What is Commercial Real Estate?
Commercial property is a core asset class among institutional investors, family offices and High Net Worth individuals, favoured for a portfolio diversification, strong income return and providing a hedge against a more volatile stock market. The established sectors are retail, office and industrial, with alternatives such as care homes, clinics, petrol stations and car parks attracting a growing share of investment in recent years.
Why invest in Commercial Real Estate?
- The returns can be fantastic with the investment being not too dissimilar in risk to a secured Fixed Income Bond.
- Leases made with high grade covenant businesses often guarantee rental increases and protection against inflation.
- Commercial property is less management intensive than residential with the tenant taking responsibility for the maintenance of the building and refurbishment. This practice is commonly formalised with a full repairing and insuring lease (FRI) agreement.
- It is fairly simple and inexpensive to hire highly skilled and professional Property Managers to ensure tenants are keeping up their terms of the lease and critical issues such as lease re-negotiations are managed appropriately at key stages during the investment cycle.
- Excellent Total Return on Investment when considering high income during tenure and good Capital Growth if asset exited at right time with good lease terms in place.
What kind of returns can you expect with a Commercial Real Estate Investment?
Our typical recommendation would be for a passive long income – Typical dividend yield 4.5% – 5.5% p.a. non leveraged. Returns can be higher if leveraged around 50-60%. Such a deal would typically be:
- Let to a large, well established business with a high-grade covenant
- Minimum of 12-15 years remaining on lease
- Let on full repairing and insuring terms (FRI)
- Regular upward only rent reviews with protection against inflation
Higher yields (in excess of 5.5%) are achievable if investor is prepared to consider some risks within the investment such as shorter lease, a lesser grade covenant tenant etc. These types of deals we only propose to our clients once we are confident that our investors are fully aware of the risks and yet wish to pursue such a strategy.
Why would one select Commercial over Residential Investment?
An investment in commercial real estate is typically by investors who are looking for strong and stable income with little risk and no real downside. It is often taken as a hedge against more volatile investments such as Private Equity or the Stock Market investments and is a common feature in a stable well diversified portfolio. Residential investment on the other hand typically has lower yields (lower annual income from rent) but greater potential for Capital Growth if purchased correctly and held for sufficient period of time. Residential investments also have an emotional aspect to the investment in terms of potential to be a holiday home, an asset for the next generation, located in a desirable area etc.
What is important to understand is that both investments are proven to be best in class and the decision to opt for one or the other is purely based on personal circumstances. We would be happy to discuss your requirements with you and advise what in our opinion seems like a more suitable investment option for you.
Other than the asset, what are the other costs of purchasing a UK Property?
As with buying property directly, purchase costs such as stamp duty, solicitor’s fees, agents fees, search and registration fees and survey costs are incurred. These costs can vary depending on the asset value and are funded by the amounts raised from investors and are clearly communicated before you make an investment. All invoices of costs are shared on a transparent basis with the investor. You will be made aware of all costs prior to engaging in the deal and we always take them into consideration when calculating yield.
Is it possible to invest from outside the UK?
Yes, absolutely. However, it is your responsibility to satisfy yourself that an investment in the UK complies with and is permitted under the laws of your jurisdiction. This includes complying with any governmental or regulatory requirements or other applicable formalities.
How should I structure my property investment?
We will help you to consider the most suitable structure for your property investment. UK property can be held in a number of ways (either directly or indirectly) including via a limited liability company, a traditional partnership, a limited liability partnership and unit trusts.
It is important to consider the tax implications when deciding what structure is most appropriate. The tax consequences will depend upon a number of factors including your tax residence and domicile and the investment vehicle you choose. We will work with you alongside the chosen tax advisors to ensure that we put in a structure that is most suitable to your needs and circumstances.
Who owns the asset once purchased?
To be very clear, not Adivo. We are simply the advisors. The asset will be 100% owned by you under a variety of structures that we can help you arrange. If the asset is being purchased by a number of investors then an SPV is typically formed and shares sold of the SPV based on investment contribution. In no circumstances does Adivo ever own any asset or hold any of your money at any time.
How is ownership evidenced?
Most properties in England and Wales are registered on a public register at the Land Registry. It is referred to as Registered Land. Registration provides conclusive evidence as to the identity of the owner and the owner's title to the property. The register also provides details of the extent of the land and the rights benefiting and affecting it. If a property is registered, there is a state guarantee of title that guarantees the accuracy of the public register. If a defect or error is found in a registered title, compensation is payable by the Land Registry in certain circumstances.
As well as employing legal advisors, will I need advice from other consultants when investing in commercial property?
Yes. In addition to having legal advisors to assist you with your property transaction, other property consultants may include a property agent, surveyor, tax specialist and a valuation expert.
How long does a typical real estate transaction take?
