The Rivkin family has been investing in Commercial Property for some time and have had success, particularly in the past 5 years. We now would like to extend this Wholesale opportunity to our members to invest alongside us.
Update – March 2023
I am pleased to provide an update to investors in the Rivkin Wholesale Property Trust (RWPT) for the March 2023 quarter.
With the end of the financial year coming up, there isn’t a great deal to report to investors this quarter other than the changes in the macro environment which have been a big headwind for risk assets in 2022. 2023 has been a different story as inflation has started to roll over and the RBA has paused its rate rise cycle after ten straight months of increases. Most importantly, it is long-term rate expectations that have clearly peaked as demonstrated by the chart below. The importance of this change is supported by early signs that the residential housing market has bottomed.
Commercial and industrial property are sensitive to moves in cap rates (interest rates) and typically yield above the risk-free rate, with the margin being determined by the quality of the asset. Roughly 75% of the fund’s assets are in fully leased, beach frontage commercial property, and it is this type of asset that has continued to perform well in a difficult environment. Using the listed real estate investment trust (REIT) sector as a guide, and it is the assets that are seeing pressure on rents or on occupancy rates that are trading below net tangible asset backing (NTA) on the expectation that the value of those properties is held above their true value on respective balance sheets. Industrial property or high-quality shopping centres are trading at small discounts to NTA, whereas those names with big exposure to CBD office buildings are trading at significant discounts to NTA.
To the performance of the portfolio, and there isn’t much to report. The fund has spare cash and is looking to buy but price expectations, for the most part, have remained elevated for high-quality assets. With a full five months since the fund settled on its purchase in Bondi Beach, we are in early discussions with several tenants about extensions to their leases, with good comparable recent activity serving as a springboard to push for big increases. While the best result would be to extend the current tenants to avoid new leasing campaigns and incentives for new tenants, the previous leases are well below current market rates, and we expect a bumpy ride during these negotiations. In Randwick, we continue to seek out a short-term lease to generate some income while we await rezoning changes to be approved by the council but given the dilapidated state of the property and the desire for flexibility so that the site can be developed in the future, we remain selective on the lease we are willing to commit to.
Finally, the fund is preparing to pay its first distribution per the terms of the information memorandum (IM) by the end of the financial year. While the income in the fund won’t cover the amount of this first distribution (especially as we only started receiving rent in November after settlement), but this commitment was made to provide a consistent income. Additionally, we will engage external valuers to value the portfolio post 30 June, and we suggest reading the IM to get a good idea of what to expect. The net asset value (NAV) of the fund will include the cost of stamp duty as well, so the expectation is that the first NAV will be below the issue price, before rental increases start flowing in for next year’s NAV.
Shannon Rivkin
Update – December 2022
I am pleased to provide an update to investors in the Rivkin Wholesale Property Trust (RWPT) for the December 2022 quarter.
Risk assets continued to fluctuate wildly throughout the December quarter, with continuing central bank hawkishness offset by softening economic and inflation data. Money markets continue to price in further rate increases this year, but also point to rates heading lower by the end of this year and early next year. With CPI-linked rents on the RWPT’s Bondi assets, we sit in the comfortable position of locking in higher income levels before asset prices start to head up once/if interest rates head lower. The likelihood is that property prices remain under pressure before beginning their recovery next year. It should be noted that we haven’t seen commercial property prices follow residential property lower, but lower activity makes a direct comparison imperfect.
Looking at the RWPT’s portfolio, the near-term upside for the Bondi assets comes from the expiry of existing leases. The property manager has been approached by several tenants about extending their leases well before lease expiry, but our view remains that the next leases are going to be on substantially increased per square metre rates, and we are contently waiting. Recent leasing activity on Campbell Parade are in some cases double the rates the old leases are on, so we expect the income profile to improve significantly over the next 1-2 years. Meanwhile, the property manager has begun engaging with some of the other owners about exploring some of the early-stage approaches from several property developers. While a sale is not a primary ambition in the short term, we mentioned in the last update that the strata have received several unsolicited offers in recent months, translating to a very attractive look-through value for our lots.
