Commercial Property for income

[crc_error]

I'm looking for some cash flow to help finance lifestyle. Commercial property is great for high yield. Getting one direct is out of the question for me at present, so was looking for some funds to invest in which can give me similar exposure.

I was looking at OIF for a while now, and today it traded at 11c.

It pays a 5c dividend paid quarterly.. has 43% of its tenants woolies, and 10 year lease terms.

looks like a bargain to me.. what are your thoughts? Any other stocks to look at which own direct property?

 

[keithj]

I'm looking for some cash flow to help finance lifestyle. Commercial property is great for high yield. Getting one direct is out of the question for me at present, so was looking for some funds to invest in which can give me similar exposure.

I was looking at OIF for a while now, and today it traded at 11c.

It pays a 5c dividend paid quarterly.. has 43% of its tenants woolies, and 10 year lease terms.

looks like a bargain to me.. what are your thoughts? Any other stocks to look at which own direct property?

According to some sources, OIF is likely to be suspended from ASX soon for breaching it's debt covenants. The banks feel that their property values have or are likely to fall significantly. IIRC OIFs LVR is 58% & it's max LVR is 60%. A small fall in values will put it in breach of the covenant. One option the banks have is a 'margin call', that's an unlikely option for them to take, because they know that most LPTs are in the same position and forcing them ALL to sell assets will cause values to crash even further (50%+). The banks other option is to force them to pay down debt, so the rents go straight to them to pay down principle, instead of to unitholders as distributions.

All the LPT sector is extremely high risk ATM.... those historic high yields seem to good to be true..... the market is expecting future yields to be significantly lower.

 

[Player]

Watch this space

Interesting post from Keith.

I am also of the opinion, that LPT's and REIT's are likely to exhibit volatility for the foreseeable future.....at least until they stop being volatile . It's not an area I know a great deal about,mmerely what I read and what one can extrapolate from the current sentiment.

It is a time to research well and be as informed and educated as possible in your chosen sector so that when a trend (to the upside) is establishing itself, you are ready to pounce and make quick (informed) decisions.

Direct comm and industrial property is seeing some higher yields now due to falling prices. Cap rates (on smaller to medium type properties) are climbing, hence cheaper entry cost. Tenant security is obviously an issue with the less than blue-chip commercial IP's. I feel we will see more and more CIP's with a higher yield than cap rate.

IMHO, more opportunity will unfold here over the next 6-18 months.

Maybe a case of watch this space.........for now at least.

 

[crc_error]

I have noticed IIF has also fallen allot of late, trading 7c.

How can these stocks trading (IIF $2+ and oif listing at $1) be now trading at only a few cents?

IIF also basically isnt paying a dividend, as you have noted Keith.

 

[grossreal]

hi crc_error
couple of things for me
not sure about not having the ability to direct invest in commercial property as there is a thing called syndication which is not something that I would advertise in any form
but investing in comm at the moment is very interesting for a couple of reasons
1 interest rates are low and for me will be for some time so at 6.5% cost of funds
2. cap rates have been climbing and you can buy into shopping centers at 8 and 9% and have a couple at 11% net net net those returns are very good you can buy into whole comm building at these numbers fully tennanted
3. most of these leases are either income increase lease increase or set 4 or 5% increases
that increase is very handy.
the funds are allowing to leak out a few of there properties and they are some very handy purchases
in a normal market you would have no chance of getting them but this is not a normal market
the funds require to report by june and as such need to clear debt
and as such this is the best time to negotiate deals
and yes the funds are doing vendour finance back and assisting in funding as long as you can present a funding package.
as for buy shares in these funds and the the low ratios thats fine but for me I look at gaining control and if you gain control in a group that fine for me.
oh and keithj you frogot one other option and thats to sell off market and to do a staged settlement the debt is still on the books but has gone from bad debt to good debt and they get paid slowly

 

[crc_error]

grossreal, I have never purchased direct commercial property.. how does it work compared to resi property?

