Commercial Auctions - Allsop Auction Reviews

Transcription

Commercial Auctions
Annual Review 2015
Contents
1
2015 update
2
Auction results
3
2015 commercial auction market
4
Property analysis
5
Market notes
6
Vendor analysis
7
Buyer analysis
8
2015 auction sale highlights
9
Reasons to sell and buy at auction
10 Outlook for 2016
11 Expert views
12 Forthcoming auction dates for 2016
www.allsop.co.uk
2015 update
Auction results
Figures for 2012–2015 Current Totals (£) and Success Rates (%).
In our Summer Review we cited strength of demand coupled
with a shortage of supply as being the main drivers of capital
growth. These factors, together with the improving outlook on
rental levels, prolonged low interest rates, global stock market
volatility and recent pension reforms, have all helped our clients
achieve total sales of £449 million in 2015 and an overall 90%
success rate, our highest annual success rate in a decade.
Since the summer we have conducted two auctions. Our
October auction, held over two days, raised £110m reflecting
a success rate of 88%. It was the largest property auction held
in the UK since our October 2014 auction with the well let and
well located properties, as well as those where value could be
added, all again benefitting from the greatest competition with
70% of all lots sold in the room achieving above their reserves.
Office investments with development potential saw particularly
strong competition following the announcement, prior to the
auction, that Permitted Development Rights are to be made
permanent.
Our December auction largely mirrored our October sale with
similar trends. £63m was raised reflecting a success rate of
89% whilst 73% of all the lots sold in the room were sold
above their reserves.
February
March
May
July
October
December
2015
£37m
92%
£70m
91%
£71m
90%
£98m
93%
£110m
88%
£63m
87%
2014
£40m
93%
£80m
87%
£90m
88%
£111m
87%
£134m
88%
£84m
89%
2013
£43m
95%
£57m
85%
£59m
85%
£58m
82%
£84m
91%
£82m
87%
2012
£44m
85%
£46m
81%
£58m
76%
£63m
83%
£90m
84%
£48m
86%
Source: Allsop Auction Data, February – December Figures.
Commercial Auctions Annual Review 2015
Total Raised
Lots Sold
Success Rate
2015
£449m
791
90%
2014
£539m
872
88%
2013
£383m
715
87%
2012
£349m
688
82%
www.allsop.co.uk
Estates Gazette
Media:
Edition:
Date:
Page:
2015 commercial auction market
The UK’s No.1 Property Auctioneer
:
Media
:
Edition
Date:
Page:
January to December 2015 Sales and Success Rates
2,
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Friday 18,
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17
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Saturday 12, Dec
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Date:
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r 2015
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Octob
£450m
90%
Media:
Edition:
Date:
Page:
Property Week {Main}
Friday 23, October 2015
23
£287m
91%
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89%
£71m
80%
£61m
88%
£12m
93%
Allsop
Commercial
Acuitus
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Lambert Smith
Hampton
Osborne
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£11m
75%
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Property analysis
Sector distribution 2013 to 2015
Regional distribution 2013 to 2015
The year saw a significant increase in the percentage of retail
investments sold, increasing to 68% of the total realisation, from
58% in 2014. This represents £302 million of disposals and 75%
of the volume of sales.
The breakdown of these investments include £71 million of
national High Street retail investments, £46 million of investments
let to banks and over £29 million of convenience stores.
Improved levels of economic activity will often be mirrored
by improved interest in the industrial sector, and this was
evidenced by a 13% increase in the value of lots sold, despite a
slightly lower volume.
Despite the lower volumes in the commercial catalogue, the
office sector remained strong. Perhaps the main change was
the route to market. As a result of the extension of PDR a larger
number have been offered in our residential catalogue, in order
to access the specialist pool of buyers in this fast evolving
marketplace.
The South East and London jointly accounted for 50% of the
total value of sales in 2015 (£219 million), no change from
2014. The number of lots in London however eased, despite
exceptional demand. Holders of Central London assets will have
benefitted from the strong investment in the capital, but there
seems to have been little appetite for profit-taking.
Overall there was negligible variation in volume, with 55
properties selling (raising £68m) 14 of which were sold with
consent for residential conversion.
