The Brief

An investor seeking a secure, long-term leased government investment. Passive income, minimal management, and a covenant that does not require monitoring.

What a Government Covenant Actually Gives You

Government tenants are treated as the safest covenant available, and for the duration of the lease that is broadly correct. The rent is paid. There is no credit analysis worth conducting. Reporting obligations and procurement processes make the tenancy administratively stable in a way private covenants rarely are.

What a government lease does not provide is permanence. Departments restructure, service delivery models change, and consolidation programmes relocate agencies out of buildings they have occupied for decades — on political and budgetary timetables that have no relationship to an investor’s holding period. A government tenant will not default. It will simply not renew, sometimes with limited notice of the underlying decision.

The failure mode with these assets is the buyer who capitalises a long government lease at a tight yield and treats the exit as somebody else’s problem. When the term runs down, the asset is a purpose-configured office building in a suburban location with a shrinking WALE and a buyer pool that has priced in the same expiry.

How We Underwrote It

We treated the lease as the income case and the land as the value case, and required both to stand independently.

The asset sits on a significant landholding on a main road with future development potential. That is the part of the investment that does not expire. If the government tenant renews, the client holds secure income on a well-located site. If it does not, the client holds a substantial main road landholding with alternative use potential, and the lease simply becomes the income that funded the holding period.

We also examined the underlying use — how embedded the function is in that catchment, and what it would cost the department to relocate — because a tenancy tied to local service delivery behaves very differently from back-office accommodation that can be consolidated anywhere.

The Outcome

A fully leased government office on a significant main road landholding in southern metropolitan Adelaide, acquired at circa $10m on a circa 6% net yield, with a long-term lease in place and development potential underneath it.