Commercial property alternatives for self-managed super fund investors

A commercial property purchase through a self-managed super fund can provide a solid investment pathway, particularly for those who already have significant exposure to residential property, experts say.

Amid the Federal Government’s new ban on entering into new limited recourse borrowing arrangements (LRBA or SMSF loans) to buy a residential investment property for an SMSF, Raine & Horne executive chairman Angus Raine said commercial property was a natural next step.

“Commercial properties typically offer longer leases of five to 15 years, can be backed by personal or bank guarantees, and tenants will often contribute to property outgoings,” he told realcommercial.com.au.

“SMSFs are highly regulated. Any commercial property investment must comply with the fund’s investment strategy and the sole purpose test of providing retirement benefits to members, while borrowing through an SMSF is also subject to specific rules.”

Raine and Horne chairman Angus Raine said Budget changes would direct more investors to commercial assets.

Several characteristics make a commercial property attractive for an SMSF, according to Raine & Horne Southern Highlands commercial director Lisa O’Neill.

“Income and cash flow are particularly important, especially if a loan is involved,” she said.

“In this instance, an SMSF will need sufficient cash flow to meet loan repayments and other fund obligations, so a property generating a strong and dependable rental return can be attractive.

“A property with an established tenant, a secure lease and regular rental increases can provide greater income certainty.”

Other fundamentals to consider include location, accessibility, visibility and tenant mix.

For business owners, subject to the SMSF rules, the fund can own a qualifying commercial real property and lease it to a member’s business, provided the arrangements comply with the governing regulations for SMSFs – and are conducted on commercial, arm’s-length terms, Ms O’Neill said.

Considering a SMSF commercial property investment? Here are some listings available right now.

Historic retail history for sale

A slice of the Southern Highlands retail history is up for grabs with the iconic Whytes premises at 3/458 Argyle Street, Moss Vale, hitting the market with a price guide of $795,000 to $885,000.

Home to one of the region’s longest-standing retailers, Whytes, which has been a part of the Moss Vale community since 1895, with a well-known reputation as a Southern Highlands specialist in quality men’s clothing and school uniforms.

High street retail shops can provide a solid entry point for SMSF members looking at commercial property. Picture: realcommercial.com.au

Whytes have occupied the premises for the past eight years and recently signed a new four year lease with 4% annual rent increases, providing a secure income stream and an attractive 7.5% yield.

Sales agent Ms O’Neill said the property offered an ideal entry point for first-time commercial investors with the combination of a secure lease, annual rental growth and a tightly held main street location, which would particularly appeal to SMSFs and investors focused on long-term wealth creation.

“This is the perfect acquisition for a self-managed super fund or for investors looking to share in the prosperity of one of the Southern Highlands’ oldest and most respected retailers,” she said.

The 116sqm premises features an  open-plan layout, timber flooring, a private storage or office area and rear parking.

Rare buy in prime spot

A rare freehold commercial property in tightly held inner-north Brisbane is being advertised as an exceptional opportunity for eligible SMSF investors.

The 405sqm landholding, at 43 Denman Street, Alderley features 122sqm of commercial space which is currently being used as a consulting office.

Boutique office spaces can be suitable for investment provided they are ‘business real property’ with no living quarters, which would be banned under residential SMSF lending rules. Picture: realcommercial.com.au

Alternatively, it could be used as an office, café, health or beauty premise.

The property is for sale via an Expressions of Interest Campaign closing 23 September.

Neighbourhood shopping strip asset

Set to go under the hammer next month, 9 Duneba Avenue, West Pymble, is a boutique freehold investment within the tightly-held Upper North Shore.

Home to an established tenant¸ Arthurs Bakehouse, within a neighbourhood shopping strip, it is the first time in 18 years the premises has been listed for sale.

Freehold properties with high-footfall established tenancies can appeal to SMSF buyers. Picture: realcommercial.com.au

Features include 135sqm floor space, rear access via a lane and a commercial kitchen exhaust.

The auction is set for 15 September.

Factory warehouse investment

A Melbourne factory/warehouse suited to owner occupiers, investors, and businesses on the hunt for a well-located industrial asset has been listed for sale with a $1,750,000 to $1,850,000 price guide.

20 Temple Drive, Thomastown has a corner location and offers 720sqm of floor space, office and staff amenities, on site parking and a 1082sqm landholding.

Industrial warehouses, while generally requiring more capital, can be strong performers, with long tenancies and defensive credentials. Picture: realcommercial.com.au

The listing notes the property is eligible for SMSF limited recourse borrowing arrangements  with the industrial property offering “flexibility, convenience, and strong future potential” within an established industrial location.