The Randwick asset has seen a few developments since the last quarterly update. The exciting news is that the council’s plans to rezone – which would increase the allowable height and floor space ratios (FSR) of the properties within the zone – have progressed, with the Randwick council having submitted the proposed changes to the NSW Department of Planning and Environment late last year. With this in mind, the game plan remains to find a short-term tenant (or a long-term tenant, but with a demolition clause in the lease), and discussions have advanced with one interested party. The point of the lease would be to provide some short-term income and allow us to borrow against the property, but the longer-term strategy remains a future redevelopment once the rezoning is approved.
Feel free to reach out to Thomas Silitonga at Thomas.Silitonga@rivkin.com.au or 0478 819 851. Click here to check the Information Memorandum.
Update – September 2022
I am pleased to provide an update to investors in the Rivkin Wholesale Property Trust for the September 2022 quarter.
At a macro level, risk assets continue to experience extreme volatility as the outlook for inflation and interest rates remains murky, but commercial property has been a relative outperformer. Our theory behind this strength is that high-quality commercial property tends to experience rental growth in line with inflation throughout all cycles, suggesting that this year’s strong inflation (and likely next year’s) will translate to higher permanent income. In contrast, long-term interest rates are expected to revert to lower-than-average levels once this inflationary period is in the rear-view mirror, so arguably, the outlook for high-quality commercial property is brighter than other risk assets. I stress the ‘high-quality’ aspect of that definition, as a potential recession or slowing economy will most certainly impact the ability to lease lower-quality commercial property.
If that theory proves accurate, then our bullishness on our acquisition in Bondi Beach should pan out as demand for beachfront property continues to demonstrate resilience despite the weak macro conditions. One of the drivers of our purchase was that recent rental trends on Campbell Parade demonstrated how low the existing rents were on the properties we were buying. To put that view in perspective, two shops on 156 Campbell Parade were leased last month at a rate of $2,700 per square metre, whereas the average per square metre rent we will be receiving is roughly half that rate. With a short weighted average lease expiry (WALE), we expect a significant above-inflation increase in rents over the short and long term.
Another angle behind our purchase in Bondi Beach was the potential development upside of the building. While this is not a primary ambition in the short term, it is worth disclosing that the strata have received several unsolicited offers in recent months, translating to a very attractive look-through value for our lots. As we will settle our purchase on 1 November, we have been unable to explore these approaches, but we will look into this further in the coming months.
There is less to discuss with our Randwick property. We anticipated a long leasing campaign with the amount of work needed on the property, but we are encouraged by the early interest and remain optimistic about leasing the property on favourable terms within our original expected timeframe. There have been some positive developments regarding the potential rezoning that was rumoured when we bought the property, with the council releasing a draft Local Environmental Plan, which, if implemented, would increase the allowable height and floor space ratios (FSR) of the properties within the zone. This would be a huge win, and we will update investors as this process progresses.
Feel free to reach out to Thomas Silitonga at Thomas.Silitonga@rivkin.com.au or 0478 819 851. Click here to check the Information Memorandum.
Update – June 2022
I am pleased to provide an update to investors in the Rivkin Wholesale Property Trust for the June 2022 quarter. While risk assets continued to sell off throughout the last three months, Sydney commercial property has held up surprisingly well, although it is not unusual to see a lag as rising interest rates impact the yields that property is purchased on. With the expectation that we would see higher rates throughout 2022-23, our two key acquisitions in the first quarter offered some crucial appeal: development potential and rental upside.
We have seen good evidence of both since our purchase in Bondi Beach, with strong recent comparable leasing numbers in Bondi Beach as well as high sale prices for sites with development potential. The sale of the Noah’s Backpacker building on a worse part of Campbell Parade for $68m, for example, demonstrates the appeal of our building for potential developers.
The Randwick site has experienced strong interest since the leasing campaign despite the amount of money needed to be spent to improve the site, and we are still considering our options regarding potential development. Development remains our long-term goal, but if we can secure an attractive short-term tenant, we may pursue the opportunity. This would allow us time to work on plans for development and allow us to borrow against the property.
While both properties were bought with cash, the ability to borrow up to 50% of the property value will allow us to take advantage of what we expect will be some distressed selling as increased rates weigh on unleased properties. We expect to have around $10m in available capital to pursue our next acquisition targets and are excited to be searching in a buyer’s market.
