Some parts of the commercial property market are doing well despite the consecutive interest rate hikes, presenting enterprising brokers who are willing to learn a different type of real estate animal with opportunities.
Unlike its higher-profile cousin, residential property, commercial property is a varied market that responds differently to changing economic dynamics.
“Demand for industrial property, for example, continues to outstrip supply in practically all geographical locations across the country, with still-increasing demand for logistics warehouse space and inventory storage sites,” said Peter Vala, general manager of partnerships and distribution at Thinktank.
Read more: Commercial property deserves a closer look
Securing a loan for a commercial property is often contingent on the rental income to help service the loan facilities, with the length of time remaining on the lease a key factor. The viability of a prospect is usually assessed via the weighted average unexpired lease term (WAULT) or the weighted average lease expiry (WALE). This can be very limiting, especially if a lease is about to end.
Buying a commercial property for investment or for operating a business typically involves establishing a special-purpose company or trust to acquire the proposed asset. This special-purpose vehicle (SPV) will then enter a lease with the trading entity, so that if the property or business is sold or if there are any changes in their circumstances in the future, the sale of one does not necessarily force the sale of the other. Separating the property from a trading entity also offers an effective level of asset protection. More commercial properties are also being acquired under an SMSF structure for longer-term wealth management planning or to provide a higher level of protection for an asset.
But while all these WALEs and SPVs may seem confusing for brokers, what’s clear are the benefits of getting into commercial in an economy in which residential property in different areas may be a little fickle.
“Developing more of a balanced portfolio across clients can help brokers offset declining asset types with stable or improving ones,” Vala said. “When residential lending opportunities are a bit less frequent, chances are there are parts of the commercial property market performing well.”
ThinkTank said it makes sure brokers don’t get lost among the acronyms by providing them with a dedicated relationship manager to help workshop, structure, and guide the process through to settlement.
“With the right support and guidance on hand, commercial property-secured loans are really no more demanding than a residential loan for a self-employed client,” Vala said.
By diversifying into commercial, brokers will be able to assist customers across a broader range of financial needs.
“The greater the range of lending solutions and property types a broker can support their client base with, the deeper the relationship will become and the more business opportunities will arise,” Vala said.
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