- Introducing Robert Weaver
- Which Property Asset Classes do Property Partner Work With?
- What is Geared Property? Investing in Property with Debt
- How does Property Partner Select their Properties?
- What Due Diligence does Property Partner do when Selecting a Property?
- Do Property Shares Require Ongoing Management?
Rob Jones: In today’s question, we are going to be looking at what assets Property Partner have available and why they tend to focus on them within the property sphere. So, what are the main elements that Property Partner are focussing on at the moment?
Robert Weaver: This is, basically, a product of how we evolved. So, we started off in residential. That was the principal, driving force of the founder.
I said to him, early on, that we will do individual assets but really, we want to be offering blocks and the products that the typical buy-to-let investor can’t get their hands on. So, the block of six flats rather than just one. Or a block of ten flats.
The largest one, I think, is a block of 42 flats in Gainsborough. We’ve got freehold over the building and this is key because you don’t have the ground rent, you control the service charge because you’ve still got to maintain the block. But you decide when you are going to do the maintenance, rather than be beholden to somebody else, setting the budgets for you. And that is a key, component part of your gross, net performance, the service charge element.
Robert Weaver: I see examples of flats in the docklands where the service charge there is £40,000 a year. That’s ridiculous. You struggle to think what they are spending the money on.
Rob Jones: That’s a lot of lifts and a lot of gyms, the communal spaces.
Robert Weaver: You can get a lifetime membership for a gym for that. What about the other years?
So, we control that and that is what we aim to do but in the individuals we don’t. But we are careful about what the service charge budget is and if it is a silly one, we don’t touch it, if it has a crazy ground rent.
I’ve seen these ones where they’ve introduced doubling of ground rents every 10 years. Very quickly, that will get out of control and have an impact on value. We’re very careful about that sort of thing.
So, it has morphed into residential blocks and that’s the core offering, land with debt.
Purpose Built Student Accommodation
Robert Weaver: And then, as I sense a slight slowing down in residential growth, to more moderate levels, I thought it would be great to actually have a diversified offering, an income product. And harking back to my days at Savills with bespoke student accommodation, I’ve always kept a keen eye on it and I persuaded the management team that we should be doing this and we did.
We offered our first student block in September 2017. We were very nervous as it was a very large offering and we had the mantra, increase the size, investors don’t increase the cheque size. Well, that was completely wrong. It was a very big raise. It was fully funded in the first day and was two-times over-funded within a week.
Rob Jones: Why do you think that was? Was it because of the slightly different offering to what the platform had offered before?
Robert Weaver: Yes, it was a very complementary offering. It was a strong yield. In residential the typical net-dividends on our platform, which isn’t a yield, by the way, is around 3%, the typical, student net dividends are 6%.
I would stress that it is a dividend, which is the calculation of income, after costs and tax on your investment, which is not only the purchase price but the cost of purchasing.
People talk about yield which is very different. You get a much higher number on yield.
Rob Jones: Different comparisons, absolutely.
Robert Weaver: And I think there is a lot of connection, on a personal level. Speaking to our investors, they have all either been in these sort of halls or their kids are there and they know what a struggle it is to get accommodation.
So, a lot of parents feel comfortable with this asset class. And it is still quasi-residential, heads on pillows.
It went very well so we’ve had a lot of that, over the course of the last year and are still focussing on it.
Rob Jones: So, you started with a residential core and then moved over into purpose-built student accommodation. Are there any other asset classes that you tend to focus on?
Robert Weaver: At the beginning of this year, again, adding diversification and income, we added a Sainsbury’s convenience store. I think it’s for a 15-year lease. So, that’s 15 years index-linked income with a Sainsbury’s covenant which is really great, if you are thinking about long-term, safe money for pensions, that’s a good place for that to go.
The growth is the income. The growth is, basically, derived either from yield compression – if people take a view that they think they value the income higher so that adds to the value – or just the rental growth as a rental growth grows so does the capital value grow with it.
Rob Jones: Nice diversity, across the asset classes. Was it in a snapshot of the property cycle that we are in at the moment, that you saw those opportunities? Or was it just a general, all-encompassing, it’s good to have a blend?
The Residential Market
Robert Weaver: It’s good to have those assets. My suspicions on the headwinds for residential were a very key driver for doing student at the time, to have a second string to the bow and a very complementary asset and that’s proved to be absolutely right.
Because if you get a residential market where, back to the early 2000s, where it was going up 3% a month, the student market is going to very dull and residential is going to be key.
So, it is, actually, having the right product for the right time, where we are. Where we are at the moment in this, is it is a very slow market so, we’re looking for very hard deals where we can drive a solid bargain and take time about it.
I use the adage, there’s nothing better than being a cash purchaser in a recession. This isn’t a recession, it’s a slower market for sure and we want to make our investors cash work well.
Rob Jones: Absolutely, sounds good.