Volumes, in the majority of regions showed, as a percentage of
the whole, signs of improvement. Purchasers have been shifting
80%
40%
70%
35%
60%
30%
50%
25%
40%
20%
30%
15%
20%
10%
10%
5%
0%
Retail
Offices
% by Value 2013
Leisure
Industrial
% by Value 2014
Misc
% by Value 2015
Ground
Rents
Motor
Trade
Retail
Warehouse
Medical
0%
South
East
London
% by Value 2013
www.allsop.co.uk
North
West
South
West
% by Value 2014
East
Anglia
their sights away from the competitive South East, in the hunt
for better returns. Regional sales accounted for £230 million
of the total sales, making up 65% of the total volume.
Average lot sizes in the South East continued to improve,
rising to £790,000 from a 4-year average of £680,000.
West
Midlands
% by Value 2015
East
Midlands
Wales
Scotland
N. Ireland
Property analysis continued
Market notes
Yield analysis 2006 to 2015
For years buy-to-let has been a staple investment choice for
those looking to generate healthy income on their savings.
caught short for coffee or milk, so demand is typically stable so
long as the location is right to begin with.
However, George Osborne’s double whammy of tax changes on
‘buy-to-let’ in 2015 have reduced the viability of the sector for
many. Mortgage interest will no longer be deductible from tax
from 2017. Investments for higher-rate taxpayers with mortgage
interest above 75% of their rent will become loss-making.
Location is also key to finding the opportunities outside the
‘safe havens’ of London and the South East.
Looking at the range of single-let retail investments sold “under
the hammer” (a sample of over 3,000 transactions totalling £1.6
billion since 2006) we categorise the assets into A-grade and
B-grade investments, depending on the quality of the tenant,
the length of income and the location.
We can observe the narrow fluctuation in the A-grade yields,
between 5.0% and 6.5% over the whole 10 year period. The
yield stability of the better quality investments, even in times
of significant economic upheaval is clear. This is undeniably
the result of low interest rates and Quantitative Easing. This is
made even clearer when viewed against the more risky B-grade
range, which has much greater volatility, and therefore a spread
of 6% to 10%.
Historically, there was a link between borrowing costs and
investment yields, given the ready availability of bank finance
to the sector. This link was broken by the financial crisis, as
purchasers were unable to borrow, and for the last 5 years the
cash buyer has predominated. As the lending climate gradually
improves we may see this link reinstated. Returns to savers
holding cash, will continue however, to be modest even as
rates improve.
The demand for the higher yields available in the real estate
sector is, in our view unlikely to soften in the mid-term.
hi/lo range with 5-year swap rate (monthly average)
COMMERCIAL AUCTION RESULTS–2006 to date
On the commercial front, there are many assets available at
auction that offer stability of income. The results show that even
un-fashionable areas can contain properties that provide a good
quality rental income. The well placed unit in a less attractive
area can support a thriving business, which in turn supports the
payment of rent.
10%
8%
6%
4%
2%
2007
A-Grade
2008
B-Grade
2009
For example a £500,000 purchase price of a ‘buy-to-let’
property will attract £30,000 stamp duty whereas on a
commercial investment stamp duty will only be levied at £8,750.
While the capital gain of residential property is still a key
attraction, commercial property has the potential to generate
far more attractive returns while requiring less day-to-day
management.
Overall Retail Investment Yield
0%
2006
With the Chancellor also adding a 3% increase on stamp duty
for all second properties from April, buy-to-let is no longer the
attractive investment it once was.
2010
2011
2012
2013
2014
2015
2016
Convenience stores for example have offered stable investment
income at auction over the past few years, with yields steady at
around 6%, which has not changed in 5 years. Betting shops
or banks may make cost savings by moving online, but a
convenience store’s main selling point of being convenient will
ensure a need for a physical presence. People will always be
5 year swap %
www.allsop.co.uk
At a headline level, one of the more stable regions has been
the South West. With nearly a third of the region’s population
living in the countryside, local businesses are able to tap into
a pool of affluent local customers. While other types of retail
are more susceptible to the threat of online shopping, the older
generation’s preference to go to a shop – and the fact that
banking and shopping for many people still requires a physical
foothold – has ensured stability in this area. Additionally poor
transport links in rural areas in Devon and Cornwall make local
pubs, restaurants and post offices more likely to serve as a
focal point for a local community, thereby ensuring continuing
custom.