Feel free to reach out to Thomas Silitonga at Thomas.Silitonga@rivkin.com.au or 0478 819 851. Click here to check the Information Memorandum.
Update – March 2022
I am pleased to provide an update to investors in the Rivkin Wholesale Property Trust for the March 2022 quarter. There was a dramatic shift in tone from both buyers and sellers in the commercial market as the reality of increasing interest rates started to dawn on investors. Instead of negotiating with vendors while facing fierce competition for assets at auctions, most of the properties we have explored in 2022 have been without the threat of auctions pricing us out of the assets.
In March, the Rivkin Wholesale Property Trust agreed on terms with two vendors across properties in Bondi Beach and Randwick. Contracts for the Randwick property were exchanged on 11 April and for Bondi Beach on 24 April. Both opportunities fit perfectly within the strategy of the Trust, and we are incredibly excited about the future returns we will generate out of them. I will discuss each opportunity below separately, but also wanted to remind investors that this will trigger the final capital calls for remaining commitments. The purchase in Randwick settles in roughly five weeks, while the Bondi Beach purchase will settle on 1 November. Investors should expect a capital call request for 25% of the total application within the next few days, and a capital call for the final 50% at the beginning of October.
Additionally, as the Randwick property is vacant and the search for a tenant has already begun, once a lease is secured and the Trust is able to borrow against the property, a new valuation will be needed which will trigger the first re-pricing of the Trust’s units. We will therefore close applications per the information memorandum, so if any investors wish to increase their applications, please reach out to Thomas Silitonga at Thomas.Silitonga@rivkin.com.au or 0478 819 851.
123-125 Avoca Street, Randwick, NSW, 2031 – purchased for $5m
The sourcing agents have been in negotiations with the owner of the above property since late 2021 and have enjoyed good success buying commercial property in the area with current assets held on Belmore Road, only 500 metres away. This property typifies the assets the Trust managers have been eager to buy, with the property being vacant for some time and the vendor eager to sell to alleviate the holding costs.
The property comprises two freeholds side-by-side (double fronted) with rear lane access and parking. The land size is 290m2 with a 2:1 floor space ratio, with speculation of up zoning from the council which would potentially increase the allowable floor space. Additionally, the property has a 3am nightclub licence which is very rare/valuable within the Eastern Suburbs. The game plan for this property will be to secure either a flexible short-term OR potentially long-term lease to enable the Trust to borrow against it while working on development plans which could involve amalgamating with neighbouring properties down the track.
70 Campbell Parade, Bondi Beach, NSW, 2026 – purchase for $15.7m
Like the Randwick purchase, the agent has been negotiating with the vendor for these five strata lots since 2021. These irreplaceable beachfront retail shops are situated within the heart of iconic Bondi Beach, and these properties come up for sale very rarely. All shops have an uninterrupted view of the water. Unlike Randwick, this purchase comes fully leased but with a relatively short weighted average lease expiry (WALE) of just over two years. The logic behind this purchase is that the existing leases are currently below market, with average rents of $1400-$1500 per m2 versus rents on similar properties in similar locations lingering up to $2,000 per m2.
Additionally, these 5 lots have 35% strata voting power and there is an appetite among some lot owners to add another floor to the building. While this is not the sole reason for the purchase, there is a lot of potential upside in the development of the building, either by selling in one line to a developer or doing it ourselves. The sourcing agent will explore this potential opportunity prior to settlement on 1 November.
Click here to check the Information Memorandum.
Update – December 2021
The emergence of the Omicron variant and the quiet Christmas period has kept the fund from buying its first investments. The good news is that there has been a noticeable shift in sentiment from vendors, with the outlook for the economy and interest rates clouding the short-term future for commercial property. While our preference is to negotiate with sellers directly, the strong market, despite the pandemic, meant most properties of interest were going to auction, with a surprisingly large number of bidders at the auctions the fund’s representatives have attended.
Over the last two months, the environment has changed dramatically, and we are now seeing vendors engage directly and entertain pre-auction offers. The fund’s representatives are currently negotiating with three vendors on Bondi Junction, Randwick, and Bondi Beach properties.
The Randwick and Bondi Junction properties offer rental income and development upside. In contrast, the Bondi Beach assets provide strategic value, which we feel would attract more prominent developers in the future. Our hope is that we will be able to transact on at least one of these opportunities over the next month or two, and depending on which properties are bought, a new capital call should follow shortly after.
