Commercial Property Basics - resources

[wobblysquare]

I used to look at the Heron Todd White newsletters occasionally, which gave a feel for some of the commercial property basics.

Can anyone advise where i can find the following type of information in relation to commercial property?.preferably FREE, or at least low cost.

1) rental rates per square metre (per annum)
2) commercial vacancy rates (%)
3) Sales Price per square metre
4) typical CAP rates
5) replacement costs per square metre

6) Would also be handy to know the expected commercial area available, for a town of 100,000 (say). If you know how much space should exist, how much is there now, and how much is in the process of being built. Would give an inkling of what may happen to vacancy rates and rents in the near future.

Of course there are also many types of commercial. Industrial, Office, retail, wharehousing?..so the questions need multiple answers. But any information would be appreciated.

So much commercial property is advertised with no sales price - OR with no tenant in place. If i am going to fix the tenancy issue i want to understand what the tenanted returns for the property would be. I expect to be well paid for solving the problem.

Any resource information appreciated.

 

[Scott No Mates]

The answer to many of these questions Wobbly lie in research.

Rental rates - asking $/m2
Incentives

Work back from your cap rate to get price.

 

[wobblysquare]

Research

The point of this thread was to identify resources that could be used to do the research....

I would like to know typical rent/m2. I would like to know vacancy rates.

At the moment my only way of determing this is by looking at what is available online and creating my own database of information. RE Agents can sometimes be helpful.

What i am hoping to glean from this thread is where / who can provide this information.

 

[Scott No Mates]

OK you want to break the code of silence to which all the players have sworn their allegiance.

The larger commercial property brokers eg JLL, CBRE, Knight Frank etc all undertake market research AND publish the information either freely available or by subscription.

Companies like BIS Shrapnel do a roaring trade with their publications.

Unfortunately for the small players the intel is generally targeted at fund managers and investment grade properties (A or B grade, regional or sub regional shopping centres etc) with scant analysis of smaller sites.

 

[wobblysquare]

Shout it to the roof tops

OK you want to break the code of silence to which all the players have sworn their allegiance.

The larger commercial property brokers eg JLL, CBRE, Knight Frank etc all undertake market research AND publish the information either freely available or by subscription.

Companies like BIS Shrapnel do a roaring trade with their publications.

Unfortunately for the small players the intel is generally targeted at fund managers and investment grade properties (A or B grade, regional or sub regional shopping centres etc) with scant analysis of smaller sites.

Thanks scotty, hoping to blow the code wide open, in this thread. I can not fathom how any one can operate in this space with out this information.

 

[HiEquity]

At the moment my only way of determing this is by looking at what is available online and creating my own database of information. RE Agents can sometimes be helpful.

Yeah, me too - life is a pain sometimes...

Occasionally they let slip some tidbits in the property section of the paper, or in those agency publications.

But mostly, it's old fashioned talking to people that does it. Although a subscription to Pricefinder / RP Data certainly helps speed things up a bit...

I guess it all helps keeps the rifraf out! We wouldn't want every Tom, Dick and Harry doing this would we?

 

[wobblysquare]

pricefinder

I have pricefinder....last time i looked though it was really only helpful for RIP

 

[HiEquity]

I have pricefinder....last time i looked though it was really only helpful for RIP

It still tells you sale prices but you need to already know the lease details through other means unless you're just looking at $/sqm rates etc.

 

[Dazz]

OK you want to break the code of silence to which all the players have sworn their allegiance.

.....have you ever been to a property seminar or a lecture, and you get that typical Aussie know-it-all investor up the back with their arms folded across their chest saying things like "yeah, well mate, if this clown up the front was any good, why isn't he out there doing deals, instead of standing here spruiking this **** to us ?"

I've known plenty of people like that.

Truth is, that's exactly what the good investors are doing. They are out there doing their stuff.

There's another old saying that rings true, "those that can, do, those that can't teach".

I've met investors 1/10th our size who reckon they are gurus.....as do hundreds of investors who flock to their seminars. It's pathetic....but then, a one eyed man is king amongst the blind.

I've also met investors 10 times our size, who are extremely reluctant to mention even the remotest of details, despite having massive knowledge and experience. They have absolutely no desire to share their property knowledge and skills with anyone but perhaps their closest family members who are groomed to take over the portfolio on behalf of the whole family.

If you're looking for a typical Margaret Lomas or Michael Yardney property author in the comm. field (vast as it is) you won't find one. Why not ?? Because the investing public simply isn't prepared to pay for the knowledge. Even a best seller right across Australia won't get you a dime compared to doing just one medium commercial deal....let alone the really good stuff.

Can anyone advise where i can find the following type of information in relation to commercial property ? Preferably FREE, or at least low cost.

It's attitudes like that quoted above, commonly displayed by all learner investors, that hinder their progress. People regularly pay lawyers $ 500 per hour to advise them on some piddly little legal issue they have.

Ask them what they are prepared to pay to secure knowledge that will set them on the path to financial freedom for life - nope, not a cracker.....oh well, your choice.

If you are waiting for someone to hand you information for free that will unlock untold millions to you....you might be waiting a while.

Pull up a comfy chair would be my recommendation.

 

[chindonly]

I think Dazz is right - no-one is going to spill all the beans on commercial without some form of compensation.