For those still considering residential, there is plenty of value
in converting commercial space. The government’s extension
of Permitted Development Rights (PDR) to allow conversions
without the need for full planning permission has seen big
demand for offices at auction in recent years. Shrewd investors
will be keeping an eye out for light industrial and launderette
lots, which now also come under the PDR.
However the lesson of the last year is that for those willing to
leave the emotion of home ownership at the door, buying a
commercial property for investment at auction could prove a
lucrative option.
Vendor analysis
A selection of our clients
The Property Company vendor – i.e. a multiple asset owner, without
external shareholders – consolidated a return to the market. There is
a clear opportunity to sell into a market where there continues to be
lack of stock. They accounted for 65% of sales (£290 million of asset
disposals) an increase over the 2014 figure of 59%.
In contrast, the volume of Receivership sales continues to ease,
accounting for only 7% of sales by volume (4% by value), from a
2012 peak of 30%.
The smaller Private Investor also appeared to be enjoying a higher
level of activity, with almost 20% of the sales volume. Improving
market conditions are allowing the smaller Private Investor greater
trading opportunities. There remains however ongoing pressure
from lenders to sell.
Corporate Vendors in the “sale and leaseback” market are still active,
with portfolios from IDH and two Funeral operators, which created
good interest. As economic conditions improve, some corporate
vendors are perhaps under less pressure to extract value from their
operational estates. There continues to be a steady supply from
some corporates, selling on, as sale and leasebacks, operational
properties acquired in the course of business expansion.
The motivation for sale varies enormously across vendor types.
However common to all is appeal of the opportunity to sell into
a market, where there is clearly a shortage of stock and strong
buyer demand.
70%
The
Forester
Society
60%
50%
40%
30%
20%
10%
0%
Priv.
Propco
% by Value 2013
Receivers
Priv.
Investor
% by Value 2014
Corporate
Institutional
Trustees
PLC
Propco
Govt.
Bodies
% by Value 2015
www.allsop.co.uk
Buyer analysis
Our regular buyer’s survey conducted at the point of exchange at
the auction and now in its fourth year, has again revealed some
interesting trends.
We have seen a return to 2013 levels through an increase to 26%
of new buyers to the auction (20% in 2014). Repeat buyers also
remained high at 74% (graph a).
With regard to buyers’ purchase intentions, 81% of our buyers
stated their desire to buy again at auction within the next 12
months. This reflects a 10% increase in buyers sentiment over
the 4 years since the inception of our survey and a good leading
indicator of future demand (graph b).
Once again buyers are located all over the country and indeed the
globe. We have noted an increase in buyers coming from afar, (i.e.
outside their home region) to purchase a property, highlighting not
only our market reach but increasing confidence in the regions
and a wider search for value (graph c).
Buyers have indicated a fairly balanced spread with regards to
how much they intend to invest. The greatest uplift in demand has
been in the lower lot sizes with the £0-£250,000 band increasing
to 12% (9% in 2014) and £250,000-£500,000 band increasing to
29% (23% in 2014) (graph d).
Surprisingly, when there are more borrowing opportunites we
have seen a marked increase in cash purchasers, an increase of
4% on 2014, the highest proportion of cash buyers since 2012
(graph e).
This is an indication of buyers having larger saving pots due to
economic recovery and the ongoing difficulty in securing finance
for secondary property, particularly from the High Street banks.
(b) Do you intend to buy another commercial (c) H
ow far are you located from the
property at auction in the next 12 months?
property you have purchased?
82%
60%
80%
50%
78%
40%
76%
74%
30%
72%
20%
70%
10%
68%
0%
66%
Yes within the next 12 months
2013
2012
(a) Have you bought a property at auction before?
2014
2015
67%
20%
30%
66%
15%
20%
65%
10%
10%
64%
5%
0%
2012
No
Yes
2013
2014
2015
0%
(e) Do you intend to use finance?
68%
25%
40%
2015
69%
30%
50%
Overseas
70%
35%
60%
2014
Outside
the region
71%
40%
70%
In the
same region
2013
2012
(d) How much do you intend to invest?
