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In the January 2010 Issue of Property Investor News
Auction Review
Barnett Ross's latest auction took place on the 10th December at London's Radisson SAS Portman Hotel. The auction had a success rate of 86%, selling 49 lots out of the 57 offered and raising £12,012,950.
Jonathan Ross, auctioneer for Barnett Ross, said: "We were very pleased with the result. We also had a good October sale in which we sold almost 97%. This proves that we are definitely taking on good stock that people want to buy and pricing it well. For the right stuff, there is good competition on the auction floor which helps boost the final price."
Lot 15: Located in Beauchamp Place, Knightsbridge, a ground floor shop and basement plus separate front entrance to office accommodation on three upper floors had a reserve price below £1.75m and sold prior to the auction for 'substantially above the reserve'. The property is leased to Chinacraft for a term expiring in December 2013 and for a rent of £85,000pa although the December 2008 rent review is still outstanding. If it sold for the guide price it would give the investor a yield of 4.9%.
Ross said: "This was the most popular lot. Investors don't care about the rental income - they just want to be on this street. This isn't an area that will struggle, and people take the view that capital values in a few years will increase. We attracted interest from German and Middle Eastern investors but in the end we sold prior (to auction) for an undisclosed amount to a London investor."
Lot 35: A ground floor shop with separate access to a self-contained office on the first floor sold for £238,000 against a reserve price that was below £200,000. The property is located in Preston, Lancashire, and is let to Coral Racing for £15,500pa which gives the investor a yield of 6.52%. The 15-year lease started in February 2009 and rent reviews are pencilled in for 2014 and 2019.
Ross said: "Long leases to a strong covenant like this are popular with investors."
Ground rents were also popular buys on the auction floor.
Lot 19: The ground rent for a semi-detached building in Croydon, comprising of four flats sold for £50,000. The ground rent is £652pa which gives the investor a yield of 1.3%.
Ross said: "Ground rents are always popular. This is a specialist market and they're not big capital outlays. These can be quite high management as it can be a lot of work just to get £50pa for example, as you may have to chase them to get this money. Most people in this market have a portfolio of ground rents."
Lot 32: Located in Bournemouth, a tenanted ground floor shop with separate access to a self-contained flat had a reserve price of below £150,000 and sold for £149,000. The total property receives annual rent of £12,250pa which gives the investor a yield of 8.22%.
Ross said: "Popular mixed-use properties are those where the flat and the shop are all on one lease as it is less hassle than if the shop is on a lease and then the flat is on a separate AST. Small shops and flats will always appeal to investors when they are on just one lease as they can literally just forget about them."
According to Ross, those lots with development potential are struggling to sell as previously people could assume how much the end-development would be worth as capital values would increase for both the land and properties themselves. He said: "But now they don't know what they will be worth in two years time. Also development sites generally do not produce an income so banks want massive amounts of equity put in and in some cases this is 60% and developers will also be paying high interest on their loans so there are many variables to think about. It is just too risky these days."
Ross believes that vacant stock is also difficult to sell. He said: "More tenants are vacating shops than moving in, so more vacant shops means more competition between landlords, so essentially tenants are in the driving seat. Landlords often now need to give tenants one year rent-free and they are also offering shorter leases such as five years and a break clause. It's therefore hard to get money from banks as landlords will only have two years good guaranteed rental income."
Ross concluded: "Investors have no interest in putting their money in the bank as the base rate is so low and if people put their money into property the yield is much better. Last year, sellers had to adjust to the market and lower their selling prices and if they had bought in the last five or six years they may then have been facing the prospect of selling at a lower price than they purchased at. As more and more people are putting their money into property, this has affected property prices positively."
Core data in this summary supplied by the EI Group: www.eigroup.co.uk
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