I don't own commercial yet, but manage several for work and have gone pretty hard at a few larger ones recently but just missed out.

There are some very good opportunities around if you look hard enough, and have the strength (and $) to get in the fight. Some great yields, and significant development potential.

Once you have been through a few EOI and DD processes, and understand everything that is in the data room, (or you can access consultants that can help you with the more technical stuff), then it actually becomes relatively simple.

The main reason I think people don't openly discuss the process is that by educating others, there will be more competition. Potentially it will drive prices up and therefore reduce yield.

 

[Deltaberry]

What Dazz says is so true. I've met some of the biggest players in town. Why would they teach you anything? In fact they're woried you'll kidnap/ransom them.

 

[wobblysquare]

Resources

We live in hope?.will always pay if i have to. As stated i have Pricefinder. But thought it worthwhile to ask the question.

 

[datto]

This thread is interesting. There seems to be a code of silence over CIPs. I want in, where do I start?

 

[Scott No Mates]

The main reason I think people don't openly discuss the process is that by educating others, there will be more competition. Potentially it will drive prices up and therefore reduce yield.

That is why you attend CPD courses at the API, PCA etc to network with those in the industry (commercial, industrial & retail sectors) and build on your knowledge.

 

[datto]

And that's why there are forums like SS, to spill the beans. I need the low down.

 

[HiEquity]

And that's why there are forums like SS, to spill the beans. I need the low down.

There is plenty of info if you go back through the threads in the cip forum long enough...

 

[cu@thetop]

I'll tip in my 2 cents worth.
I suppose the magic figure is "net return". Unlike the 2-3% residential return the CIP return is much higher. The actual % however will vary even in the same suburb depending on the investment. A commercial office may be returning , say, 7% per annum. A warehouse may be 7.5% and a retail 8%. These figures are what the agent may quote when selling.(ps I made these % figures up although they may apply in the Brisbane market). You need to know what is a reasonable/good return on your investment vis a vis similar properties.

But it is not a cookie cutter exercise. Look at the lease. Can you pass on the outgoings? Here in Qld you can stick the tenant with your land tax in the 1st two but not in retail. You can have the tenant pay your lawyer's fees for writing the lease in the 1st two but not retail.

So who cares what % return? Well that should be a starter because if you know the expected return and you know what % return such a property should achieve you will know what price the property should sell for and you can compare that with the asking price.

So how do I figure out the income from a property? Well you read the 33 page lease and do the sums with outgoings if applicable.

Property vacant? Find the net lettable area. Find what the square meterage rate is for neighbouring properties. $300/sq m plus outgoings is what the agent will tell you. 80m2 is the floor space. $24000 plus gst plus outgoings will be the rent per annum. It is retail so if you get a tenant in paying that and outgoings if 8% is the return the property should sell for $300k plus GST unless sold with a tenant in then maybe just $300k as a "going concern".

The secret is to buy it for $200k empty and have a tenant who will move in the day after settlement and pay rent thereafter (and maybe do the fitout).

Now if you are a developer maybe you can build and get 18% returns per annum. Of course you need to get the land at the right price and build at the right price.

But it comes back to the tenant- without which you are in a bit of trouble as you need to make rental payments to your bank which if you are lucky will have loaned you 65% of the price without the need for additional security.

There is a lot more but let me just say this. If you want a guru to hold your hand but are unwilling to sit down and read and understand a 33 page lease then commercial property may not be for you.

 

[Scott No Mates]

There is a lot more but let me just say this. If you want a guru to hold your hand but are unwilling to sit down and read and understand a 33 page lease then commercial property may not be for you.

Only page 33? (and the lease schedule, rent review clause, option clause, insurance provisions, guarantees etc....)

 

[cu@thetop]

Only page 33? (and the lease schedule, rent review clause, option clause, insurance provisions, guarantees etc....)

Yeah - there is a lot more than just understanding the lease (some are longer). Many people want wealth but don't want to work for it or do not have the discipline to sit down and understand the most crucial document. If they won't do that they won't bother to read the legislation and understand the rules.
Ultimately a lot of what applies is what you can get away with. 3 months or 6 months bond. Personal guarantees always. Insurance? Tenant pays.

Rent review- fixed or CPI but I have seen people enter a 10 year lease with7% review (and a market review on the 6th year)- and that was under lawyers advice! Sweet deal for landlord- crappy for tenant.

Always throw in a market review every 3 or 4 years- it helps forgive any sins you made in not increasing the rent enough for the other2-3 years.

 

[crest133]

Hi All.
Motels also offer a passive commercial type investment scenario. This involves owning the landlord side of the lease, land, buildings etc and being paid rent by the resident motel operator / lessee with landlord ROI around 9%, tenant pays all outgoings incl land tax, building insurance, rates, utilities, most repairs or replacements provided they're non-structural, and the landlord is paid a premium for lease extensions. Leases are typically 25 years, and the document equally long as mentioned here like 35 -45 pages as CU@thetop and Scott mentioned; defaults are few and any benefit the landlord who can re-sell a new lease. Speaking from experience, been both sides of the lease.
That's the short story, if anyone would like the long story, maybe another post.
Our own motel is in Wagga, usually under management, signature explains our recent fledgling diversification. As always, happy to assist anyone with info for any reason.
So here's the coming out.
Cheers
crest133