Four strategies to unlock property value
Cromwell has a track record of finding property gems in unexpected places. We look at some examples of how undervalued assets have become stars and delivered outstanding returns over time.
Some investments can deliver outsize returns if you know what to look for and how to turn them into top performers. Here are some of the features that attract the experts.
1. Upgrade potential
Finding run-down and poorly managed property can often be straightforward. However, making cost-effective changes and eventually selling at a profit is one of the most challenging, albeit effective property strategies for astute managers. These opportunistic purchases are often found where other investors aren’t looking, or where risk and market knowledge are mismatched.
For instance, an investor may not be attracted to a building with tenant vacancy issues as a result of older-style accommodation. In order to attract new tenants, the building owner could look to invest in an upgrade strategy of including collaborative spaces, a retail reconfiguration or introducing other modern amenities for tenant comfort.
It’s finding the right asset, in the right location, with a deep tenant pool that makes this strategy viable.
The redevelopment of Northpoint Tower, situated in the heart of North Sydney, demonstrates Cromwell and its partners realising the value-add opportunities of an older office and retail building.
The lower level of the revitalised retail precinct focuses on convenience, and includes Woolworths and BWS, as well as Westpac and a suite of specialty retailers such as Joe & The Juice, Terry White Chemmart, OPSM and Avis. The upper level is dedicated to dining and leisure, and is inclusive of a rooftop bar, which is set to open in early-2019, sitting atop a four-storey glass structure named the ‘Shard’.
An eight-storey, 187-room Vibe Hotel was also constructed, complete with conference facilities, as well as a rooftop pool and gym. The $130 million integrated redevelopment was designed to meet the retail, dining and leisure needs of the ever-growing professional population in North Sydney, and to transform the area into a seven-day destination.
This value-add strategy was also made possible due to there being additional development capacity onsite, which Cromwell identified as part of its original purchase strategy.
2. Value-add opportunities
A property’s value can be enhanced by adding facilities or making structural improvements. Compared with cosmetic alterations, structural changes, such as a new end-of-trip facility or a complete façade replacement, will require more capital and can be disruptive to existing tenants, but may attract new businesses to the premises.
3. Improving tenant relationships
Value can be built through managing tenant relationships, as well as negotiating favourable lease terms that meet the desired outcomes of both the tenant and landlord.
For example, an unhappy tenant in an existing building can be seen as a barrier to invest in that property. However, this risk can often be mitigated by understanding what the tenant wants. It is hoped this will lead to longer lease terms being struck, as well as higher occupancy rates across the building, thereby leading to a greater market value of the property.
Each year, Cromwell distributes a survey to tenants in order to consistently improve relationships with occupants. The survey includes questions surrounding specific areas related to each building – everything from air conditioning to the building management team.
Survey results are collated and distributed to each building management team to ensure feedback is taken on board, addressed and, if relevant, included in the corporate responsibility building plan for the year ahead.
Changing the use of a property, by attracting new tenants or rezoning, can boost its rent and value. For example, securing a retail or restaurant tenant for what was once a warehouse space can be an imaginative re-use of an asset.
Tuggeranong Office Park Redevelopment
When the Department of Social Services moved into their newly-constructed headquarters at Soward Way, Canberra in late-2017, it left their existing headquarters, Tuggeranong Office Park, vacant.
Tuggeranong Office Park is a campus-style office complex comprising five freestanding buildings on an eight-hectare parcel of land. Cromwell identified that, given the size of the land and its proximity to the Tuggeranong Town Centre, the site had potential for repositioning into a retirement living opportunity.
As such, through a partnership with LDK Healthcare Pty Ltd (and as described in our previous edition of Insight), the site is being redeveloped into Australia’s most advanced seniors’ residential community. The project, currently expected to open mid-2019 with over 380 purpose-built apartments, will eventually provide private, secure living in a vibrant village atmosphere to over 450 seniors.
Ask the experts
It takes a team of experts and years of experience to uncover great commercial property deal opportunities and build a compelling picture for investors. Every investor wants a well-performing portfolio, but knowing what to look for is just the start of the investment journey.