Buyers of commercial property must seek accurate answers when conducting due diligence
When choosing to invest in shares, equities or unit trusts most people safely rely on the advice of their financial planner or wealth manager. However, when it comes to investing in commercial property who is the best-placed expert to honestly and accurately guide a buyer in the decision-making process?
Most prospective buyers will rely solely on the input and advice of the broker selling the property, or from the seller themselves.
However, according to Sean Paul of Spire Property Management, it is wise to also consult with a local property manager. “They are after all the ones who have to run the properties, and know where the further pitfalls or opportunities may lie.”
Due diligence is a varied path
Paul advises that buyers doing their due diligence should ask questions such as:
Who to ask for accurate and unbiased property advice?
“Surprisingly, few people think to involve property managers in their decision making process, mistakenly thinking that the property managers’ role only enters the picture once rentals need to be collected,” says Paul. “This is very much not the case and good property managers such as Spire’s portfolio team, are perfectly positioned to give accurate and independent advice on a commercial property and its investment appeal.”
Paul explains that Spire offers a specialised service to their existing clients as well as other non-client investors looking to purchase a commercial property whereby they provide a full analysis of the cost versus return ratio on a building.
“As part of this service, we benchmark the property against other similar buildings to ascertain its appeal, performance, current rentals etc. We assess the area in which the building is situated as location and access to transport, for example, are very important. Sometimes the area that a building is situated in has evolved over time and the property may no longer be meeting the needs of the surrounding area – meaning that it too needs to evolve.”
“Our assessment of a potential property purchase also includes the risks, if any, of over-capitalising through renovations, and an analysis of the current tenant mix and how this can be improved if necessary. Taking all of this into account we supply a full projection of the possible rental returns that can be achieved by a particular property,” says Paul.
Guidance and assistance past the initial decision making and purchase stage
For new owners of a commercial building, the need for guidance and assistance in optimising their new asset does not end once they have signed on the dotted line.
“Property managers are perfectly situated to work hand-in-hand with the buyer and the contractor when it comes to the rolling out of any refurbishments and renovations to the newly purchased building,” explains Paul.
“Property Managers have a vested interest in the long-term optimisation of a building, and so cutting corners when it comes to refurbishments is not an option as we are left with the problems afterwards. Things such as poor plumbing, in-effective soundproofing, faulty electrics etc. can arise when contractors are not well managed and because of this our team step in from the beginning to ensure this is not the case for our clients’ buildings.”
Paul goes on to explain that following the completion of the refurbishments Spire are then able to assist with any tenant reshuffling, lease agreements, tenant fit-outs, and the securing of a suitable tenant mix to optimise returns. “For example, having a long-term lease with a national company in place will push the value of the property up for the investor.”
“Investing in commercial property as a strategic investment decision offers great long-term results but it makes sense to have property managers involved in the lifespan of a property investment from the beginning in order to maximise the return on this investment and be sure that you are making the right choices from the outset,” concludes Paul.