Hidden danger?

[GreenTreeFrog]

We are looking at a property on the market for $1 million. It is returning $115k a year.

3 yearly rent reviews. Building was built in 1900.

All outgoings, including internal and external maintenance are paid for by the tenant.

There is only one tenant and they have a 10 year lease from 2003 with two 5 year right of renewals.

The tenant is a pub and restaurant type establishment. The figures are good - is this type of tenant high risk?

Are there any other hidden dangers anyone could possibly advise of?

Thanks!

 

[HotRod]

We are looking at a property on the market for $1 million. It is returning $115k a year.

3 yearly rent reviews. Building was built in 1900.

All outgoings, including internal and external maintenance are paid for by the tenant.

There is only one tenant and they have a 10 year lease from 2003 with two 5 year right of renewals.

The tenant is a pub and restaurant type establishment. The figures are good - is this type of tenant high risk?

Are there any other hidden dangers anyone could possibly advise of?

Thanks!

There's one for starters.

 

[The Y-man]

GTF,

Peter 14.7 gave some very interesting viewpoints on commercials at one of our meetings in Melb.

Something I noted was the potential litigation risk (from public liability). My understading from theat discussion - while your tenant will be the first in line, if they fold, the next target will be the landlords.

I assume then that the entity you hold the property in will need to be insulated from your other assets.

Cheers,

The Y-man

 

[Dazz]

1. Is the 115Kp.a. nett or gross. You said they pay all the outgoings, but is the 115K stated including those, or is the yield 11.5% nett ??

2. Is the Seller related in any way to the tenant - like in some twisted corporate structure. Sometimes, if they are, they pump up the rent to make it look more attractive to achieve a higher price.

3. Watch out for any early exit clauses. Do they have say a 90 day notice they can give you and just leave ??

4. What exactly is the rent review mechanism ?? CPI related, or a fixed number, or "market".....if it's market, make sure their is a ratchet clause in there so the rent cannot be reviewed downwards.

5. Maintenance is different to structural. You'll most likely be up for anything structural....and with a 1900 pub, structural means big bucks.

6. Check out the tenants cashflow status. Drive through bottle shops are doing a roaring trade with all of the drink driving issues. People drink less at pubs nowadays.

7. Any 6 month bank guarantees / guarantors with the lease / 2 or 3 months worth of bond etc...

8. What the status of the underlying dirt - contamination, value, zoning etc

9. How many parking spaces do they have on site.

10. How far away is the nearest competition ??

11. Make sure you set up a different and isolated legal holding structure.

12. Get good insurances (make tenant pay for 'em), especially if they have balconies or stairs.

 

[GreenTreeFrog]

You guys are awesome - thanks.

 

[kingchevy]

See if you can dig up any history on the pub/resteraunt I'm sure there competition would love to tell you any stories they might know. Also do you get to see the profit and loss statment of the business?

 

[sailor]

Does the pub provide accommodation?
Are the guests seasonal tourists or do they have regulars?
Do they cater for functions and/or conferences?
Do they have live entertainment?

The above questions may influence their CF.

I'd also be interested to know if it's run by family members or are the staff unrelated to the business.

I'd probably want to go and have a drink at the bar, and a meal in the restaurant, just to get a "feel" for their business...incognito ofcourse!

And the BIG question: Why are they selling?