1 00:00:04,050 --> 00:00:06,600 Sean Aylmer: Welcome to the Fear and Greed daily interview. I'm Sean 2 00:00:06,690 --> 00:00:10,500 Sean Aylmer: Aylmer. Today we're talking about commercial property. We've mentioned the 3 00:00:10,500 --> 00:00:12,510 Sean Aylmer: sector plenty of times on fear and greed, and a 4 00:00:12,510 --> 00:00:15,450 Sean Aylmer: few weeks back we've talked about the surge in interest 5 00:00:15,450 --> 00:00:20,250 Sean Aylmer: from retail investors looking for alternatives to residential property. Now 6 00:00:20,250 --> 00:00:22,860 Sean Aylmer: remember, this is general information only and you should seek 7 00:00:22,860 --> 00:00:27,090 Sean Aylmer: professional advice before making investment decisions. Burgess Rawson is the 8 00:00:27,090 --> 00:00:31,170 Sean Aylmer: largest privately owned commercial real estate agency in Australia. Every 9 00:00:31,170 --> 00:00:33,540 Sean Aylmer: six weeks will say they hold a portfolio auction where 10 00:00:33,540 --> 00:00:37,080 Sean Aylmer: they sell everything from fast food restaurants and service stations 11 00:00:37,409 --> 00:00:40,979 Sean Aylmer: to car dealerships and childcare centers. Ingrid Filmer is the 12 00:00:40,979 --> 00:00:44,130 Sean Aylmer: CEO of Burgess Rawson. Ingrid, welcome to Fear and Greed. 13 00:00:44,790 --> 00:00:46,020 Ingrid Filmer: Thanks very much for having me. 14 00:00:46,620 --> 00:00:49,830 Sean Aylmer: So what sort of commercial property are we talking about 15 00:00:49,830 --> 00:00:52,379 Sean Aylmer: here? I gave you a few examples. Food, restaurants, service 16 00:00:52,380 --> 00:00:55,500 Sean Aylmer: stations and that. We're not talking about big office blocks 17 00:00:55,500 --> 00:00:55,770 Sean Aylmer: here, are we? 18 00:00:55,770 --> 00:01:02,520 Ingrid Filmer: Yeah, so we sell in 10 key categories and they start 19 00:01:02,520 --> 00:01:05,699 Ingrid Filmer: from... Obviously we sell more childcare and fuel than any 20 00:01:05,700 --> 00:01:10,319 Ingrid Filmer: other agent, but we focus in on least investments, so 21 00:01:10,319 --> 00:01:12,300 Ingrid Filmer: we do a lot of medical and our medical and 22 00:01:12,330 --> 00:01:16,530 Ingrid Filmer: social infrastructure. So that includes things like vets and dentists, 23 00:01:16,980 --> 00:01:21,180 Ingrid Filmer: and we generally sell anywhere from as low as 350,000 24 00:01:21,180 --> 00:01:25,020 Ingrid Filmer: up to 100 million. In our auction, we auction between 25 00:01:25,440 --> 00:01:30,630 Ingrid Filmer: the 350 mark and our largest auction was 22.5 million 26 00:01:30,810 --> 00:01:31,560 Ingrid Filmer: under the hammer. 27 00:01:32,430 --> 00:01:37,080 Sean Aylmer: Wow, okay. So what's that market like at the moment? 28 00:01:37,920 --> 00:01:40,709 Ingrid Filmer: Well, it's actually been really interesting. What we see is 29 00:01:40,709 --> 00:01:44,910 Ingrid Filmer: that with greater volatility, people turn to bricks and mortar. 30 00:01:45,360 --> 00:01:48,630 Ingrid Filmer: And so whilst we have seen a shift in yields, 31 00:01:48,960 --> 00:01:51,570 Ingrid Filmer: it has been nowhere near to the same extent as 32 00:01:51,570 --> 00:01:54,450 Ingrid Filmer: the interest rate rises. And I'll give you an example. 