Commercial Property A-Z

This is the proactive management of the assets (buildings) MP has under its management – it is not just managing a property; it’s going the extra mile to think and act strategically on behalf of landlords and tenants to maximise the value of the buildings and the interests of their occupants. Involves lots of Property & Facility Management work and problem-solving, pro-active maintenance of the asset itself and fostering relationships with the tenants.

Capitalisation rate or cap rate is a quick way to estimate the risk and potential return on investment on a commercial property. Cap rates are measured as percentages, typically from 3-20%. This risk is measured based on the time it takes an investor to recover their initial investment. When a cap rate is low, the property has a relatively higher value and lower risk. High cap rates, conversely, indicate that the property’s price is relatively low and will potentially yield high returns—albeit with added risk. Capitalisation Rate or “Cap Rate” = Annual rent (ex GST) x 100 / Sale Price

Customer Due Diligence. The process Mackersy Property adopts to qualify its investors and complete the checks required by the Compliance Programme to onboard them.

(In reference to leases) A description of when the tenant’s lease is reviewed or increased. ‘Clicks’ is a colloquial term for movements upward, typical in commercial leases in which an annual or biennial increase is built into the lease

Means adherence to the rules set by the law, and those of the market regulators. Failure to comply risks the business being publicly outed as non-compliant with all the reputational damage that would entail. Mackersy Property is regulated as a Financial Services Provider or FSP, whereas law firms operate under exemptions for lawyers and accountants. Professionals who provide financial services are answerable to their own professional bodies and the DIA (Department of Internal Affairs) rather than the FMA.

The status of an agreement for sale and purchase which is subject to specified conditions to be satisfied to make it binding.

Owning a variety of assets that perform differently over time, but not too much of any one investment or type. A diversified portfolio would contain alternative assets – bonds, funds, real estate property options (industrial, office, retail etc), and even savings accounts.

The process by which careful consideration of every aspect of a proposed asset purchase or lease is reviewed including in-depth financial, legal, and physical investigation. Because the purchase or lease of an investment property can be complex, sale and purchase agreements and lease agreements are often conditional upon the completion of due diligence within a specified period to the satisfaction of the purchaser or prospective lessee.

The process Mackersy Property goes through raise funds from investors in return for a share or unit in an ‘offering’.

Financial Markets Authority (Mackersy Property’s regulator). Find out more about what the FMA does and its regulatory role here: https://www.fma.govt.nz/

An Accounting concept for visualising future profit/loss/expenditure/return. The precise meaning depends on the context of the forecast – it could be as simple as a bank forecasting interest rate rises or as complicated as forecasting a business’s profit over a decade.

A measure of how much an investment is funded using debt versus the equity provided by investors and expressed as a percentage or ratio. Also known as “Leverage” or “LVR – Loan to Value Ratio”. An investment is negatively geared when the cost of debt exceeds the return from the investment.

Hedging is a strategy that tries to limit risks in financial assets and offset losses. It uses financial instruments or market strategies to offset the risk of any adverse price movements. One hedge that most people use without realising it is diversification (see above).

In a broad sense, Industrial refers to a particular type of building or asset that is favoured in Mackersy Property’s portfolio. Industrial properties are often large warehousing complexes which are simple buildings easily re-let to another tenant or for a quite different use. Currently industrial properties are a darling in the commercial property world because of this flexibility, particularly logistics buildings given changing retail habits.

Describes the rise of average prices for all consumer items within the economy (including debt raised through a bank). The effect of inflation is that money loses its value as the cost of things rises. In investments, this often causes the returns to investors to diminish due to rising costs.

The rate that Banks charge on money they lend to a borrower. We’re in a rising interest rate environment at present, hence the emphasis on hedging that risk.

Internal Rate of Return. A calculation that determines how fast something is growing and is used in the finance world to compare one investment to another. It considers your initial investment, cash flow distributions, and the length of the investment in order to determine your returns over time.

An asset or item that is acquired and used with the goal of making money, for example through a capital gain and/or a passive return on the money invested. At the simplest level, Kiwisaver and residential homes are investments. A financial advisor can advise on what types of investments best suit an individual.

A person, organisation or entity that puts money into something with the goal of receiving or achieving a profit.

Landlord. A person, organisation or business who holds title to, and grants the rights to use and occupy a property under a lease agreement.

Tenant. A person, organisation or business who has the right to use or occupy a property under a lease agreement.

The ratio of a company’s loan capital (debt) to the value of its equity. Also known as "Gearing" or "LVR".

Refers to how easy it is to convert assets into cash.

Loan to Value Ratio. The amount borrowed to purchase an asset (e.g., building/property), represented as a percentage of the value of the asset. Also known as "Gearing" or "Leverage".

A clause in a lease that gives a lessee (tenant) the right, or rights, to renew an existing lease for a specified term on specified conditions.

Return on Investment. ROI is a comparative metric that shows the ratio between the profits and cost of an investment. ROI considers the annual cash flow of the property, along with the potential capital gain of the property.

In an investing context, means a group of people applying to directly invest in an offering who (if they proceed) will have a part share in the ownership of an asset. Property syndicates are a pooled property investment usually facilitated by a fund manager. Participating in a property syndicate can also be known as direct investing, because you directly purchase a stake in an asset. 

In an investing context, the act of putting together a group of willing buyers of units or shares in an investment offering and completing the process of acquisition with their financial support/equity. Property syndication means that investors are able to pool their money to buy a property that alone, they would not have the funds to purchase.

The point at which all conditional clauses within a sale and purchase or lease agreement have been satisfied or dispensed and the transaction is contractually binding on both parties.

Weighted Average Lease Expiry / Weighted Average Lease Term. A measure of the average time period that all leases in a commercial property will expire. 

The earning potential of a property. Yield is expressed as a percentage and is a measure of the returns to investors over a set period of time. ie. how much rent a property earns per year as a percentage of its purchase price. For example, if a property costs $1,000,000 and was expected to rent for $1,500 a week, the yield would be 1,500 multiplied by 52 (which equals the annual rent), then divided by the purchase price of $1,000,000. Yield = annual rent / purchase price.