There is the ability to undertake commercial property investment without all of the waste of capital that is associated with financial intermediaries. Investors should have the opportunity to achieve a sustainable and reasonable return without the associated risks of being leveraged.
Similar to leverage, our investment strategy allows us to lower our cost of funds from year three onwards by offering 5.0% p.a. distributions.
There is a sweet spot between mortgage finance rates, bank deposit rates, and commercial property yields where all of what would be debt expenses can be returned to investors as income.
Being bank-leveraged means vulnerability to short-term finance cycle risks. Predominantly commercial property loans are for short durations (2-3 years), and 81% of interest costs are calculated on maturities less than 1 year, with 51% being less than one month. This means, as the RBNZ is increasing interest rates, these affect interest rates and values immediately.
Highly leveraged investors will be consolidating their portfolios, leading to further buying opportunities.