33 00:01:54,510 --> 00:01:58,500 Ingrid Filmer: We've seen fast food yields actually stay stagnant over all 34 00:01:58,500 --> 00:02:02,430 Ingrid Filmer: of the interest rate rises. So they're still sitting at around low 35 00:02:02,430 --> 00:02:07,050 Ingrid Filmer: 4% yields despite the rises. We are seeing a lot 36 00:02:07,050 --> 00:02:10,530 Ingrid Filmer: of interest from residential investors coming out of residential, and 37 00:02:10,980 --> 00:02:13,829 Ingrid Filmer: the stats are showing that we had the largest exodus 38 00:02:14,160 --> 00:02:18,030 Ingrid Filmer: of residential investors and the lowest level of investors looking 39 00:02:18,030 --> 00:02:21,930 Ingrid Filmer: to buy residential investment property. And that, in our mind, 40 00:02:21,960 --> 00:02:25,590 Ingrid Filmer: is very much driving our one to 4 million market. 41 00:02:25,919 --> 00:02:28,530 Ingrid Filmer: Within our auctions, we sell a whole range of price 42 00:02:28,530 --> 00:02:31,050 Ingrid Filmer: and a whole range of different types of leases, but 43 00:02:31,050 --> 00:02:34,739 Ingrid Filmer: we are seeing a lot of private investors very comfortable 44 00:02:34,740 --> 00:02:38,399 Ingrid Filmer: with that range where they're getting a long- term lease 45 00:02:38,730 --> 00:02:43,710 Ingrid Filmer: and where they identify with the retailer. So if they 46 00:02:43,710 --> 00:02:47,100 Ingrid Filmer: know that it's a Pet Barn or a Dental One, 47 00:02:47,340 --> 00:02:48,930 Ingrid Filmer: we're seeing a lot of confidence and a lot of 48 00:02:48,930 --> 00:02:50,160 Ingrid Filmer: activity in that market. 49 00:02:50,760 --> 00:02:54,630 Sean Aylmer: Okay. So they buy the commercial property for let's say $ 4 50 00:02:54,630 --> 00:02:57,360 Sean Aylmer: million for argument's sake. They know that there's a 10- 51 00:02:57,360 --> 00:03:00,540 Sean Aylmer: year lease to Pet Barn or some other organization like 52 00:03:00,540 --> 00:03:02,850 Sean Aylmer: that, and just the fact that it's bricks and mortar, 53 00:03:02,850 --> 00:03:04,829 Sean Aylmer: which they're used to because they've owned their own homes 54 00:03:04,830 --> 00:03:08,970 Sean Aylmer: or investment homes, they're becoming increasingly confident getting into commercial 55 00:03:08,970 --> 00:03:11,610 Sean Aylmer: property that way. Have I just summed up what you've 56 00:03:11,610 --> 00:03:12,060 Sean Aylmer: been saying? 57 00:03:12,389 --> 00:03:13,050 Ingrid Filmer: Spot on. 58 00:03:13,350 --> 00:03:16,470 Sean Aylmer: Okay. So what makes a good commercial property investment? So 59 00:03:16,470 --> 00:03:19,200 Sean Aylmer: I understand the process. What makes a good one? What 60 00:03:19,200 --> 00:03:20,070 Sean Aylmer: should I be looking for? 61 00:03:21,270 --> 00:03:25,260 Ingrid Filmer: Well, each industry is slightly different, so you need to 62 00:03:25,260 --> 00:03:29,669 Ingrid Filmer: be obviously industry specific. In general, it's definitely the quality 63 00:03:29,669 --> 00:03:32,070 Ingrid Filmer: of the lease, the quality of the tenant, and the 64 00:03:32,070 --> 00:03:35,520 Ingrid Filmer: location. So in the situation of fast food and fuel, 65 00:03:35,580 --> 00:03:39,450 Ingrid Filmer: the tenants themselves are major ASX- listed companies who do 66 00:03:39,450 --> 00:03:42,120 Ingrid Filmer: extensive research into the sites that they want to be 67 00:03:42,120 --> 00:03:44,850 Ingrid Filmer: located in, and that gives buyers a lot of confidence. 