80%
Within
5 miles
63%
£0 - £250,000
2013
www.allsop.co.uk
£250,000 £500,000
2014
2015
£500,000 £1m
£1m+
62%
2012
2013
2014
2015
% of Buyers not intending to use finance
February
May
SOLD
£1,690,000
5.1% NIY
SOLD
£1,070,000
5.3% NIY
8.5% NIY
SOLD
£2,000,000
£73 PSF
LOT 44
LOT 60
LOT 22
LOT 106
BECKENHAM
ENFIELD
CIRENCESTER
GATLEY
LEISURE
MOTOR TRADE
OFFICE
OFFICE
Freehold shop
investment
Freehold tyre fitting
depot investment
Let to Nando’s
Chickenland Ltd at
£90,875pa until 2033
(no breaks)
Let to Kwik-Fit at
£60,282pa with lease
expiring 2027
9,986 sq ft modern
office, lessees
include BAe Systems
and Smiths Gore,
£146,064pa
Let to Intervoice Ltd
at £250,000pa until
2016
March
Consent granted for
24 residential units
July
SOLD
£1,240,000
SOLD
£5,020,000
SOLD
£1,520,000
SOLD
£1,010,000
LOT 10
LOT 84
LOT 101
LOT 107
BANGOR
LEWISHAM,
LONDON SE13
BRISTOL
FALMOUTH
MULTI-LET RETAIL
RETAIL
Two newly built
Freehold shop
investments
Freehold shop
investment
5.6% NIY
LEISURE
Freehold drive-thru
restaurant investment
Let to McDonald’s at
£73,500pa until 2025
SOLD
£1,620,000
5.4% NIY
5.4% NIY
MIXED USE RETAIL
Freehold parade
of six shops
and thirteen
self-contained
flats
Let to WM Morrison
until 2029 and
Connells Residential
until 2030
www.allsop.co.uk
7% NIY
Let to Mountain
Warehouse on
a new 10 year lease
at £75,000pa.
Review 2025
Reasons to sell and buy at auction
October
Reasons to sell at a commercial auction
Reasons to buy at a commercial auction
1. Market reach
We have a network of more than 250,000 subscribers to our
database to whom we promote every item sold – a far bigger
network than any of our competitors. Public bodies disposing of
assets can achieve the best price possible; sellers of high-value
assets can access the widest pool of capital possible.
1. Price
Many of the lots that come up at auction are being sold by
organisations that need to demonstrate they have been to a
wide market and secured the best possible deal. Many lots will
have realistic reserve prices, so there is every chance of getting a
property at an attractive price.
2. Price
So far this year, on average a commercial lot at our auctions has
sold for a price 14% higher than the reserve price. Setting the price
at a level to appeal to buyers is the key and in the vast majority of
cases, this price is soundly beaten.
2. Speed
With contracts completed within a month of the successful bid,
auction avoids negotiation and conveyancing processes that
can often take several months. Everything has to be in place
beforehand when buying at auction, making it the obvious option
for those who want to get access to the commercial property
market.
SOLD
£2,090,000
3.7% NIY
SOLD
£1,100,000
7.5% NIY
LOT 75
LOT 105
STREATHAM,
LONDON SW16
LEEDS
RETAIL
Freehold convenience
store investment
Let to Tesco Stores
Ltd until 2022 at
£81,759pa.
INDUSTRIAL
Retail Warehouse
investment
Let to Saint Gobain
Building Distribution
Ltd on a lease expiring
2023 at £87,500pa
December
SOLD
£1,500,000
SOLD
£1,100,000
LOT 77
LOT 94
HOLLOWAY
LONDON N7
WIDNES
4.7% NIY
RETAIL
Three modern
restaurants
Ground Floor shop
let to Boots UK Ltd
at £75,000pa. Lease
expires 2023
7% NIY
RETAIL
Four modern virtual
Freehold shops
Let to Barnados,
Subway, White Cross
Vets and Bargain
Booze. Whole let
at £81,000pa
3. Certainty
Just as importantly, auctions offer a little-fuss option for selling
compared with what can be fraught and drawn out private
treaty negotiation processes.
Though an auction offers no guarantee that a lot will sell, it cuts
out any lengthy haggling process. Once the gavel has fallen,
the contract is in place: no chance of gazumping or backing out.
