Blog | Asset Management
Maximise the potential of your commercial investment with informed decisions
Purchasing commercial property in the UK involves numerous elements, and selecting an experienced investment advisor to provide honest advice grounded in market knowledge and expert insight.
An asset manager represents the client during the property's hold period, continually striving to retain and enhance value and maximize returns. This includes preparing and implementing business plans for each property with a hands on approach.
Asset Managers identify issues that impact value and ensure clients are aware of them. Below, we outline the steps to consider before delving into the details. After completing the first step, the remaining tasks can be performed concurrently but should be finished before purchasing.
1
Understand Your Investment Goals
Purpose of Purchase: Determine whether your primary objective is rental income, wealth preservation, or capital appreciation.
Risk Tolerance: Assess your risk tolerance and investment horizon. This is crucial, as it will influence the choice of location, sector, and asset type.
Expert Guidance: The investment advisor will provide expert knowledge to help identify the assets that best suit your requirements.
Market Review: Evaluate available properties based on your investment goals, considering multiple locations or sectors if necessary.
Asset Review: Conduct a thorough review of potential assets to ensure alignment with your investment strategy.
2
Financial Planning and Analysis
Budget: Establish a comprehensive budget, including the purchase price, professional fees, capital expenditure, and contingency funds.
Financial Model: Develop cashflows and appraisals of future performance. The investment advisor will offer professional advice on lease terms, rental values, rent reviews, and lease renewals to inform the model.
Investment Metrics: Provide metrics that align with the client’s investment goals, such as IRR, Return on Investment, Profit on Cost, and Equity Multiple.
Financing Options: Explore various financing options to support the purchase. Engage with an asset manager to provide advice on the business plan and implementation post purchase.
3
Market Research
Location Analysis: Evaluate the location by considering factors such as economic growth, infrastructure development, and local demographics.
Market Trends: Examine market trends, including vacancy rates, rental yields, and property value trends.
Performance Analysis: Conduct a detailed analysis of the past performance of similar assets or locations.
Data Review: Review the data in accordance with the assumptions established in the financial analysis.
4
Legal and Regulatory Considerations
Legal Representation: Engage a UK solicitor to handle the acquisition process and establish the appropriate ownership structure. Options may include personal ownership, on-shore or off-shore Special Purpose Vehicles (SPVs).
Planning: Review planning regulations to confirm the property's suitability for intended use and any potential future uses that could enhance its value.
Building Regulations and Environmental Certificates: Ensure compliance with Minimum Energy Efficiency Standards (MEES) through valid Energy Performance Certificates (EPCs).
Environmental Assessment: Investigate environmental regulations and assess any potential liabilities associated with the property.
5
Due Diligence Process
Property Inspection: Undertake a comprehensive inspection to identify any structural issues, necessary repairs, or environmental concerns that may affect the property's value or usability.
Title Search: Conduct a thorough title search to verify that the property has a clear and marketable title, free from any encumbrances or legal disputes that could jeopardize the transaction or future ownership rights.
Building Fabric and mechanical & Electrical: An asset manager should be engaged to review the information provided on the asset. Physical building reports, service charge accounts and PPM (Planned Preventative Maintenance) reports can reveal a lot of interesting information about the building that might not be obvious from inspections and surveys.
6
Engaging with Selling Agents
Interaction with Selling Agents: After selecting a property, utilise your investment advisor to inspect the property and express interest to the vendor’s agent.
Buying Strategy: A purchasing strategy will be tailored based on prevailing market conditions and competition for the asset.
Sales Process Timeline: Typically, vendors aim to conclude the sales process within a 4-week marketing period before soliciting offers for the property.
Preparation Essentials: Essential preparations include engaging your solicitor, preparing proof of funds, and establishing the purchasing entity for the asset.
7
Negotiation and Purchase Process
Offer and Negotiation: Initiate an offer aligned with your purchasing strategy—starting lower to negotiate upward or presenting a higher offer to outbid competitors.
Agent Liaison: Your investment advisor will communicate with the vendor's agent, providing updates and positioning during the bidding process.
Bidding Rounds: Expect potentially 2-3 rounds of bidding for the vendor to select the successful buyer.
Heads of Terms: Upon acceptance, the vendor's agent will draft Heads of Terms (HoTs) detailing crucial aspects such as price, purchaser details, payment terms, purchase conditions, and requirements to finalize the deal.
Legal Engagement: Once HoTs are agreed upon, instruct your solicitors. HoTs outline the process, initiating comprehensive legal and physical due diligence on the property.
8
Legal Process and Completion
Legal Due Diligence: Conduct thorough legal due diligence on the property, including title searches, lease reviews, and compliance with regulations.
Contract Negotiation: Engage in negotiations over the sales contract, ensuring all terms are favourable and legally sound. The investment advisor will assist with liaising between solicitors and client.
Completion: Finalise the transaction by signing the sales contract and transferring funds as per the agreed-upon terms.
Post-Completion: Handle post-completion matters such as registration of ownership changes, settling outstanding taxes or fees, and ensuring all legal obligations are met.
9
Post-Purchase Management
Asset Manager: To implement the business plan for the property, an asset manager should be engaged to provide strategic advice which helps to retain and create value through active management of the building.
Property Manager: There will be a property manager incumbent with the property who collects the rents and manages the running of the building via the service charge.
Maintenance and Upgrades: Plan for regular maintenance and potential upgrades to keep the property in good condition and attract tenants.
Tenant Management: Establish clear lease agreements, service charge budgets and maintain good relationships with tenants.
Conclusion
Purchasing commercial property requires a comprehensive approach that includes thorough research, financial planning, legal due diligence, and professional assistance. By following these steps, you can make informed decisions and maximize the potential of your commercial real estate investment.