68 00:03:44,850 --> 00:03:48,540 Ingrid Filmer: Often they're corner sites with dual access, so location is 69 00:03:48,930 --> 00:03:51,600 Ingrid Filmer: one part of it. However, if for example we take 70 00:03:51,600 --> 00:03:56,190 Ingrid Filmer: fuel, the differential between metro fuel and regional fuel is 71 00:03:56,220 --> 00:04:00,480 Ingrid Filmer: some 50 basis points because people are actually looking for 72 00:04:00,480 --> 00:04:04,110 Ingrid Filmer: the tenant and the lease covenant. So they're looking for 73 00:04:04,110 --> 00:04:07,620 Ingrid Filmer: quality leases in so far as their net, so the 74 00:04:07,620 --> 00:04:11,610 Ingrid Filmer: tenant pays all the outgoings, especially where a tenant is ASX- 75 00:04:11,610 --> 00:04:15,270 Ingrid Filmer: listed, that definitely drives a premium. And so I suppose 76 00:04:15,300 --> 00:04:19,260 Ingrid Filmer: it's giving security. The other thing we see with bricks 77 00:04:19,260 --> 00:04:22,740 Ingrid Filmer: and mortar is obviously if you have shares, every day 78 00:04:22,740 --> 00:04:24,990 Ingrid Filmer: you can see what your shares are worth, whereas with 79 00:04:24,990 --> 00:04:28,109 Ingrid Filmer: property, you don't have a realization of value until you 80 00:04:28,110 --> 00:04:30,900 Ingrid Filmer: come to sell it. And generally, we see a much 81 00:04:30,900 --> 00:04:35,040 Ingrid Filmer: longer ownership arc with commercial property. So most people at 82 00:04:35,040 --> 00:04:38,099 Ingrid Filmer: our auctions are buying the property for anywhere from a 83 00:04:38,160 --> 00:04:40,080 Ingrid Filmer: three to 10- year horizon. 84 00:04:40,529 --> 00:04:42,419 Sean Aylmer: Stay with me, Ingrid. We'll be back in a minute. 85 00:04:48,779 --> 00:04:52,260 Sean Aylmer: My guest today is Ingrid Filmer, Chief Executive Officer of 86 00:04:52,260 --> 00:04:56,039 Sean Aylmer: Burgess Rawson. So what's happened with rising interest rates over 87 00:04:56,040 --> 00:04:58,080 Sean Aylmer: the last 12 months or so? What have you seen 88 00:04:58,080 --> 00:05:01,650 Sean Aylmer: in the market? You just mentioned yields on some fast 89 00:05:01,650 --> 00:05:05,160 Sean Aylmer: food outlets, so that's yields for the investor, have remained 90 00:05:05,400 --> 00:05:09,089 Sean Aylmer: at 4% or thereabouts, notwithstanding that there are higher interest 91 00:05:09,089 --> 00:05:13,020 Sean Aylmer: rate payments. Generally though, what has happened as a result 92 00:05:13,020 --> 00:05:14,250 Sean Aylmer: of higher interest rates? 93 00:05:14,640 --> 00:05:17,880 Ingrid Filmer: Well, generally we've seen a very, very small shift in 94 00:05:17,880 --> 00:05:21,540 Ingrid Filmer: yields. So from our December auction where we did about $ 95 00:05:21,540 --> 00:05:26,190 Ingrid Filmer: 77 million worth of stock across 38 properties to our 96 00:05:26,190 --> 00:05:29,700 Ingrid Filmer: March auction where we did 91 million, our yield in 97 00:05:29,700 --> 00:05:33,420 Ingrid Filmer: December is 5. 33, but our yield in March was 5. 