Freehold vs Strata title vs Community title

What are the major differences between these types of ownerships in a commercial property?

Would the freehold have more capital appreciation (excluding other factors such as location, land size, NLA....etc)? Is strata or community title just for people with smaller budget and can't afford a freehold?

Is it worth spending a large amount of money (4 mil +) on a community titled property that has good lease uplift potential in metro location or better off looking for a freehold in a less metro location?

thanks for any opinion in advance

 

Strata, sucks if you want to ever add value to an investment (try dealing with a strata committee!!!)
Strata, is great if you are a remote and passive investor, happy for others to do all the management

Only strata i ever buy, is inner city, where its cheaper per sqm than freehold, so easier/lower entry price. Reluctantly at that.

 

Perhaps depends what you’re after? Community title is like gated estate and can include communal areas and facilities (pool, gym, parkland, etc). To some that’s their worst nightmare. To others it’s heaven.

 

It is totally dependent on the situation.

Strata shopping centres - avoid at all costs. Why - no coordinated marketing strategy/no control over tenancy mix, upgrades, centre presentation, prectincting etc.

Industrial or Commercial - cheaper entry point, tenancy mix isn't important.

Can't say that I've ever encountered community titled CIP (only strata in mixed use developments).

 

I am being presented two properties by my buyers' agent currently:

Property One
A whole ground floor of a new building. Good location, opposite to a large shopping center in a tourist metro area. 50% tenanted. The current tenants have under-rented leases. I am told the managing agent wasn't doing a very good marketing job and hence those vacancy has been there for about a year. Huge uplift potential (~1 million dollars) once fully tenanted and rent review to market rate for existing tenant. However, it's a strata / community titled property.

Property Two
A whole office building (2 storey), in good location in the metro area. Leased to good tenants (multi-tenanted). On a higher side of the street that's not affected by flood. 6.2% net yield. Uplift - dividing the office into smaller sizes and lease out to more tenants. A freehold building.

Both are off-market.

Which one would you pick?
My goal is both income-replacing rent and capital growth (so I could extract equity and use for the next deposit)

 

Hopefully others can chime in.

Personally from these options I would go Option 2. Depends on your risk profile though I guess…

 

Thanks.

Can you elaborate why you would choose Option 2?

I know in residential, I would choose a standalone house over an apartment any day. However, would the same principal / benefit of capital appreciation apply to commercial dwellings?

 

Well apply the same principles - what is the land or rights associated with it worth?

 

If it's the same principle, then I assume you would choose the freehold?

 

No the same principle is that freehold property has the big advantage of doing what you want with the land. So it's generally worth more as a % of the overall price. And will generally be a growth driver over time, because of scarcity.

 

Option 1 has got me confused.

Is it a new building & the tenants are on a sweetheart deal? Or is it a poorly managed building with tenants on holdover thus rental upside? How many tenants if it's 50% rented but you have only 1 outstanding review?

Is it strata or community titled (they are different).

 

Agree. I’m seeing red flags here. Could be a great opportunity but it reminds me of those retail levels which are sometimes below residential towers in tourist zones, the ones I am thinking of always seem half vacant…

 

It is a new building. What is a sweetheart deal? Like a below-market lease to get them moving in? If that's what a sweetheart deal, then I think it is that. The building was completed in 2021 January. There are 9 lots, 4 tenanted, 5 vacant. I think there are 2 under-offer at the moment.

I am told it's strata. By the way, can you explain to me the the difference between strata and community title?

thanks

Which Option would you choose, given the info you have from my descriptions.

 

Yes, it's one of the new residential towers in the tourist zone. Option 1 is the retail level on the ground floor.

 

What Are the Key Differences Between Strata and Community Title.

Unless you own the entire retail component, it's not worth considering as you have no control over tenancy mix or strategy.

Can be below market rent otherwise it will take the form of incentives eg rent free period, reduced rent, free fitout, fitout incentives.

 

It will be for the entire commercial floor of that building

 

At least you can split the space and reconfigure it when conditions change.