What is a Commercial Property Trust?
Property investing is an expensive and complex game, which is why many investors never make the leap from residential to commercial property.
But aspiring commercial property owners shouldn’t be deterred by the cost of purchasing a commercial property, as there are a number of more affordable ways to get a foot in the door.
One strategy Australian investors can use is to buy into a commercial property trust – an entity where you effectively you join a syndicate of investors and pool your financial resources to buy bigger and better.
But what exactly is a commercial property trust?
“It is a trust structure that holds the commercial property,” says Fawkner Property director of distribution and investor relations Shane Wakelin.
“Basically, rather than going out and buying a $5 million commercial property, which not too many people can afford, it allows investors to have exposure to commercial property at a significantly lower price point.”
Depending on the trust chosen and the percentage share they hold, investors will then be paid income on a monthly, quarterly or yearly basis, making it an especially appealing strategy for self-funded retirees.
How much does it cost?
For most unlisted trusts, buy-in starts anywhere between $100,000 to $250,000 with fixed time periods and income.
But if buying into a listed trust on the Australian Securities Exchange, you can start with as little as $500 and buy and sell anytime.
Commercial property trusts give smaller investors access to larger properties and tenants.
Benefits of a commercial property trust
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Low volatility
Typically, commercial assets are considered more stable due to their longer leases.
A trust usually also holds multiple assets across different locations and industries, which helps minimise the impact when individual markets experience downturns.
Trusts also have scheduled distribution payments, meaning income arrives like clockwork.
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Less risk
According to Wakelin, “you can have a greater confidence in your capital being protected” when part of a commercial trust.
This is predominantly because commercial assets are generally considered safer and more predictable, due to their longer leases and higher-quality tenants.
You also share the risk with other investors in the syndicate, making it less likely you will lose huge amounts of capital if you have to sell out during a market event.
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Higher yields
Commercial properties tend to offer higher rental yields, according to Centuria Capital CEO Jason Huljich.
“If you look at residential your gross is probably 3 or 4%, but after you pay out property management, leasing and all of that, you are probably down to 2%,” he says.
“Whereas a listed trust your rent is probably around that 5% mark and unlisted probably around the 6%.”
Commercial property trusts allow for greater diversification across multiple properties and asset classes.
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Greater diversification
Commercial property trusts are comprised of anywhere between 10 and 50 properties across multiple industries.
According to Wakelin this means “all your eggs are not in one basket” and investors can achieve diversification, and therefore protection, that is not possible when going it alone.
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Less work
One of the biggest benefits is once you find a trust that you are confident in, you can sit back and relax.
“It’s a ‘set and forget type’ of investment rather than dealing with the issues like tenants or fixing up a building,” Wakelin says.
Trusts employ skilled property managers, paid for with the trust fees, but they handle all of the nitty-gritty ownership issues.
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Less competition
When you are buying into the lower end of the commercial asset market around the $2 million mark, Huljich says there is a lot of competition.
Buying into a trust, however, you can access to “very high-quality larger assets, which most people can’t afford at $50 million or $100 million per asset”.
This means there are less buyers to compete with, coupled with access to sought-after tenants including government agencies and ASX-listed companies.