98 00:05:33,420 --> 00:05:38,159 Ingrid Filmer: 57. So there's been very, very small shifts in average 99 00:05:38,220 --> 00:05:41,339 Ingrid Filmer: yields. And I think that talks to that investors don't 100 00:05:41,339 --> 00:05:46,440 Ingrid Filmer: necessarily see long- term excessively high interest rates, and also 101 00:05:46,440 --> 00:05:49,860 Ingrid Filmer: because they're borrowing often at a 65% or even lower 102 00:05:50,190 --> 00:05:54,659 Ingrid Filmer: LVR, and so the rental payments more than cover the 103 00:05:54,720 --> 00:05:57,390 Ingrid Filmer: interest payments. So that makes a difference as well, but 104 00:05:57,510 --> 00:06:01,260 Ingrid Filmer: generally not a great move. Now, having said that, what 105 00:06:01,260 --> 00:06:04,890 Ingrid Filmer: we focus in on is our 10 key galleries, long- term 106 00:06:04,890 --> 00:06:09,000 Ingrid Filmer: leases, lease investments generally to recognize tenants. So I don't 107 00:06:09,000 --> 00:06:12,930 Ingrid Filmer: think that this necessarily would relate to, say, a clothing 108 00:06:12,930 --> 00:06:17,849 Ingrid Filmer: shop in a high street shopping precinct. Those yields I 109 00:06:17,850 --> 00:06:20,609 Ingrid Filmer: think have definitely pushed out and that's also led to 110 00:06:20,610 --> 00:06:23,490 Ingrid Filmer: a lot of reduction in stock. But for example, with 111 00:06:23,490 --> 00:06:27,630 Ingrid Filmer: fuel, fuel supply was at the highest levels that had 112 00:06:27,630 --> 00:06:31,800 Ingrid Filmer: been in Q4 last year. It came down in this first 113 00:06:31,800 --> 00:06:36,180 Ingrid Filmer: quarter of 2023, and as a result, yields have actually returned 114 00:06:36,390 --> 00:06:39,540 Ingrid Filmer: to their three- year average. So interest rates in fact 115 00:06:39,540 --> 00:06:42,870 Ingrid Filmer: have not affected fuel and fast food and medical yields 116 00:06:43,410 --> 00:06:44,310 Ingrid Filmer: really at all. 117 00:06:44,310 --> 00:06:49,290 Sean Aylmer: You talk about fuel supply. I'm assuming you mean a 118 00:06:49,290 --> 00:06:52,110 Sean Aylmer: service station available for sale? 119 00:06:52,290 --> 00:06:52,620 Ingrid Filmer: Yes. 120 00:06:52,710 --> 00:06:56,730 Sean Aylmer: What are the more popular properties that you sell? Service stations 121 00:06:56,730 --> 00:06:57,900 Sean Aylmer: obviously being one. 122 00:06:58,980 --> 00:07:02,789 Ingrid Filmer: Yeah, service stations definitely. Childcare. So in a general auction 123 00:07:02,790 --> 00:07:07,980 Ingrid Filmer: portfolio, we would bring... This portfolio, we've got five childcares, 124 00:07:08,010 --> 00:07:12,750 Ingrid Filmer: four fuels, three to five fast foods. But then again, 125 00:07:12,750 --> 00:07:17,430 Ingrid Filmer: we also sell things like banks and Centrelinks and a 126 00:07:17,430 --> 00:07:21,000 Ingrid Filmer: whole range of different types of property. And then we 127 00:07:21,000 --> 00:07:24,030 Ingrid Filmer: also sell a lot of Bunnings, which always draw a 128 00:07:24,030 --> 00:07:26,940 Ingrid Filmer: lot of attention. So yeah, we sell a whole range 129 00:07:27,150 --> 00:07:29,461 Ingrid Filmer: of lease investments and generally recognized lease investments. 130 00:07:29,461 --> 00:07:32,910 Sean Aylmer: It's something you mentioned a few minutes ago was the 131 00:07:32,910 --> 00:07:37,860 Sean Aylmer: LVR, the loan valuation ratio being 65% or below. So 132 00:07:37,860 --> 00:07:42,690 Sean Aylmer: what that means is that people aren't taking out huge 133 00:07:42,690 --> 00:07:46,200 Sean Aylmer: loans, or at least loans that cover all of the 134 00:07:46,200 --> 00:07:48,630 Sean Aylmer: cost of the building. They've actually got a fair bit 135 00:07:48,630 --> 00:07:50,460 Sean Aylmer: of equity in it before they start. 