4. Speed
The other big advantage of going through auction is the efficiency
of the transactions. No other method of transacting property
secures a binding contract so easily: exchange happens
immediately – with completion usually 30 days later. Buyers bid
unconditionally - i.e. NOT subject to survey, finance or contract.
5. Reliability
By being marketed to a wider range of buyers, successful disposal
is overwhelmingly the norm at auction: at Allsop 90% of lots were
successfully sold in 2015. With a market share of 45% of the
commercial auction market, that level of success is instructive
on how likely it is that going to auction would reap rewards for
your property.
www.allsop.co.uk
3. Certainty and transparency
When a deal is done, it’s done - and legally binding. Gazumping is
the scourge of many looking to buy in competitive markets. But at
auction the gavel is law: if you are the top bidder when the gavel
falls, the property is yours.
4. Variety of lots
With typically over 200 lots on offer at each of our six auctions
a year, there is plenty of choice for those looking for commercial
property in which to invest their savings. Properties range from
offices to shops to pubs, many with big brand retail tenants. Some
also have inherent development opportunities. Those considering
commercial property can be assured of finding the widest variety of
options at Allsop auctions.
Outlook for 2016
Looking ahead
By any measure 2015 has been a very good year for our clients and with the positive trends we saw prior to the summer
being maintained at both our October and December auctions, we see no reason why the current strong market conditions
will not continue well into the New Year…
Having achieved our best annual success
rate, in over a decade, and with 81% of
our buyers declaring their intention to buy
again in the next 12 months, the demand
for commercial property looks set to
grow. An increasing pool of investors
have discovered the appeal of owning a
tangible asset that can produce a decent
return with a risk profile to suit their
needs. Indeed many are likely to be ‘buyto-let’’ investors frustrated by the taxation
changes announced in the Summer
Budget and the Autumn Statement. Other
investors will no doubt be using pension
money following relaxation in the personal
pension regime. The influence of a volatile
stock market on buyers also cannot be
underestimated.
The supply of stock to the market is likely
to increase during 2016 as some of the
Private Equity Groups who purchased
loan books will take the opportunity
of selling into a strong market. Private
individuals will also take a similar view,
whilst we are also likely to see further
consensual sales from borrowers who are
either unable or unwilling to refinance.
Loan expiries and the evident strength
of the market will encourage others to
re-evaluate their portfolios and consider
taking profits. Receivership sales are
also likely to continue to form a small
but significant part of the market for
the foreseeable future. Our unique view
from the rostrum, where we can see the
number of bidders for each lot, makes us
confident that the market will comfortably
absorb the likely increase in supply.
We were delighted to have achieved
some truly excellent prices for our clients
throughout the year. There were familiar
themes amongst the more popular
properties, with the vast majority being
either well let, well located or having
potential to add value. These properties
are now in short supply and are
accordingly attracting premium bids in the
auction forum. We saw yields hardening
at our December auction in particular for
long income.
The private investor’s ongoing confidence
in the UK’s High Street has been clearly
demonstrated through the 10% increase
in the proportion of retail sales we have
seen relative to 2014. Clearly investor
confidence in this sector remains strong.
The number of Industrial sales at our
auctions has remained fairly static and
we see no reason why this would change.
The effects of PDR on the office sector is
clear: as the only auction house to have
divisions dedicated to both commercial
and residential sectors, we can deliver
first rate access to the appropriate
buyers, particularly for specialist
building’s such as these.
London and the South East will remain
the regions of choice for many investors,
but increasing competition for a limited
supply of stock in these areas will
continue to drive the attention of some
of these investors towards the regions in
their search for better returns.
Following the Federal Reserve’s decision
to raise interest rates in December, we
are likely to see clearer guidance and
possibly pressure on the timing of the
UK’s first rise in interest rates.
As we commented in our Summer
Review, we believe any rise will be
modest and that the market has to a large
extent already priced an increase such
is the length of time it has been on the
cards. Moreover, any rise in interest rates
will be a reflection of a strengthening
wider economy and it will be interesting
to see whether this leads to an increase in
the number of buyers using finance.
We expect the market will continue to
look to the internet as a medium for the
marketing and transacting of property.
We have found many of our new buyers
through the use of multi-channel
www.allsop.co.uk
marketing and we have provided our
buyers with an online bidding service
for almost 7 years. This service, in
conjunction with telephone bidding,
has served to enhance the accessibility
of our auction room and enables us
to find buyers from all over the world.
