Commercial Auction Tips?

J

Jandnat

Looking for any tips on bidding at auction on a commercial building?

Advertised as receivers sale. The premises is currently under a new lease for 12 months with 2 year options (lease will cover holding costs but thats about it). We would be purchasing to move our business in once our current lease ends in 20 months. Looks like it could be a good buy given our plans to occupy.

So any tips? When to bid? what to bid ie smash it straight up, or hold back?
 
Jandnat said:
Looking for any tips on bidding at auction on a commercial building?

Advertised as receivers sale. The premises is currently under a new lease for 12 months with 2 year options (lease will cover holding costs but thats about it). We would be purchasing to move our business in once our current lease ends in 20 months. Looks like it could be a good buy given our plans to occupy.

So any tips? When to bid? what to bid ie smash it straight up, or hold back?
Click to expand...

Moving in 20 months may be a problem if current tenant exercises all options.
 
The block is big enough to extend and move along side current tenant. Rent review is due in 9 months. Ideally we would discount rent and negotiate to move into the complex after extensions are made. This would give us 12 months to get built and moved over. Any problems with this? If they are not willing what's to stop us jacking up the rent?
 
Sorry what is the actual lease terms? Is it is a 1x1 with 9 months to go for the first year?

You can extend/modify the property only if the lease allows you to do so. Get a solicitor to review it carefully as the lease makes or breaks a commercial property.
 
Jandnat said:
Looking for any tips on bidding at auction on a commercial building?
Click to expand...

I cannot see any reason why you would alter your normal auction technique.

Bid like you normally would.

People assume everything is different based on the zoning of the land being different. This assumption is usually false.

** Warning **

Receivers sale combined with new Lease smells like the Vendor is the Tenant to me. I haven't seen one of those turn out nicely. Purchaser becoming Landlord is always the party to that particular type of contract that gets done over.
 
The building was purchased last July the then tenant went bust soon after, the building sat empty till Aug this year when the new tenant moved in.

What is to stop us hiking up the rent during the rent review?? Making it unattractive for them to stay on?
 
Jandnat said:
The building was purchased last July the then tenant went bust soon after, the building sat empty till Aug this year when the new tenant moved in.

What is to stop us hiking up the rent during the rent review?? The lease terms and conditions Making it unattractive for them to stay on?
Click to expand...

Read the lease very carefully. Rent reviews will most likely be to market. This isn't a "resi end of lease let's get rid of the tenant" type asset.

The lease effectively has you stitched for around seven years, with all the option terms. They favour the tenant, not you as the landlord. If your intent is to occupy, it may not suit you. The lease isn't likely to have terms that allow you to extend or create another premises for you to occupy. Perhaps you can negotiate that with the sitting tenant for rent drop.....then again perhaps not. You cannot buy just on what you might do and might be able to get away with. The lease is a legal contract b/w landlord and the occupier/tenant.

Read the lease :)
 
Jandnat said:
We would be purchasing to move our business in once our current lease ends in 20 months. Looks like it could be a good buy given our plans to occupy.
Click to expand...

...your plans and this...

Jandnat said:
1 year term with 9 months to go, 3 options, 2 years each
Click to expand...

do not match at all.


As player correctly points out, you have absolutely no control over the property for the next 6 yrs and 9 months.


If your market review clause is like most others, if you are unable to agree a rent level, it gets palmed off to an independent valuer who you both (LL and Tenant) agree to submit to as an expert. Their opinion is final and binding.


You cannot jack up the rent and force the Tenant out.


If your plan is to move in and occupy this property, then that plan had better be a real long plan...cos you could be in for a very long wait.
 
Dazz and Player are 100% on the money.

Also with the lease being only 9 months to run you will find it hard getting finance.

Does the rent review clause have a ratchet caluse in it?

If not the rent can possibly go down at review.

Are you sure it is a market rent review at renewal, not an increase by a fixed percentage or CPI?

Sorry to say it but you appear to be well out of your depth on this one.

Good luck.
 
To the best of my knowledge, in WA at least, the ratchet clauses are not valid for any residential, nor any retail Tenancies under 1,000 sqm.


Ratchet clauses are perfectly acceptable in all commercial, all industrial, and all retail where the Tenancy exceeds 1,000 sqm in area.


This one aspect guides me strongly in what to invest in, especially in lengthy Leases. For those not familiar with ratchet clauses, they are quite simple, sometimes less than 2 lines long. See an example below ;

Notwithstanding anything to the contrary contained or implied in this Lease the annual Rent to be payable from any “Market Review” Date shall not be less than 1.15 times the annual Rent payable immediately prior to that “Market Review” Date.
Click to expand...

Most ratchet clauses I've read leave out the words "1.15 times" and just flatline the rent.....but I thought.....bugger that. If ya gonna sock it to the Tenants, ya may as well go in boots and all.
 
Interesting a minimum 15% increase in the base rent is not a ratcheted market review it would be an outstanding result for the lessor if the tenant signs and agrees to it.

Without knowing details Jandnets could be an unratcheted effective market review at each option which would really kick the living daylights out of this property
 
Dazz said:
Most ratchet clauses I've read leave out the words "1.15 times" and just flatline the rent.....but I thought.....bugger that. If ya gonna sock it to the Tenants, ya may as well go in boots and all.
Click to expand...

Nice - im gonna store that nugget away for a rainy day :D
 
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