136 00:07:51,420 --> 00:07:55,800 Ingrid Filmer: Correct. So generally, commercial loans were sitting at about 65%. 137 00:07:56,190 --> 00:07:58,410 Ingrid Filmer: That has been a change with the interest rate. So 138 00:07:58,830 --> 00:08:01,500 Ingrid Filmer: with the interest rate rises, we've seen banks have a 139 00:08:01,530 --> 00:08:05,550 Ingrid Filmer: lower appetite for LVRs, and those LVRs have contracted probably 140 00:08:05,550 --> 00:08:09,390 Ingrid Filmer: more like 55 to 60%. Now, what that's done though 141 00:08:09,390 --> 00:08:12,390 Ingrid Filmer: is not necessarily moved yields and returns on property, but 142 00:08:12,390 --> 00:08:15,990 Ingrid Filmer: it has shifted the dollar quantum that people can invest. 143 00:08:16,170 --> 00:08:19,620 Ingrid Filmer: And so your investor who is buying for 8 million 144 00:08:19,620 --> 00:08:21,630 Ingrid Filmer: might now be buying for six and a half million, 145 00:08:21,900 --> 00:08:26,040 Ingrid Filmer: but that investor is still buying at similar yields to pre- 146 00:08:26,040 --> 00:08:30,210 Ingrid Filmer: interest rate rises. So LVRs have a major play on 147 00:08:30,210 --> 00:08:32,880 Ingrid Filmer: it, but the other side to this is self- managed 148 00:08:32,880 --> 00:08:36,360 Ingrid Filmer: superannuation funds. And that's obviously been a very hot topic 149 00:08:36,360 --> 00:08:40,380 Ingrid Filmer: lately, but a lot of our investors are cash investors 150 00:08:40,710 --> 00:08:44,250 Ingrid Filmer: using self- managed super funds, so then they're not affected 151 00:08:44,250 --> 00:08:46,770 Ingrid Filmer: so much by LVR. What they're looking for is long- 152 00:08:46,770 --> 00:08:50,130 Ingrid Filmer: term, safe returns in something that they can touch, feel 153 00:08:50,130 --> 00:08:53,970 Ingrid Filmer: and see. And COVID was a huge part of that. 154 00:08:54,630 --> 00:08:59,069 Ingrid Filmer: People really return to those grassroots concepts of investment. Touch, 155 00:08:59,130 --> 00:09:04,260 Ingrid Filmer: PLC. They also, especially in Melbourne, looked for essential service 156 00:09:04,260 --> 00:09:07,170 Ingrid Filmer: investments and we sell more essential service investments than any 157 00:09:07,170 --> 00:09:11,849 Ingrid Filmer: other agent because obviously they could trade during COVID. And 158 00:09:11,850 --> 00:09:15,809 Ingrid Filmer: so essential service during COVID are now seen as pandemic- proof 159 00:09:15,960 --> 00:09:19,350 Ingrid Filmer: and often recession- proof coming into this next stage of 160 00:09:19,350 --> 00:09:19,860 Ingrid Filmer: the market. 161 00:09:21,120 --> 00:09:22,980 Sean Aylmer: So if I want to get into it. No, not 162 00:09:22,980 --> 00:09:25,559 Sean Aylmer: me. Someone else wants to get into this, obviously give 163 00:09:25,559 --> 00:09:28,859 Sean Aylmer: Burgess Rawson a ring, but just before that, the two 164 00:09:28,860 --> 00:09:30,870 Sean Aylmer: or three things that they really need to think about 165 00:09:30,870 --> 00:09:33,960 Sean Aylmer: when investing in the commercial property market. 