Despite the slow start, we have remained disciplined on price and are optimistic that our patience will ultimately pay off. Expect further updates as negotiations with the vendors mentioned above progress.
Feel free to reach out to Thomas Silitonga at Thomas.Silitonga@rivkin.com.au or 0478 819 851. Click here to check the Information Memorandum.
Update – September 2021
Welcome to the first quarterly update for the Rivkin Wholesale Property Trust (RWPT). Investors can expect to receive updates shortly after the end of each quarter, although there will be additional updates when there is anything noteworthy to share. The RWPT has initially drawn on 25% of capital commitments to pay for some initial costs and provide the trust with sufficient capital to exchange on any properties should an asset be secured. In the first couple of months of operation, the sourcing agents for the RWPT have commenced negotiations on several properties (and inspected many) but without being able to complete a purchase at a price that sits within the fund’s investment criteria. The anecdotal evidence is that sellers have been inclined to delay negotiations while Sydney remains in lockdown, while we also see fewer commercial properties come to market.
Our view remains that once lockdowns end and government support cease, sadly, there will be many businesses that won’t survive, especially while government restrictions (such as capacity restraints for restaurants and cafes) continue, which we anticipate will be well into 2022. We expect to see significantly more sellers come to market once lockdowns end and the environment settles, and we hope to have at least a couple of acquisitions to report over the next quarter. The original expectation was that the fund would be fully invested within eighteen months of its establishment (with capital calls from investors on that timeline), but it’s reasonable to assume that the Sydney lockdowns (that will end up going for roughly four months) will slow that timeline accordingly. Of course, if the result is a greater number of distressed potential property acquisitions, then it will be a tolerable trade-off.
The unmistakable feeling we have had while lockdowns have been in effect, is that confidence among sellers remains high, but that is a disconnect to the reality being faced by many small businesses surviving on government support and unsure what the operating environment will look like in 2022. Our view remains that this new reality will be reflected in a different marketplace once lockdowns end.
Feel free to reach out to Thomas Silitonga at Thomas.Silitonga@rivkin.com.au or 0478 819 851. Click here to check the Information Memorandum.
Update – July 2021
We are now ready to launch the Rivkin Wholesale Property Trust. This trust is an exclusive wholesale opportunity for our clients to invest in an asset class that we feel has excellent upside given the current landscape. I want to share with you some of the reasons why we have set up this trust for our valued clients to benefit from.
- The latest lockdowns are likely to cause anxiety amongst commercial real estate investors and may lead to new rent-free periods or struggling tenants. This will likely bring many distressed properties to market, representing a great opportunity for the Rivkin Property Fund to capitalise on, as the strategy used for the properties displayed in the information memorandum is ideally suited to this environment: i.e. buying empty or end-of-lease commercial suburban real estate.
- From a macroeconomic standpoint, we anticipate a robust economic recovery in Australia, following the unprecedented fiscal and monetary stimulus and a vaccine rollout that should ensure no lockdowns from late 2021. In addition, we expect that while interest rates will rise in late 2022-2023, rates will remain depressed for many years, which will ensure property values remain strong for leased commercial property. Underpinning the value we are targeting for the fund, we expect strong rental growth within the portfolio based on the areas we will be hunting in
Please click here to check the Information Memorandum
———–
Important Notice:
Complex product warning: This article contains information about Private Equities, which are considered complex products. Complex products carry significant risk and are not suitable for all investors. We recommend seeking professional advice to ensure trading or investing in such products is appropriate for you.
Please note that this is only applicable to wholesale clients. To qualify as a wholesale investor, you need to obtain a certificate issued by a qualified accountant that verifies you qualify.
To qualify as a wholesale investor, you need to obtain a certificate issued by a qualified accountant that verifies you qualify.
- I am investing $500,000 or more into an opportunity, reference to section 708(8)(a) or (b) or 761G(7)(a) of the Corporations Act; or
- I have net assets of at least $2.5 million, or I have a gross income of $250,000 or more for each of the last 2 financial years
- I control a company or trust and meet one of the requirements listed above
- I am a “professional investor” or a “sophisticated investor” as defined in the Corporations Act
