How Much Is That Doggie In The Window?

[Kristine..]

G'Day

Well, what can I say?

Thank you God for finally sending a tenant our way!

Yes, finally, having been empty since January, 2011 and despite numerous tyre kickers – some of whom took up months of time – we have a real, live, tenant for our shop and they have moved in today!

As each grain of sand is the beach, this one shop is indicative of the whole retail market.

For someone to have the courage, and the capital, to start up a business – whether they are new to business or setting up a second or subsequent retail outlet, takes real guts and determination at any time, but particularly in today’s economic climate

That this rent is 20% below the advertised rent, and is 20% less than the previous 2 x tenants, tells us something regarding ‘market correction’ when the chips are down.

Our intrepid commercial property managers have been just fantastic. Never shirking yet another inspection, yet another opening to allow a shop outfitter through to quote on yet another wild goose chase

With the inroads of the internet into retail shopping, but the growth of the personal services industries, it would seem that the logical tenant is one which is about personal contact. Health and beauty, clothing, food – and pets.

So as from today, How Much Is That Doggie In The Window http://www.youtube.com/watch?v=fC5Yf9rmKto will take on a special meaning for us, as the doggie, for the next three years at least, will be in our window.

Property investing is not easy. If it was, everyone would be doing it.

Commercial property investing, in particular, is not for the feint hearted. We have not ever had this shop empty before, but gather around, little children, and let me tell you: A vacant shop for 15 months wounds more than just your pride.

Cheers - and yes, raise your glasses, it is indeed, Cheers!
Kristine

 

[Rolf Latham]

yay !!

Persistence

ta
rolf

 

[buzzlightyear]

yay !!

Persistence

ta
rolf

and cashflow.....

Congrats Kristine

 

[marg4000]

Congratulations for gaining a tenant, and thank you for being so open about the time it can take to get a commercial tenant.
Wishing you many renewals!
Marg

 

[Propertunity]

Yes, finally, having been empty since January, 2011 ....we have a real, live, tenant for our shop and they have moved in today!

I don't think my cashflows could tolerate that kind of vacancy - well at least I would not want them to. One of the risks of Commercial I suppose.

Congrats Kristine!!

 

[o0o]

Congratulations and a couple of questions if I may.

1. Being a commercial property and having to reduce the rent by 20% does this mean the property is now valued at 20% less?

2. Would it have been possible to reduce your vacancy period by reducing the rent hard when it first became vacant?

Contracts again and I hope their new business is successful.

 

[Dazz]

Happy days for getting it rented.

We have not ever had this shop empty before

So, x amount of years full, 1.25 yrs empty, then 3 years full.

Over the entire span of time, from when you bought it thru to Apr 2015, what percentage will it have been vacant ??

 

[handyandy]

Congratulations Kristine.

We had a similar wait to rent out a 500sqm warehouse.

Tenant went in (finally) started all sorts of modifications as wanted to establish a tile showroom and went broke within the first 8 months post GFC insulation business (was a side line).

This guy always paid on time and we self managed.

He then found a sub tenant who he sold the warehouse full of granite and marble tiles too and then games started. I quickly saw that it was going to be PITA to keep collecting the rent personally so placed it with a REA and from 1 month in advance we are struggling to get it a the end of the month.

The original tenant is still the lease holder as he has been unable to restore the modifications he started and initially I refused to transfer the lease unless it was all restored.

Now I am absolutely not interested in transferring the lease as the original tenant has a house in his name and gave director guarantees. The sub lessee I wouldn't trust as far as I could throw him.

They still have until Jan 2013. Just very frustrating.

The rent is $4800 pm

Cheers

 

[jingo]

G'Day

Well, what can I say?

Thank you God for finally sending a tenant our way!

Yes, finally, having been empty since January, 2011 and despite numerous tyre kickers – some of whom took up months of time – we have a real, live, tenant for our shop and they have moved in today!

Congratulations Kristine. What a relief to finally have a tenant. Regards Jason

 

[Scott No Mates]

Contracts. Retail & commercial property are both a waiting game dependent on the wider economy rather than whim.

 

[Trogdor]

Congrats Kristine.

I know how you feel.

One CIP has been a dream, no vacancies since ownership (onto second tenant, but zero gap between them and no new incentives for the change over).

The other CIP; well very different story, got one tenant in, pretty quickly turned out to be the "dont trust them as far as I can throw them" camp. Funny how he thought having a lease in place was doing me a favour. The minute he was one month late with rent the minute the locks were changed. Now have a new tenant signed up and appears to be diligent and trustworthy - with three personal g'tees one of whom is quite wealthy in his own right.

It was a bit of a pain to go through this but as Dazz says when you risk adjust for the occasional long vacancy over a period of very long leases, higher yields, and tenants doing their own fitouts - even with leasing incentives you are better off.

Cashflow is lumpy but thats the "ticket to play" in the space.

Despite this learning experience still thing CIP and shares smashes Resi IPs - a true mugs game if ever I saw one.

 

[Trogdor]

Probably the other tip I'd make to CIP newbies is to, if you are borrowing any material LVR for the CIP, structure it so you get deductibility of interest in your personal name if there is a vacancy - and direct all equity towards a discretionary trust without borrowings or with more stable cashfows if you want / need to borrow in the DT.

This is what we have done - and it works a treat. We pay lots of tax so when you get periods like what Kristine has referred to the pain is halved, at that point it looks a lot like a resi investment!! And when you re-sign a new CIP tenant its all upside... hehe....