166 00:09:34,410 --> 00:09:37,830 Ingrid Filmer: Number one is be ready. So the difference between shares 167 00:09:37,860 --> 00:09:40,949 Ingrid Filmer: is that you can always go on tomorrow, buy some 168 00:09:40,950 --> 00:09:44,309 Ingrid Filmer: Macquarie shares or buy any ASX- listed share. The difference 169 00:09:44,309 --> 00:09:47,310 Ingrid Filmer: of commercial property is there is one. So there is 170 00:09:47,490 --> 00:09:50,309 Ingrid Filmer: that one opportunity, and if you are not ready, then 171 00:09:50,309 --> 00:09:52,260 Ingrid Filmer: you could miss it and it could be the opportunity 172 00:09:52,260 --> 00:09:55,950 Ingrid Filmer: that perfectly suits your investment needs. So I would say 173 00:09:55,950 --> 00:09:58,559 Ingrid Filmer: be ready. Understand how much money you need, how much 174 00:09:58,559 --> 00:10:02,130 Ingrid Filmer: money you have, what kind of returns. I think also, 175 00:10:02,190 --> 00:10:05,550 Ingrid Filmer: read the lease. The amount of investors who don't necessarily 176 00:10:05,550 --> 00:10:09,510 Ingrid Filmer: read the lease, understand your tenants' obligations and what's required. 177 00:10:09,900 --> 00:10:11,340 Ingrid Filmer: And the other thing I think is be open to 178 00:10:11,340 --> 00:10:15,300 Ingrid Filmer: location. We sell an incredible amount of lease investments in 179 00:10:15,300 --> 00:10:19,050 Ingrid Filmer: regional areas, and these regional areas are underpinned by substantial 180 00:10:19,050 --> 00:10:25,679 Ingrid Filmer: industry, high employment levels, great low housing pricing. And that 181 00:10:25,679 --> 00:10:27,840 Ingrid Filmer: makes for a great investment and for a great return 182 00:10:27,840 --> 00:10:32,459 Ingrid Filmer: to outperform in regional areas. So I think that being open to 183 00:10:32,520 --> 00:10:34,950 Ingrid Filmer: a varying amount of locations rather than to say, " Oh, 184 00:10:34,950 --> 00:10:37,890 Ingrid Filmer: well, unless I can actually touch, see, feel in my 185 00:10:37,890 --> 00:10:42,090 Ingrid Filmer: own suburb." Investors now need to think far wider and 186 00:10:42,090 --> 00:10:45,360 Ingrid Filmer: they can also access stamp duty savings, for example, in 187 00:10:45,360 --> 00:10:49,050 Ingrid Filmer: South Australia. So a lot of our investors now are 188 00:10:49,080 --> 00:10:52,470 Ingrid Filmer: spreading around their land tax liability and also seeking out 189 00:10:52,770 --> 00:10:56,670 Ingrid Filmer: better tax policies like South Australia when they're deciding where 190 00:10:56,670 --> 00:10:57,240 Ingrid Filmer: to buy. 191 00:10:58,080 --> 00:10:59,880 Sean Aylmer: Ingrid, thank you for talking to Fear and Greed. 192 00:11:00,330 --> 00:11:01,410 Ingrid Filmer: Thank you for having me. 193 00:11:02,070 --> 00:11:05,489 Sean Aylmer: That was Ingrid Filmer, CEO of Burgess Rawson. This is 194 00:11:05,490 --> 00:11:07,740 Sean Aylmer: the Fear and Greed daily interview. Remember, this is general 195 00:11:07,740 --> 00:11:11,340 Sean Aylmer: information only and you should seek professional advice before making 196 00:11:11,340 --> 00:11:14,550 Sean Aylmer: investment decisions. Join us every morning for the full episode 197 00:11:14,550 --> 00:11:17,429 Sean Aylmer: of Fear and Greed, Australia's most popular business podcast. I'm 198 00:11:17,429 --> 00:11:19,109 Sean Aylmer: Sean Aylmer. Enjoy your day.