How much deposit do you need, what about IR's? do the loans have margin calls like these property funds have? where do you look to buy these properties?

 

[crc_error]

looks like buyers coming in and snapping up OIF.. up 27% which is great..

I do own these shares, but am hesitant to buy more as I will have to much exposure to them

 

[grossreal]

hi crc_error
will try to answer your question as best I can
1. there is no margin calls as its the same as resi you own the property if the value drops but if you are paying the loan thats fine
its the covernents that have caused the issue for the funds not income or returns

grossreal, I have never purchased direct commercial property thats sounds very familiar and thats why people go in as groups to learn.. how does it work compared to resi property its the same in that you are buying property there are things you need to learn like risk management but as long as you go for a big spread of tennants and those tennant are secure then for me its fine?

How much deposit do you need I have two deals running at the monet one is 6.2mil and the deposit is 50k and the other is 12.5mil and thats 150k but that come out of the loan at settlement, what about IR's we are running on 6.5% variable but trying to lock? do the loans have margin calls like these property funds have answer above? where do you look to buy these properties not telling as you would be my opposition
can tell you most things but not that one
ask any question as long as you accept no as an answer or not telling.?
comm is seen as a big bad ugly monster but its not its does have to be in duel investing to work for me so you invest in both at the monment is the best time as you can buy both resi and comm at low price and you can negotiate deals
so have fun I do

 

[crc_error]

how come there is such a low deposit required? $50k gets 6.2mil in property? that doesnt sound right?

 

[nonrecourse]

how come there is such a low deposit required? $50k gets 6.2mil in property? that doesnt sound right?

Its called equity and it is usually held in another property that may be part of the security.

 

[eggnog]

The way I read it sounds more like vendor finance or mezzanine finance or maybe even an option. But we won't know unless GR divulges the deal Pretty please GR so we could all learn


Oh, would alos like to know how you got 6.?% finance coz spoke to comm. lending guy at westpac and he mentioned he could only offer IR at 8.?%. Would be handy to secure 6.?% commercial rates as there are some great CIP in brizzy selling with yields around the 8% mark.

 

[oracle]

I have two deals running at the monet one is 6.2mil and the deposit is 50k and the other is 12.5mil and thats 150k but that come out of the loan at settlement, what about IR's we are running on 6.5% variable but trying to lock

So if the finance is at 6.5% what is the net/gross yield.

Cheers,
Oracle.

 

[grossreal]

hi all
heres a few answers
6 and 6.5% in base rate plus margin and westpac can do it for you you have to negotiate the rate and I won't put how you do that( am trying for 4.5% at the moment not sure if I can get it).
margins 11.39 on val and 10.5 on cost.
lvrs are under 65% on purchase(55% at purchase)
and yes vendor finance is used.
and I have the interest rates of the vendor finance between 5.5% and 8%
the deposit currently is 50k on 6.2mil purchase and just done one today at 125k deposit on 12.5mil purchase so now organising the 125k (down from 150k) and thats the 11.5 net net return on 12.5 mil and I have got the green light on it
option are not used on these as you have strike while the iron is hot and you don't want to get bogged down in legals on options
and also everyone trys to use options now so you have to be a bit more creative
vendor finance for me is the way to go but each deal is different.

 

[Dazz]

you have to be a bit more creative

Ease up GR while I get the bucket and mop. You've got them all salivating.

Tell us yer secret. I've got no deposit and no equity, but I wanna be megarich like you by Xmas this year.

 

[Aaron Sice]

now, now Dazz....!

