Lester lines up big move into syndication

The imminent retirement of Lester Group founder Richard Lester will formally install a new generation of Lester men at the helm of the business but the brothers have already set a new course for the 16-year-old property operation.

Stuart Lester heads the group’s residential operation but, with his elder brother, Adrian, and younger brother, Russell, the siblings are keen to significantly expand Lester’s commercial property syndication business and reduce its reliance on the residential sector.

Encouraged by the success of high-profile Western Australian property syndicators such as Primewest and Australasian Property Investments, the Lester Group has homed in on the fringe city office markets of Subiaco and West Perth to build its syndication business.

The group paid $8.5 million for the Cardno building on the corner of Bagot Road and Thomas Street in Subiaco in 2010.

This property was its first significant commercial syndication and the group raised $8 million through private investors to fund the purchase.

An eight-week refurbishment of the building is under way and Mr Lester said the strength of Perth’s office market would underpin the performance of the property.

Lester has a mixture of wholly owned and syndicated properties in its commercial portfolio, including office properties at 45 and 47 Stirling Highway, Nedlands, and 45 Richardson Street, West Perth.

Its growth strategy for the syndication business is targeting properties valued at between $6 million and $15 million but the group has not set any firm growth targets or expansion timelines.

“We are looking to find (commercial properties) where we can value add, that have extra capacity or development potential,” Mr Lester said.

 “We are targeting the high-growth (office) areas around the western suburbs and the northern commercial suburbs.”

Competition is fierce for attractive property assets in these precincts but the group is determined to forge its growth through considered acquisitions. “We are primarily focused on growing with the properties that become available, the right opportunities rather than having a timeline,” Mr Lester said.

Lester’s first two syndicates were small, with between six and 12 investors, including the group’s stake.

The participants were a combination of investors burnt by the recent volatility of the stock market along with high-net-worth individuals.

The group’s most recent syndication was the $5.8 million acquisition of the Tyco office-warehouse property in Rivervale.

The syndicate was oversubscribed within a week and Lester raised $2.6 million for the purchase while retaining close to a third of the units in the trust.

Lester Property Investments managing director Blair Gerrard said a number of investors in the Cardno building syndicate also subscribed to the Eyre Street investment.

He said the current rental at the property was well below market rates but despite this the investment was yielding close to 9 per cent.

“We also anticipate strong capital growth based not only on the back of higher revisionary rental but also on the purchase price and the gentrification of the locality,” Mr Gerrard said.

“The investment meets our criteria with high underlying land value, strong passing yield and the potential to add value.

The focus on building Lester’s commercial syndication business coincides with an historically difficult residential property market.

The group has significant residential land holdings in Margaret River and Australind and, like many WA land developers, it’s grappling with tough lending conditions, indecisive consumers and falling prices.

In a bid to stimulate sales at its Rapids Landing estate in Margaret River, Lester has released a series of fly-in, fly-out lifestyle stories online to promote the region’s credentials as a base for workers.

An expanded commercial syndication business will reduce the group’s reliance on the residential sector as well as giving it exposure to Perth’s hot office market.

The challenge now for the Lester brothers will be finding the right assets at the right price in a market where a lot of money is looking for a home in the perceived safe haven of property.