Moreover, we are continually investing
in new technology and monitoring the
opportunities presented by IT.
The wide range of properties and the high
volume of our sales consistently attracts
new buyers. This unrivalled market
access combined with the principal
auction benefits of speed and certainty,
make our auctions the obvious route to
market for any potential vendors looking
to take full advantage of the current
market conditions and the strong prices
we are achieving.
We would like to thank all our clients and
our buyers for their support in 2015 and
look forward to working with you again in
2016.
We wish you all a very Happy New Year.
Expert views
i. Accountancy
Tom specialises in providing audit, accounting and business advice on property.
Simon specialises in providing advice on taxation for individuals
TOM WARD
Lead Audit and Advisory Partner
Moore Stephens LLP
SIMON BAYLISS
Private Client Tax Partner
Moore Stephens LLP
What are the main ways of holding
commercial property?
The four main ways are to own it
individually; via a limited company;
through a limited liability partnership
(LLP); or through a self-invested personal
pension (SIPP). People tend not to hold
property personally as they prefer the
limited liability.
There are advantages to holding
commercial property personally though,
as it is very straight-forward for tax
purposes. The income goes onto your
tax return, and you pay capital gains
tax when you sell the property. Your
net rent after expenses is taxed at a
marginal income tax rate, which is up to 45%. You pay a maximum 28%
on any gains you get from the sale
of the property.
What are the advantages of owning
a commercial property through a
company?
Corporate ownership works for people
who are looking for a long-term structure
– those looking at long-term ownership,
family ownership, and the ability to buy
new properties. It doesn’t work as well
for those who just want to have a single
property to hold then sell.
At first glance paying 20% corporation
tax on the gain and the profit looks better
than 45% on the income and 28% on
the gain. However there is additional
tax incurred taking the money out of the
company structure.
Dividend tax rates are set at a maximum
37.5%. Broadly speaking you end up with
an effective tax rate on income, as if you
owned the property personally. The big
disadvantage comes from the tax on the
gain. If you paid corporation tax on the
property sale through the company, and
you pay tax on the dividend as well, you
would pay a higher effective tax rate on
the gain than had you owned the property
personally.
So for many people an LLP structure
may be best?
LLP rates reflect personal rates, so they
are transparent for tax purposes. As well
as the obvious advantages of limited
liability, LLPs make it easier to manage
joint relationships as an investor – people
can come in and out of the LLP structure
easily. If you own it personally anybody
who comes into the ownership structure
has to be entered on the land structure
registry.
There are also no restrictions on
distributions. You are taxed on the year
of profit, but after that anyone can take it
presuming the money is available. If you
have 10 partners with 10% each and the
asset is sold, your share of the gain is
liable at the 28% rate – 28% of that 10%.
www.allsop.co.uk
What are the considerations about
holding commercial property via a SIPP?
There are two restricting factors on
pensions: annual restrictions and the
lifetime allowance. Annually, you can only
put in up to £40,000 a year gross. This
is reduced to a maximum of £10,000 a
year for those earning over £150,000
annually, a very small amount for those
hoping to build up a pension pot and
often not enough in its own right to buy a
commercial property.
However, you can borrow up to 50%
of the value in your SIPP, it is difficult
to build up enough with the annual
allowance of potentially only £10,000
to eventually buy a commercial property.
The second restriction is the lifetime
allowance which sets a total limit of how
much you can put in your pension, which
is going down to £1 million from April
2016. To take the example of buying a
£700,000 property, if its value went up to
£1.4 million you would be given an excess
surcharge of 55% on the amount in
excess of the £1 million allowance when
you came to take pension benefits out of
the fund. Therefore commercial SIPPs are
useful for commercial properties within
the individual’s lifetime allowances.
Expert views
ii. Lawyers
Philip was awarded a CBE in 2005 for his services to property law and in 2009 he
enjoyed the rare honour of being appointed a Queen’s Counsel Honoris Causa for his
work developing the practical aspects of property law.
“New leases are being
granted for slightly longer
terms. This adds extra
value and could provide
a good opportunity for a
seller to release value.”
