high yield property investment by adavo

Q: How long does each joint venture last?

Each joint venture project lasts between 2-3 years with a one year break clause. The contract term can range from 2 years to 5 year and is severable at the end of property sale. The typical contract term is a 3 year agreement. We listened to 100’s of investors, IFA’s and institutions, and we found that people are looking for two major things; capital security and flexible timescales. That’s why we guarantee our product and it’s also the driving factor behind the break clause on a yearly basis. If we aren't performing then you can walk away after your first year. At the end of the contract term, your capital is returned in full and you can then choose to continue or move on. The choice of terms and the break clause gives each joint venture great flexibility for private individuals, corporates and institutions.

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Q: How do you deliver good returns year on year?

You are investing directly with Adavo. There is no middle man, bank or third party so we don't have to cover all their fees and charges. Adavo ends up paying largely the same amount as it would for standard debt, but instead of paying it to the banks and their enforced supply chain of consultants, auditors and otherwise, we pay it to you. Our margins are excellent and we are now consistently reproducing the same product over and over again. Property development is a profitable business but the bottleneck is in the financing, which is where our joint ventures come to the fore.

We buy at good prices and then increase the value of the property substantially through renovations. This gives us a gross margin of 30-35%. Once all the costs are accounted for a net profit of over 15% is expected each time which gives good net cover on the 7.5% return to the JV parter per project. It is comfortably deliverable and we have spent years developing the know-how and systems to ensure its success.

We are highly experienced in buying, renovating, letting and managing buildings using this established business model. The assets we create are desirable workspaces with good yields and strong demand in both lettings and conferencing. This is a simple business that we have spent years perfecting which allows us to consistently deliver these returns year by year. It is a robust model with a clear exit strategy per project.

There is an efficiency by trading direct which we both benefit from. It's all in the detail. Banks can charge in excess of £7,500 for valuation fees while we contract the same firms directly for between £1,500-£1,750. Admin fees can be £20,000 per deal while early redemption fees of 2-3% can mean thousands of pounds in costs. Take these fees into consideration and the subsequent mortgage payment or bridging fees is broadly in line with the return we pay on our joint ventures. The difference here is that you take all the profit rather than the banks. They have been uncompetitive over the last ten years which forces innovation and produces things like our joint ventures. Simply put; we'd much rather pay the investors direct and trade then jump endless hoops for the banks.

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Q: How can you guarantee my capital?

We have spent years refining a business model that is as low risk as possible. We guarantee all invested capital because we have a full commmand of what the money is to be used for, how it will be used and the timescale it will be used in. Our tight control ensures that the appropriate checks and balances are in place which provides the foundation for offering a guarantee.

There are two important features of all property investment with Adavo. Firstly any commercial property bought via a joint venture underwrites the JV partner in full. There is no mortgage in first instance so the full equity value of each property is collateral against the funds have been used to purchase. This ensures that in any event the project creditors have direct claim to the equity. Secondly Adavo has its existing, trading business centres that act as second collateral for new projects. These buildings are open, trading and producing healthy monthly cashflow. This gives the joint venture transparency and offers you full asset backing throughout the life of the investment.

These structural features of investment with Adavo lay the foundation for a risk-managed investment process which has a significant safety margin built in from the outset. Every property we purchase comes with a RICS valuation of its current market value and an assessment of its market value after renovation works have upgraded the value of the property. We often buy at a discount from this valuation which means that as soon as the property is purchased there is a margin of safety that protects against a drop in current market prices.

Simply put, if we buy at a discount on day one then in order for us to lose money the market has to drop below that discount level to leave the investment in the red. The typical difference between the development cost and end value after renovation is substantial, usually 30-35%, which means the market has to fall by that amount to trigger the need for the guarantee to be used.

Should the guarantee ever be needed then Adavo has its own assets (which we are building year by year) with which to reinburse any shortfall from the capital value of your investment. It is a very well protected and risk managed investment process.

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Q: How do I know my money is safe?

Your capital is 100% protected at all times by the underlying property asset and Adavo's guarantee of any shortfall. We have considered every step of the process and selected the best, most secure option to build safety into the core mechanism.