 

[Sunfish]

Missed this y'day Kristine but wanted to add my good wishes. You are one of my all time favourite posters and deserve a break.

 

[BayView]

Well done Kristine.

Hopefully it's a sign of good things to come "across the board".

 

[Peter Parker]

Well done Kristine - a great achievement in the current climate.

When you're next down here, I'll point out the shop that's been vacant/to let for 4 years and the old arcade that's just gone 80-90% vacant in the last month (the other's still 40 - 50% vacant).

Everyone needs a house - but not everyone needs a shop - dartboard selection works for houses but not for commercial IPs.

 

[Kristine..]

If You Want To Make God Laugh ....

Hey, well, what can I say?

Thank you all for your interest and kind words

Yes, Spiderman, we think we are very lucky, too.

Regarding a couple of questions raised – o0o as I mentioned, there was consistent enquiry and many inspections. Twice, leases were prepared. Each time the proposed new business owner went to ground without signing the lease

Reducing the asking rent means nothing. Running a business is not (within reason) about the rent.

If someone is interested in a commercial property the process of negotiating a commercial lease is somewhat more complicated than a residential lease and if a prospective tenant wants a property but at their price then that is a different conversation in itself.

Dazz, I am not counting ahead of today. Today, there is a tenant. Since January last year there was no tenant. The property manager has prepared the adjustment claim against the previous tenant and truthfully I am left gasping.

Seeing on paper just how much this vacancy has cost us – and yes, it is all expense paid for by ourselves – is quite distressing.

Quite frankly, it has no consequence as to before or maybe, the harsh facts and realities speak for themselves. That vacancy was very expensive and the market has corrected.

I am sure that word has got around the street and many of the other landlords will be eyeing off their current tenants with some concern.

But, there was that wonderful line in ‘Zorba, The Greek’: If you want to make God laugh, tell him your plans

And so today, the property manager rang to tell me that it looks as if the other commercial tenant has finally outgrown their premises and is preparing to move on

Well, such is life.

With the rent free period of the new lease of the big shop, plus paying the reletting fee, we won’t be seeing any rent from the new lease for a few months, and if the other shop becomes empty as well .... we may not be so ‘lucky’ and relet in ‘only’ 15 months for that one as the whole of that strip – with the exception of the Milk Bar, is no longer functioning practically as retail. The strip is gradually taking on a mini-foodie destination, which is good, birds of a feather etc and once people know that there are hamburgers and pasta and a place to eat a reasonable dinner on a plate etc etc (when we bought the shop the then fish’n’chips used to sell deep fried Mars Bars – which, unfortunately, did taste faintly of fish!) then other foodies start to think about setting up there as well

So today’s phone call has taken the shine off our smiles a bit but yet again we shall soldier on.

In the meantime I have decided to put one of my development sites up for sale. I have had the Section 32 on the table for more than a month without filling it in. Putting a property up for sale, when they have all been with us for so long, is like putting one of the children up for adoption.

Selling is never good and selling in a depressed market is very not good. But if we are to give ourselves some respite after the past five years worth of extreme effort and financial vigilance then I think it’s about time the bomb site went to a good home.

So hey, God, what do you think about that? Did that make you laugh?

We will also be selling the Family Home within the next couple of months as hopefully the new building may happen sometime within the next twelve months and we don’t want to delay building by making it wait for a sale at the last minute. But doing all the things that need doing around here in preparation for putting it on the market is a daunting task.

So deep breath, fill out the Section 32, put the bomb site on the market and hope for the best.

The 'best', perhaps, being that some professional or non-foodie business happens upon the other shop as soon as it becomes vacant and that we are spared another 15 months of stress.

Cheers
Kristine

 

[Doovalacky]

Everyone needs a house - but not everyone needs a shop - dartboard selection works for houses but not for commercial IPs.

I certainly would not be investing in my area for commercial unless I had the cash to go big. Walking around the CBD area while waiting on new tyres for my car showed just how badly the GFC and council parking meters have impacted the area. While the big shops are mostly still there a lot of the smaller ones are gone or have sale signs up.

Lot of the remaining businesses are moving out of that zone it to the shopping centers in the surrounding shires.
While its a pain in the *** losing a few grand due to a residential tenant is nothing compared to having a property sit empty that long.

Hope your other property finds a new tenant a lot faster.

 

[willister]

Is it just me or do I hear more horror/negative stories from CIP than resi? CIP is a bit of a gamble....Sure, resi returns suck - especially these days when prices are high but rental can be seriously low, but is offers somewhat more security and stability.

Anyone who has ever asked me about CIP - I tell them unless you know what you're doing, understand commercial leases inside out and you're fully aware of the cashflow, vacancy issues then they should stay well away from CIP.

 

[Aaron_C]

Vacancy risk is important not just for cashflow (duh) but annual review / refinancing risk is key and tied to that. Most banks have annual reviews for commercial loans, and having an empty property triggers a default under that loan agreement which can mean a new valuation is ordered and/or the bank requests the LVR be reduced. That can be a double whammy at a very bad time in the property cycle.

Having said that - it is the only way to get big in property. There's only so many residential properties that you can own without getting a big heartache from tenants/biased laws. Plus commercial works in the opposite way in that larger / pricier properties generate more % income whereas with residential properties lower priced properties tend to generate better % yield.