PHILIP FREEDMAN CBE, QC (HON)
Chairman and Partner, Real Estate
Mishcon de Reya
What do you view as the main difference
of buying and selling by auction?
Compared with private treaty, an auction
creates a very short time limit to finalise
a deal. For those who want a quick
sale; who like the certainty of knowing
the price is final; and who enjoy the
transparent nature of the process, it’s
clearly a good opportunity.
Of course, if you don’t do your homework
as a buyer, you risk getting burned but
this is the same as with any type of
business transaction. The crucial thing
is that as part of the auction process,
all relevant papers have to be made
available up front. Buyers can’t complain
if there was a problem pre-advertised
which they could have found with due
diligence. If they find a problem after the
property is knocked down to them, then
the commercial question is what happens
next.
What are some of the things you
wouldn’t want to find?
Provisions within leases are some of the
most common causes of difficulty, for
example with a long leasehold property
where the lease could be forfeited by the
landlord if the tenant became insolvent.
While auctions are for cash, many people
will chose to refinance, particularly
to drive better cash-on-cash returns.
Such a clause makes the whole lease
unacceptable as a mortgageable asset,
because banks normally take security
over the property precisely to give
protection if the borrower goes bust.
With erosion of pension sizes and
contributions and continued low rates,
there’s a compelling case for more
people to invest in commercial
property as part of their pension plans.
What’s your view?
It certainly beats the half a percent you
get from your local high street bank.
Obviously, in the long term buying a
reasonable property is an excellent
investment for people for their long-term
savings and pensions. And sometimes you
can pick up very good things at auctions.
The balance you have to weigh up as a
buyer is in spending money beforehand
for structural or legal check-ups.
Clearly if you’re buying to hold for 10-15
years or more, then any upfront cost is
minimal when spread over such a period.
Office-to-residential conversions have
been a major driver of transactions in
many areas. Are there any additional
considerations now the government has
loosened this policy up to allow things
to be knocked down?
A lot of the statutory provisions allowing
permitted development have conditions
and processes attached to them, in
which people do need to get professional
advice. For example, one of our clients
found councils making orders taking away
permitted development rights for particular
pubs or cafes that they were going to take
over for use as estate agencies.
In some cases problems can arise by local
people applying to designate such units as
“assets of community value”. Councils can
also call things in for prior consent if they
are perceived to warrant extra scrutiny
around highway or contamination issues –
all of which are subjective.
www.allsop.co.uk
Expert views
iii. Pensions
Martin has worked for over 33 years in the Self Invested Personal Pensions (SIPP)
market, with 27 years working at SIPP specialists Dentons.
MARTIN TILLEY
Director of Technical Services
Dentons Pensions Management
What are the broad benefits of owning
commercial property as part of a
diversified portfolio?
Commercial property is an important
asset class for diversifying risk in an
investment portfolio, as generally property
doesn’t highly correlate with other asset
classes such as equities, fixed income
(bonds and gilts) and cash. Property
values move independently of other
assets and aren’t typically affected by
what’s going on in the stock market.
Why do you think some private investors
are put off of commercial property –
despite the obvious higher yields than
residential property, equities and bonds
over the last 10 years?
Although they share the obvious
characteristic of being physical buildings,
residential and commercial properties
are very different animals. Different rules
and regulations apply to commercial
landlords and market principles are quite
different. Tenancies tend to be for longer
periods, but the market for new tenants is
considerably smaller.
What are some of the restrictions and
considerations in acquiring commercial
property in a SIPP through auction
sales?
The key restriction is the timescale.
Completion is usually required within a
short timeframe - typically 28 or 42 days.
The process of acquiring property through
a SIPP is the same as you would follow
in a personal capacity. However, the SIPP
operator will need to approve the property
as acceptable ahead of the auction. The
SIPP will need to be in place before the
auction and the funding put in place.
All SIPPs operate a statutory cancellation
period on SIPP establishment and on
funds transferred in from other pension
schemes, which prohibit use of the
money until the cancellation period has
expired.
Property must also be wholly commercial.
Residential property can be accepted
on occasion but the circumstances that
permit this are extremely rare. SIPP
operators’ service and turnaround times
are also critical, so it would be worthwhile
sourcing a SIPP who specialises in
commercial property and whose systems
for auction purchases are sound.