The account has set criteria and covenants meaning the money can only be used for asset purchase, associated costs and renovations. This ensures the cash is spent where it should be and physically cannot move otherwise. The advanced capital is separated so that even in the event of insolvency, it cannot be used to pay the partnership’s creditors. Due to the structure, we believe this to be one of the safest models available on the market today.

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Q: Can I re-invest at the end of the term?

Yes. Subject to demand and timing, you can opt to re-invest. Preference is given to existing investors ahead of new.

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Q: How many offices have been completed successfully?

We have bought, renovated, and let over 100 offices to date through this model. We own three buildings at present totally around 100,000sqft of commercial office space, containing over 150 offices. Adavo Workspace also has a development 'landbank' of a further 100 offices to develop out within the buildings already purchased or agreed. This is an established model that works through any part of the property cycle because it is well diversified both in terms of locations, tenancy sectors and market positioning. Each deal is stand alone and does not require any mortgage lending to work so the execution of each deal is very straight forward and we are building a strong momentum towards our 30 business centre goal.

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Q: Is the refinance of the property pre-arranged?

Yes, subject to performance against standard industry benchmarks. Our secured exit strategy means that we line the end refinance up before we begin each joint venture. This allows us to deliver a first class investment experience for both parties; joint venture partner and Adavo as custodian. However, as with the guarantees, no plan is 100% certain so we have contingency plans in place should markets change and commercial lending contract.

Demand is strong at present but it helps to know what the contingency plan is if things don't go as expected. Should the refinance on any individual project fall through for any reason we will look to refinance the wider portfolio in its place or if none can be found immediately we will look to take the property to market and present it for sale as a going concern. If we can't sell the property after an agreed period we will conduct a review of the property to see if the positioning is accurate and the renovations standard high enough. If we are trying to market to larger occupiers when the local market is more suited to small office space or workshops it may simply require a change of presentation. Our properties are well presented across the board and tend to fit several markets but it is always a possibility that an increased focus on one area of the market will improve lettings.

The high likelihood is that in any circumstance the asset will be worth considerably more than the capital used due to discounted property purchase and subsequent renovation. As a fallback position it is very reassuring to know that your capital is still backed by an asset even if the project takes longer to complete and refinance than expected.

Even in times of recession demand is not, and never has been, the problem for serviced office space. The availability of flexible terms is the stumbling block for most, not the willingness to move or expand. We often benefit from larger and higher quality tenants looking to secure flexibility and, importantly, remove long term leases from their balance sheets.

There is also a ‘safety in numbers’ element to our business. It is true that if only one project was undertaken then the success of that one property would be key to achieving the return. However, as the volume increases then the effect of a particular building underperforming is controlled. Mathematically we would need the majority, and a significant majority at that, to falter in order to run into problems. At present all major workspace provider are reporting strong growth, increasing dividends and reporting healthy sales on all revenue streams which offers further comfort.

It’s a natural question that most ask, but experience tells us that a well presented property tailored to its target market will achieve its mature occupancy past 80% within a 24 month timescale of taking it to market. Add to this the returns that each asset generates in terms of yields, and we trade in a very saleable commodity. Adavo has a great product at a great price. Average workspace rents well in around 4-5 months at present; we sell exceptional workspace and so we sell them ahead of the normal market. There is a strong, repeating income from lettings and, if it is the preferred option, we also have the ability to sell projects to capitalise the equity gains.

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Q: What does the legal charge mean?

Each investor has the security of a legal charge over a designated, stand alone asset to which they are a direct claimant. Adavo then has a wider portfolio of income producing assets which support both the monthly interest and any shortfall in invested capital. Lastly, there is a personal guarantee as a third line of protection ensuring both investor and management goals are suitably aligned.

A big part of the design has been to take a considered look at the recourse available to each investor should the deal not go according to plan. We have engaged with investors and industry professionals alike to listen to their experiences and incorporate the solutions into our collateral product.

One of the most common reason property companies fail is to do with the guarantees they offer. Guarantees are made which only fit a certain point in the cycle, and when the market naturally moves on the company folds because the guarantees no longer fit the market. Guaranteed rent is the most common example of this.

When such companies collapse, the guarantees prove worthless because they were dependent of the companies being a going concern. This common problem can be designed around by ensuring that there exists a strong diversity across several varied industries. This gives the income stability which in turn gives the guarantee substance. Each project also offers a geographic spread giving income from several different areas and local markets.

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high yield property investment by adavo