Commercial Property Basics - resources

[Scott No Mates]

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.

Just because a lawyer has reviewed the lease doesn't mean that the deal is commercial (as the commercials are part of the deal which was struck by the lessee/lessor, it was agreed).

Unfortunately a valuer has to see through the deal when it comes to determining market rent and value, capping the deal at x% isn't a cookie cutter solution as the sustainability of the cash flow isn't there.

 

[cu@thetop]

Just because a lawyer has reviewed the lease doesn't mean that the deal is commercial (as the commercials are part of the deal which was struck by the lessee/lessor, it was agreed).

Unfortunately a valuer has to see through the deal when it comes to determining market rent and value, capping the deal at x% isn't a cookie cutter solution as the sustainability of the cash flow isn't there.

I agree re: the lawyer. I advised the client to sue them but they didn't. Normally lawyers will throw their hands up and say " I can't comment on the commerciality of the deal" for insurance reasons- but 10 years is a long time for a tenant- I would 3 x 3 if I were renting.

You are right in that it is always about the cash flow though.

 

[Scott No Mates]

Even when the lawyer washes their hands of the commerciality of the deal, a simple (off the record) comment that a 7% pa fixed rent review will mean that your business will need to grow by at least 7% pa to keep the status quo regarding occupancy costs as a % of turnover.

I have dealt with plenty of 4 x 5 year (20 year consecutive leases) where a 5% increase applied without MRR, often shopping centre leases at cpi + 2% etc. I find it difficult to believe (but not really) that tenants are often too inadequately resourced (or know it all) that they are reluctant to engage the right consultant to negotiate on their behalf (and not a lawyer).

 

[Deltaberry]

Big shopping centres don't want to negotiate. Small shopping centres are often nimble, dodgy operators.

 

[wobblysquare]

Resources List...Paid or unpaid

Thanks to all who have contributed to this thread so far. To try and bring this thread back on track I will re-ask / re-state the original question.
Can anyone advise / suggest / reccomend quality resources for the following things. (paid or unpaid !!)

A) Basic commercial property metrics ie
i) $rent/m2 pa
ii) vacancy rates,
iii) Cap rates
iv) replacement cost / m2
v) purchase cost / m2

Scott-no-mates has suggested the larger commercial property brokers eg JLL, CBRE, Knight Frank. (paid resource)

So in relation to these, do they provide information on their own sales only? Or does anyone provide this sort of information for all commercial property transactions? How much are the various sub-scriptions? (I will start making enquiries in relation to this and post on this thread). Which of the various potential suppliers of this information would people reccommend - AND WHY.

B) Reccommendations for writing and / or negotiating commercial leases. ie good commercial property lawyer / lease negotiators..(by state?)

C) Decent commercial finance broker

D) Decent Commercial Property Managers

E) Other commercial property resources that i have not stated above.

 

[John M]

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.

Wobbly,

As suggested, CBRE, Colliers, JLL, KF release some great market reports, although it is mostly pertinent to the higher grade properties.

Attending auctions to see what yields properties in your local area are selling for would also be a handy tool, as would speaking to local agents and checking out Realcommercial.com.au

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.

Solicitors are great sometimes - just recently I leased a property on a 5x5 year lease with 3 months rent. After having his solicitor review the lease, paying his solicitor's fees and the Lessor's solicitor's fees, the tenant signed the lease. The lease reflects 2 months rent free rather than 3, so he has had to come up with another $10,000.

 

[gbang]

hey guys,

I am a commercial valuer here is Brisbane and there are just so many variables when it comes to purchasing a CIP.

Getting information and staying at the front of the market is probably the most crucial yet time consuming thing to do. You need to keep ontop of the sales etc so you know what yields each property which sold is returning and where your potential investment sits.

So many people out there, small or big players who aren't that informed buy something for more than what it is worth.......

 

[Scott No Mates]

Solicitors are great sometimes - just recently I leased a property on a 5x5 year lease with 3 months rent. After having his solicitor review the lease, paying his solicitor's fees and the Lessor's solicitor's fees, the tenant signed the lease. The lease reflects 2 months rent free rather than 3, so he has had to come up with another $10,000.

Isn't it great that CIP is unregulated unlike retail where the tenant only pays their own legals.. The lessee should have capped their liability for the lessor's costs. That alone would have paid for a tenant's advocate

 

[geoffw]

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

I stayed last week at crest's motel in Wagga- and learnt so much from him. Thanks for the excellent room, and thanks for the info.