentally isn’t something readily grasped by the generalist surveyor fraternity whose advice is dismissed by the landlord refusing to concur and instead instructing someone like me with a specialist perspective). Part of the difficulty is that despite my best attempts via my website – I’d like to think other surveyors too, even though a random search on Google does not reveal much attempt at enlightenment – getting the message across to inexperience that an “upward–only” review does not mean the rent necessarily has to increase has not permeated private investor collective consciousness. Instead, the investor having bought a low yield as a result of investment–market workings sets his sights on a rental hike that would increase the return on capital to a level commensurate with the self–perceived wisdom of the buying choice.
The flight from cash on deposit and derisory interest rates and/or the volatility of dividends from stocks and shares and/or the hassle of residential buy–to–let into the higher yields of a business tenancy and perceived rich pickings of shop property investment is not without risk. The commercial property market, of which shop property is a sector, is unregulated and a paradise for the shrewd. Asset stripping is not only the transfer between connected parties: it is also the extrication by the seller of cash liquidity from the buyer. It is said that a fool and his money are soon parted but surely the millions of pounds that exchanged regularly in auction rooms are not going to result in every buyer ending up feeling disappointed with their purchase? But why not? Why when auction–fever has taken over from the arguably more thorough due diligence of private treaty “subject to contract” should the excitement of bidding before the fall of the gavel not interfere with sound judgement?
In my opinion, the most important point to keep in mind when choosing a shop property for investment is that property is a depreciating asset whose rate of depreciation is only going to be counter–balanced and tilted toward prospects for growth if the host of factors and variables that generate growth are in alignment. It doesn’t take much for the subtle link between the location and/or trading position and/or terms and conditions of the tenancy to be out of sync.
A challenge for any investor whose source of funding demands that the passing rent should at least cover the cost of the bank loan is that, unless the timing of the purchase coincides with the bottom of the market or the proposition really is a bargain and not just dressed up to look like one, higher–yielding propositions rarely come with any chance of capital growth, or at least not enough to offset inflation.
Without capital growth, which to be maintained is a product of rental increase and pro–active asset management, rather than the vagaries of investment market momentum, the asset is likely to depreciate in value through a combination of inflation, non-recoverable costs during ownership, shortening lease term, shifting trading positions and multiple–retailer branch closure. In my opinion, most peripheral trading positions have gone ex–growth. The only trading position (by which I mean actual location, not tenant covenant) to buy into is 100% prime: anything else is on a hiding to nothing, a downward spiral in the making.
Whenever I’m asked whether I think the asking price for an investment property is reasonable, my stock answer is that property generally is overpriced by about 50%. The difference is in the value of the layer of borrowing that, by virtue of the difference between the value of a property with vacant possession and the same property let on a mortgageable lease, has come into existence because the banks are comfortable with lending against cash-flow. Go back in time before property was thought of as a store of value and in a bygone era the value of land, buildings, bricks and mortar was what the real estate could be used for by the owner, as distinct from what it might fetch if sold to someone that could afford to buy provided someone else would lend the buyer the money.
Buying covenant makes sense in the context of improving the chances of getting the rent in on time, but retailers whose financial standing counts for something in the investment market are not daft. Property–cost reduction and minimising tenancy–liabilities is the mantra. Canniness is apparent with the capital–releasing of ex–growth property using sale–and–leaseback where a building let to a well–known company on a long lease with rent reviews at regular intervals is a mouthwatering prospect, tailor–made for a mortgage, guaranteed to attract keen demand and commensurate price.
Unlike the local trader whose financial decisions are likely to be curtailed by resources, whether or not the tenant has a surveyor acting for him, so may cave-in under pressure, the multiple retailer is usually in a stronger position to argue and resist; most multiple retailers have more resources at their disposal than do many of their landlords. Consequently, surveyors acting for inexperienced investors against multiple–retailers in non–core trading positions know full well that the likelihood of the landlords’ rental expectations being met are going to be slim. Managing client expectations calls for a sensitive approach in the wording of recommendation, (a skill which incidentally isn’t something readily grasped by the generalist surveyor fraternity whose advice is dismissed by the landlord refusing to concur and instead instructing someone like me with a specialist perspective). Part of the difficulty is that despite my best attempts via my website – I’d like to think other surveyors too, even though a random search on Google does not reveal much attempt at enlightenment – getting the message across to inexperience that an “upward–only” review does not mean the rent necessarily has to increase has not permeated private investor collective consciousness. Instead, the investor having bought a low yield as a result of investment–market workings sets his sights on a rental hike that would increase the return on capital to a level commensurate with the self–perceived wisdom of the buying choice.
The flight from cash on deposit and derisory interest rates and/or the volatility of dividends from stocks and shares and/or the hassle of residential buy–to–let into the higher yields of a business tenancy and perceived rich pickings of shop property investment is not without risk. The commercial property market, of which shop property is a sector, is unregulated and a paradise for the shrewd. Asset stripping is not only the transfer between connected parties: it is also the extrication by the seller of cash liquidity from the buyer. It is said that a fool and his money are soon parted but surely the millions of pounds that exchanged regularly in auction rooms are not going to result in every buyer ending up feeling disappointed with their purchase? But why not? Why when auction–fever has taken over from the arguably more thorough due diligence of private treaty “subject to contract” should the excitement of bidding before the fall of the gavel not interfere with sound judgement?
In my opinion, the most important point to keep in mind when choosing a shop property for investment is that property is a depreciating asset whose rate of depreciation is only going to be counter–balanced and tilted toward prospects for growth if the host of factors and variables that generate growth are in alignment. It doesn’t take much for the subtle link between the location and/or trading position and/or terms and conditions of the tenancy to be out of sync.