Commercial Property
The most tangible asset on our spectrum and the least forgiving about timing. You own a share of a real building, tenanted by real businesses, funded partly with debt. The rent pays your income. The eventual sale price decides your total return.
What drives the return
Every projection rests on four assumptions
A commercial property return decomposes into four things, and a forecast is only as good as what it assumes about each of them.
Net rent
Gross rent less outgoings, letting costs, management and the debt cost. This is what funds your distribution, and it is a long way below the headline figure.
The lease
Weighted average lease expiry, the tenant covenant, the rent review mechanism and what happens at expiry. A long lease to a weak tenant is not a long lease.
The capitalisation rate
The building is valued by dividing net income by a cap rate. When cap rates expand, values fall even if the rent has not changed.
Gearing
Debt multiplies whatever the first three produce, in both directions. It is the assumption investors underestimate most.
The part that gets underestimated
Gearing at 50% is not half the risk
A trust geared at 50% carries roughly double the sensitivity of the equity to any movement in the asset value. A 10% fall in the value of the building is a 20% fall in what the investors own.
Gearing also brings a lender into the structure with rights that rank ahead of yours. Loan to value covenants can be breached by a revaluation alone, without a tenant missing a single payment, and a breach can force a capital call, a distribution suspension or a sale at the wrong point in the cycle.
We read the debt terms, the covenant headroom and the expiry date of the facility before we read the projected distribution.
Read before the distribution
- Loan to valueWhere it sits now, and where the covenant bites
- Covenant headroomHow far values can fall before a breach
- Facility expiryWhen it refinances, and at whose rate
- HedgingWhat is hedged, for how long, and what happens when it rolls off
A distinction that matters
Unlisted property is not listed property
Both give you exposure to buildings. They behave very differently, and the difference is usually presented as an advantage of whichever one is being sold.
Pricing
A listed REIT is repriced every trading day by the market. An unlisted trust is revalued periodically by an independent valuer, which smooths the reported return without smoothing the underlying risk.
Liquidity
A REIT can be sold on any trading day. An unlisted trust generally returns capital when the asset is sold, at the end of a term that can be extended.
Control
In a syndicate you know exactly which building you own. In a listed REIT you own a share of a portfolio managed to a strategy.
Correlation
Listed property trades with the equity market in the short term. Unlisted property tracks the asset, which is the point of holding it.
What you are taking on
The risks, before the projected return
Vacancy and tenant risk
A tenant leaves or fails, and the income stops while the outgoings continue. Re-letting takes time and costs incentives.
Valuation and cap rate risk
Values fall when cap rates expand, regardless of how the building is performing.
Gearing risk
Debt amplifies losses, covenants can be breached on a revaluation, and facilities have to be refinanced at whatever rate applies on the day.
Illiquidity
There is generally no exit before the asset is sold, and the term can be extended by the manager or by a vote.
Interest rate risk
The cost of the debt moves, and unhedged or expiring hedges flow straight to the distribution.
Development and capex risk
Where a strategy involves building, refurbishing or repositioning, the budget and the timeline are estimates.
Target returns and forecast distributions are not indicative or guaranteed. Past performance is not a reliable indicator of future performance.
What we access
Trusts, syndicates and single assets
Unlisted property trusts
Diversified and single-sector trusts across office, industrial, retail and healthcare, managed by established Australian groups with a stated distribution policy and a defined term.
Syndicates and single assets
Direct exposure to one identified building, where the tenant, the lease and the debt terms are known before you commit rather than described in general terms.
Portfolio role and sizing
Sized inside a documented asset allocation against the property exposure you already hold, including your home, your business premises and any existing direct holdings.
When we say no
It is a poor fit for anyone whose wealth is already concentrated in property, which describes a large share of Australian investors. We will say so.
How it works
We map what you already own before adding more
Verify and understand
We confirm your wholesale or sophisticated investor status, then map the property exposure you already carry before considering adding more.
Research and recommend
You receive opportunities with our analysis of the asset, the tenant and lease profile, the debt terms, the manager's track record and the fee structure, alongside general advice on sizing.
You decide, we execute
You approve each investment. We handle the application, administer the holding, track distributions and revaluations, and report performance transparently.
Questions
Before you commit to a building
How is this different from buying an investment property?
Scale, tenant quality and lease length. A commercial syndicate can hold a building let to a listed company on a ten year lease with fixed annual reviews, which is a different income profile from a residential tenancy. It also removes your control: you cannot decide to sell your share on a given Saturday.
What is a typical minimum investment?
It varies by structure. Wholesale unlisted trusts commonly start in the tens of thousands, single-asset syndicates often considerably higher. We confirm the minimum for each opportunity before you commit.
How long is my money locked up?
Usually the stated term of the trust, commonly five to seven years, ending when the asset is sold. Terms can be extended by the manager or by unitholder vote, so treat the stated term as a minimum rather than a maximum.
What happens if the tenant leaves?
Income falls while outgoings and interest continue, and the manager funds re-letting incentives and fitout from reserves or from suspended distributions. This is why the tenant covenant and the weighted average lease expiry matter more than the headline yield.
Can my SMSF invest in commercial property trusts?
Yes, where it is consistent with the fund's investment strategy and its trust deed, and where the fund meets the wholesale investor test in its own right. The lock-up period needs to be weighed against pension payment obligations.
What does Barker Wealth charge?
Our fees and any benefits we receive are set out in our Financial Services Guide, available on this website or by calling (02) 8018 8998.
Property is one part of the income picture
Investors who come to us for property often hold it alongside private credit, individual bonds and structured products.
Read more about Private Credit, Corporate Bonds and Fixed Income and Structured Investments, or see how the whole portfolio fits together on our Investments page.
Barker Wealth Management Pty Ltd ABN 46 695 875 962, AFSL 700297. Suite 913/185 Elizabeth Street, Sydney NSW 2000. (02) 8018 8998. This page contains general information only and does not take account of your objectives, financial situation or needs. The investments described are available to wholesale and sophisticated investors only. Target returns and forecast distributions are not indicative or guaranteed. Past performance is not a reliable indicator of future performance.