 

[grossreal]

hi dazz (or thpkypfht pick the letters out as needed)
now there are a couple of things I did say.
1 you would be come my competion if I told you and I wouldn't need to point my finger to see whoi would be on my radar
2. you don't get megarich you get part of a project and you get some money together big differrence.
3. in this market of low liquidaty have a few people together gets the funder having a warm fuzzy feeeling maybe thats what you need the mop for.
not for me but in your neck of the woods there are a couple of shopping centers on the market and going thru at above 11.5% net net returns.
and one syndicate I think at the moment has taken out one of them.
for people that think comm is hard wel thats only because they don't understand them and for me they are easier then resi and in todays market alot easier to do deals.
and I did not say no equity
no deposit,limited or as low as you can go yes
but you need to show you are not a straw man as they say.
I think that a few people would like to be educated on getting into comm
and for me you don't get that from a board or from a book( you get understanding from these)
but the best education for me is getting in there with the bash hat on and doing it hands on
and no that won't get you mega rich
but will get you a very nice income and you can then reinvest in other projects.
you can't recommend or advertise any form of syndication and I am not to break rules
so this not any form of the above.
but if you asked me a question
are you into sydication.
I can put my hand on my heart and say yes
and then all I am doing is answering the question
now you can ask all the question you like
except the following
names and address of projects
people involved
amounts involved
or net worths.
and as long as you play within the guide lines thats fine.
the statement was that crc_error at the moment couldn't get into commercial
well the answer is that there is no time that you can't get into commercial as long as you have the right vehicle
hope this clarifys

 

[oracle]

hi all
heres a few answers
6 and 6.5% in base rate plus margin and westpac can do it for you you have to negotiate the rate and I won't put how you do that( am trying for 4.5% at the moment not sure if I can get it).
margins 11.39 on val and 10.5 on cost.
lvrs are under 65% on purchase(55% at purchase)
and yes vendor finance is used.
and I have the interest rates of the vendor finance between 5.5% and 8%
the deposit currently is 50k on 6.2mil purchase and just done one today at 125k deposit on 12.5mil purchase so now organising the 125k (down from 150k) and thats the 11.5 net net return on 12.5 mil and I have got the green light on it
option are not used on these as you have strike while the iron is hot and you don't want to get bogged down in legals on options
and also everyone trys to use options now so you have to be a bit more creative
vendor finance for me is the way to go but each deal is different.

Thanks grossreal for the information. It does make you think of what is available and what are the sort of things that can be done. I have to admit that no matter what the economic cycle is at for people who are good and creative they will always find a way to make money.

Cheers,
Oracle.

 

[WillG]

h
margins 11.39 on val and 10.5 on cost.
lvrs are under 65% on purchase(55% at purchase)
and yes vendor finance is used.

the deposit currently is 50k on 6.2mil purchase and just done one today at 125k deposit on 12.5mil purchase so now organising the 125k (down from 150k) and thats the 11.5 net net return on 12.5 mil and I have got the green light on it

How can LVR's be 65% and 55% if you only put 50k and 125k in the deal?

Do you have to pay mortgage insurance?

Please excuse my questions, I swim in the resi pool but are very interested in the commercial pool

 

[HiEquity]

How can LVR's be 65% and 55% if you only put 50k and 125k in the deal?

Do you have to pay mortgage insurance?

Please excuse my questions, I swim in the resi pool but are very interested in the commercial pool

The difference is vendor finance - not all that common in the resi pool but I am finding it surprisingly common in commercial / industrial. I'm still not quite sure why as to me the vendor is taking on a risk that a bank isn't prepared to but I guess that a lot of people are used to that being required to get a deal over the line.

So, as has been pointed out to me before, the balance of power in the negotiation is more with the purchaser if a vendor needs to sell and there are no "cash" buyers. Hence, they are prepared to bridge the gap with vendor finance to make the sale.

I wish I could find these 11% deals GR keeps talking about - I must be looking under the wrong rocks!

 

[Dazz]

The difference is vendor finance - not all that common in the resi pool but I am finding it surprisingly common in commercial / industrial. I'm still not quite sure why the vendor is taking on a risk that a bank isn't prepared to

Perhaps the Banks credit people aren't the all knowing gurus that everyone assumes them to be.

Perhaps some of their 'credit models' and 'bank policies' are a crock in the real world.

Risk - it's a lovely all-encompassing little word that hides all manners of opinionated sin.