SMSF trustees are showing a growing interest in commercial property as a long-term investment that offers security, yield, and capital gain. Jonathon Street, CEO of specialist commercial property lender, Thinktank talks about the benefits and who is being attracted to it.
Kevin: There’s a growing interest in commercial properties and long-term investment in your self-managed superannuation fund, according to Jonathon Street from specialist commercial property lender, Thinktank. Jonathon joins us. Jonathon, thank you for your time.
Jonathon: Good morning, Kevin.
Kevin: What’s driving the increased interest in this?
Jonathon: It seems to be the interest of investors to find some stable returns amongst their investment strategy. Commercial properties come to the fore more recently with the volatility in residential property and also some volatility in the share market. In the way in which, I suppose, other alternative asset investments like hybrids perform and there’s some interest around those, but there are also some risks attached. Commercial properties have been quite good performers over a long period of time, and the yields attached to it are quite attractive as well.
Kevin: What are you seeing here? The typical investor – where is it coming from? It is your mom and dad investor or people looking for retirement? Or is it bigger companies?
Jonathon: It’s quite a spread, actually. It ranges from the mum and dad investors who are really looking for a balanced asset allocation in their investment portfolio right through to institutional investors and high net worth.
What commercial property does, if it’s in the hands of people who know what they’re doing, of course, and staying away from things like construction and development, which can be quite volatile themselves. But if you’re looking at just standard commercial properties that have income-producing improvements on them – we’re talking industrial properties and shops and offices and childcare centers and so forth – these are all very stable parts of the economy that produce very good, long-term, consistent returns.
Kevin: Would you say that people mostly interested in this are looking it to maybe house their own business or they looking at it as an arm’s-length-type investment?
Jonathon: Mostly an arm’s-length-type investment, Kevin, but around 20% of our business is from self-managed superfund members who have their business at the moment and they run a commercial property. They’re changing the ownership that property into their self-managed superfund to take advantage of the tax benefits in retirement. It’s very attractive for them.
Kevin: Putting aside that sector of the market, what would you say would be the benefits to an investor in this arm’s-length-type investment?
Jonathon: I think it’s the granularity that comes with a diversified pool of assets that produce the returns rather than a single asset, like a big office building or a big shopping center. Our loans are around about $650,000 each, so properties worth one to one-and-a-half million dollars. With a big diversified pool, the returns are very consistent. They’re very predictable, and they’re quite capital-stable.
Kevin: You mentioned earlier about the domestic market. Do you think the over- or the potential over-supply in the domestic market is helping to fuel this fire?
Jonathon: I think undoubtedly it’s helping the process, yes.
Kevin: Can I just ask you, Jonathon, about the portfolios that you put together for people? Is there an ideal amount that they should go in with? At what point is it not worth it?
Jonathon: For our type of investment, we start at $10,000 and go up from there. What we often find and found with 60-65% of investors already is that they put a small amount in to begin with. It might be $10,000-50,000. Once they’re comfortable with the profile of it, the returns, which are paid monthly, and the people we’re dealing with, who are me and my team, then they’re reinvesting and increasing their amount. So the average investment at the moment is around that half-million dollar mark.
Kevin: How are the banks looking at this type of investment?
Jonathon: We, on an institutional level, have considerable investment, and that’s both domestic and overseas because of the relative value of returns in the Australian market. So it’s significant.
Kevin: Thinktank is the website. What’s the website address?
Jonathon: It’s www.Thinktank.net.au.
Kevin: My guest has been Jonathon Street from Thinktank.net.au. Jonathon, thanks for your time.
Jonathon: Pleasure to be with you, Kevin. Thank you.