What advice would you give around
keeping cash aside to cover costs such
as insurance, renovation and potentially
other unplanned expenses?
It would always be advisable to plan
cash flow within a SIPP to take account
of expected rental inflows – but also
against outgoings which could include
not only expected items such as SIPP
fees, property management fees and
insurance, but also the prospect of
landlords repairs or renovation.
www.allsop.co.uk
A rental void also requires insurance
and rates to be maintained so there is
a balance of retaining liquidity to cover
these events against perhaps better
returns from tying the funds up into longer
term investment. Contributions to the
SIPP if possible could also cover some
immediate shortfalls.
Holding residential property through
a SIPP incurs punitive tax charges,
but how would a shop with a flat
above it be treated?
HMRC’s interpretation is quite clear and
with the exception of a very small number
of cases any property that can be used
for residential purposes will incur large
tax penalties.
Where a shop has a flat above, unless
the flat is occupied as a condition of the
lease by a third party as a condition of
their employment by the tenant, the flat
will need to be held as a separate title
outside of the SIPP. Even a reversionary
interest resulting from the sale of the flat
on a long lease can trigger a tax charge.
Forthcoming auction dates for 2016
Monday 8th February 2016
Wednesday 6th July 2016
The Berkeley, Knightsbridge, SW1X 7RL
Park Lane, Piccadilly, W1J 7BX
Online catalogue available:
16th January
11th June
Monday 21st March 2016
Monday 10th October 2016
27th February
17th September
Monday 16th May 2016
Tuesday 6th December 2016
23rd April
12th November
www.allsop.co.uk
Contact us
Contact a member of the team to discuss selling at auction
Patrick Kerr, FRICS
Gregor Campbell, MRICS
Will Clough MRICS
David Marshall
Partner
[email protected]
DDI: 0207 543 6701
Joined: 1977
Partner
[email protected]
DDI: 0207 543 6703
Joined: 1986
Senior Surveyor
[email protected]
DDI: 0207 543 6838
Joined: 2010
Auction Assistant
[email protected]
DDI: 0207 543 6730
Joined: 2011
Neil Mackilligin FRICS
Philip Parsons MRICS
Ben Hodge MRICS
Charlotte Sloan
Partner
[email protected]
DDI: 0207 543 6702
Joined: 1983
Partner
[email protected]
DDI: 0207 543 6891
Joined: 1991
Surveyor
[email protected]
DDI: 0207 543 6831
Joined: 2011
Secretary
[email protected]
DDI: 0207 543 6705
Joined: 2008
Duncan Moir FRICS
Alex Neil MRICS
Doug Guild
Chattie Webb–Bowen
Partner & Auctioneer
[email protected]
DDI: 0207 543 6704
Joined: 1986
Partner
[email protected]
DDI: 0207 543 6895
Joined: 2002
Surveyor
[email protected]
DDI: 0207 543 6890
Joined: 2015
Secretary
[email protected]
DDI: 0207 543 6824
Joined: 2014
George Walker MRICS
Chris Childs MRICS
Liam Stray
Jessica Tooke-Kirby
Partner & Auctioneer
[email protected]
DDI: 0207 543 6706
Joined: 1997
Associate
[email protected]
DDI: 0207 543 6817
Joined: 2006
Graduate Surveyor
[email protected]
DDI: 0207 543 6791
Joined: 2014
Secretary
[email protected]
DDI: 0207 543 6869
Joined: 2015
Mark Gower MRICS
Jonathan Wright MRICS
Thomas Shaw
Caroline Rundle
Partner
[email protected]
DDI: 0207 543 6727
Joined: 1996
Associate
[email protected]
DDI: 0207 543 6725
Joined: 2008
Graduate Surveyor
[email protected]
DDI: 0207 543 6830
Joined: 2015
Viewings Co-Ordinator
[email protected]
Joined: 2015
www.allsop.co.uk
6
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Head office:
City office:
Leeds office:
33 Wigmore Street,
London W1U 1BZ
Tel: +44 (0)20 7437 6977
2 Copthall Avenue,
London EC2R 7DA
Tel: +44 (0)20 7588 4433
33 Park Place,
Leeds LS1 2RY
Tel: +44 (0)113 236 6677
www.allsop.co.uk

Commercial Auctions - Allsop Auction Reviews

Transcription

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