There is no defined period of time as each transaction is different in nature and complexity. Typically, commercial transactions are more complex than residential ones and can take longer to complete.
The seller will always push to exchange and complete as quickly as possible and often may put deadlines, but at Adivo we don’t let the sellers deter us from the doing the checks we feel necessary to finalise the deal.
It is in everyone’s interest to move ahead as quickly as possible and our serious intent to proceed will always be made clear to the seller. However, under no circumstances will we cut corners or rush a deal to completion until we are fully satisfied that all your interests have been investigated, presented to you and dealt with in a suitable manner.
What is Stamp duty land tax (SDLT)?
Stamp duty land tax (SDLT) is the main tax on property acquisitions. It must be paid by the buyer within 30 days of completion of the acquisition. Failure to pay on time results in significant penalties and interest. SDLT must also be paid before the Land Registry will process the registration of the transaction. SDLT is calculated using a % based on the value of the property. We will always advise you of SDLT due on any investment as part of any initial proposal we share with you.
Who takes care of the lettings and tenant management?
The whole idea of working with Adivo is to have a stress free investment and that is what we deliver. Post-acquisition, all lettings and property management issues can be managed by Adivo if the client so wishes. Many of our clients simply provide their bank details where the income is to deposited on a monthly/quarterly basis requiring no further involvement from them.
What does Adivo Property Services do?
Adivo is an independent Real Estate Advisory firm for investors who wish to invest in the UK Commercial or Residential Real Estate market. Our role is to help you source, structure and execute the deal which best suits your risk and investment profile. We work as your Partners from day one and only make money when you start to make money.
How do we work?
Very simply out – we work for you to take all the headache out of the investment.
We source the deal, structure it, support arranging finance, deal with all solicitors and tax specialist, close the deal and then manage the asset (including rent collection) till you are ready to exit.
We consider ourselves to be your Investment Partner and share with you all that you need to know and wish to know in order to get the most out of the deal.
How do we select our Properties?
There are 2 approaches that we use:
- Our clients advise us of the type of investment they are after (value, location, type, expected yield etc) and we source the right deal for them through our network of private sellers and real estate brokers.
- Quite often we are made aware of fantastic deals in the market which we believe are great for any investors portfolio and bring such deals to our existing clients for investment or alternatively we purchase ourselves and look to place in the market at a later stage.
Regardless of the approach, it is the decades of UK real estate experience in Adivo as well as hundreds of more years of experience with our established partners that goes behind reviewing each and every property before a decision is made. We visit all properties, conduct the initial due diligence to confirm the facts for what they are and conduct all the necessary checks to ensure that it is an investment grade asset before we bring the deal to our clients.
Hundreds of days of work every year is spent looking at deals and rejecting them so that you only see the deals that we believe are right for your portfolio.
Can Adivo help with Residential Property Investments?
Yes, we can. 80% of our revenue is from commercial transactions however we do help our clients with residential investments if they so wish. On many occasions, we have had investors approach us with residential requirements and ultimately end up investing in a commercial property after discussion and consideration. Historically, the majority of residential property returns have been delivered through capital growth. However, we look to balance income and capital returns when we select our properties, to maximise the ‘total returns’ that this combination can bring to our investors over time.
Can Adivo help to arrange leverage against the investment?
Yes, we can help but we cannot guarantee. We partner with a number of institutions that are happy to lend up to 75% on a real estate investment but final discretion lies with the lenders based on their evaluation. Typically our clients have managed to secure lending of at least 50% with only a small handful having been refused based on their personal circumstances.
Would you recommend leverage if it can be arranged?
Yes, we would, as it is an effective and risk free way to increase yield if arranged properly. However, bearing in mind our conservative outlook we are always cautious to advise our investors to not over leverage as markets can temporarily come down as well as go up and it is important to be ready for such eventualities as well. A leverage of 50-60% in our opinion is both a healthy and safe place to be at to ride any short term correction in the market.
Why would you use a firm like Adivo Property Services?
Investing in Commercial Real Estate is no different to any other complex project. The research, sourcing and due diligence requires a huge amount of investment of time and expertise. The question you need to ask yourself when deciding whether you need a firm like Adivo to help is, can my time and that of my team be used better elsewhere? If the answer to that question is yes then Adivo is a very cost effective and efficient way of investing in the UK real estate market.
How does Adivo make money?
We are carefully structured to make sure we don’t make money until our investors don’t start to see a return. Our income is derived from an agreed fee paid to us upon completion of a deal. It is typically 1.5% + VAT of the deal value. We also charge a 12.5% + VAT of the rent on an annual basis if the client requests us to manage the property on their behalf post an acquisition.
What do we believe in at Adivo?
- Mutually respectful and open Partnership
- Transparency of information throughout the deal cycle
- Values and ethics before financial gain
- Hard work to ensure positive outcome for our Investors
- Healthy, safe and regular income and capital growth for our investors