Leasing - Mixed Bag

[Dazz]

I'm wondering if Coles indeed knows (of course they do ) that without them as a major tenant, the centre itself will likely turn into a white elephant, and hence they can drive the prices down to suit themselves.

Is that pretty much the case with your centre? If you lose Coles as a major tenant, is there a high risk of the place becoming a white elephant?

Hi Wylie,


No, that is not the case with us. Our major Tenant, (who is a local WA supermarket operator) takes up 60% of the floor space, and the rent they pay alone covers the entire mortgage plus all of the council rates and water rates. This relieves all of the financial pressures of owning the asset.


If the entire centre was completely empty except the supermarket, we'd be fine and dandy. As it is, there are another 13 shops besides the supermarket, 9 of which are in there making money and paying us rent. We have 4 smaller shops empty right now, and Coles are thinking of taking one of them (as a liquor store).....so they have not quite the leverage that you are talking about.


Once all filled, along with the 3 or 4 ATMs we own, the rent they pay combined is far greater than the supermarket, so she's a bit of a gravy train at present, and it'll be moreso when it's full. We are under no pressure whatsoever to agree with their terms, and with Coles being forced to operate under our liquor licence, we have the upper hand when it comes to negotiating terms fortunately.

 

[wylie]

Well... in that case... stick it to 'em .

 

[Rolf Latham]

Once all filled, along with the 3 or 4 ATMs we own, the rent they pay combined is far greater than the supermarket, so she's a bit of a gravy train at present, and it'll be moreso when it's full. .

then the buyers will be lining up !

ta
rolf

 

[Dazz]

Amen to that...and we'll be outta there !!

Unless we get addicted to the truckload of gold backing up every month of course....but dealing with the whinging moaning public and all of that legal duty of care **** is something I can do without. Me wanna no duty.

Plan is to take that big lump of spoondoolies and dump it on the doorstep of the big bad nasty X-coll Bank vault.

That will act as the big set of bolt-cutters to finally free ourselves of the X-coll chains that tie us down currently.

Who knows Rolf - you might even get a phone call at that stage of proceedings....

 

[Aaron Sice]

i love reading about your ventures.

must be great to serve it to CBA on a plate.

 

[Compropmanager]

Dazz have you ever thought about hiring a shopping centre manager to deal with the headaches, I am not talking about a REA I am talking more of an asset manager that only looks after that shopping centre.

I was looking into buying an 11 story office block, one attaction was that I could employ about 3 people(not that I would need that many) to do the day to day tasks i.e splitting bills, chasing arrears, tracking BOE, organising regular maintenance etc, obviously they would still ring me if there was something major i.e. new leases needing to be discussed, collasped roof etc.

But seems like your more hands on so this may not be your thing?

 

[Dazz]

Dazz have you ever thought about hiring a shopping centre manager to deal with the headaches, I am not talking about a REA I am talking more of an asset manager that only looks after that shopping centre.

But seems like your more hands on so this may not be your thing?

We advertised for this exact position....even targeted the chap who was performing all of that stuff for the Vendor previously. The pay rate was 20K more than what Westfield and Centro were offering for identical positions, and we weren't going to put them through the ringer. None were interested, even the guy before.


They started prattling on about responsibility / legislation (OH&S, Labour laws, trip hazards, "I don't do roof work, I won't do...."


Now, my father and I go out there once a week and perform maintenance of any kind. We typically get through about 7 or 8 jobs on the day. We don't charge ourselves a call out fee x 7. The list was initially 39 when we first bought it. We completed that list, then I drew up another list of about 70 minor things. That was completed last month also, and now the place pretty much runs on auto-pilot. We have employed cleaners, but they are 1/3 the cost of the useless Australian who we inherited. She was in turn half the cost of getting a big contractor cleaning firm to do it. How they can justify 6x the price is beyond me....someone is raking it in....but I won't be contributing to it.


A lot of this stuff I have found is way over the top. Our PM fees if we handed everything over would be over 700K pa. I think I'd rather have that in my pocket. It ain't difficult by any stretch.


Hands on - yeah a little bit - but I'm not a tradie....but then you don't need to be. The management and paperwork side of things is a doddle. That's the stuff that is very overstated.....especially by the guys who "manage a lot" but don't actually own anything themselves. None have impressed me so far....the least of which are the leasing agents....they truly are dithering tosspots and wouldn't know how to close a deal if they fell over it.

 

[handyandy]

Hi Dazz

Just a thought re doing the maintenance yourself.

If you are going to do this on a regular basis (read as if you will) it may be a good idea to set up a company on the side and which then 'employs' you and dad and in this way reduce/eliminate any personal liability should somebody trip on your ladder etc.

You never know when some idiot comes along and creates a real legal headache that you don't want to affect your other assets.

Cheers

 

[willair]

Hi Dazz

Just a thought re doing the maintenance yourself.

If you are going to do this on a regular basis (read as if you will) it may be a good idea to set up a company on the side and which then 'employs' you and dad and in this way reduce/eliminate any personal liability should somebody trip on your ladder etc.

Then in six months time sell the maintenance side of the business off to someone and have more time for yourself..

 

[HiEquity]

Then in six months time sell the maintenance side of the business off to someone and have more time for yourself..

After tying up the property with a lovely long term cleaning contract at reasonable rates and all sorts of liabilities and guarantees on the contractor if they don't perform exactly as specified... and hope they just see the nice steady long term cash flow for the biz and gloss over the fine print about the guarantees on performance. Wouldn't be the first time! Could sell at a reasonable multiple...

Given the quality of our property management at the moment we're tempted to do something like this - just a matter of whether we have the time to orgainse it all. The tenants are paying for the management and outgoings but that doesn't stop us getting frustrated with their lack of progress / reporting. Micro managing the manager is no fun, especially with what they get paid...

As for leasing deals, "mixed bag" is a good description for what I have been seeing out there. For every positive story for the LL there is an equal and opposite equivalent just down the road. "Treading water" could be another apt description... although yesterday I saw some evidence for a recent medical centre leasing deal that gave me some cause for optimism.

 

[Compropmanager]

Amazing I would kill for an opportunity like that although not in W.A (not that I was advertising) like you said one problem is that these guys don't own properties like these themselves. Hell I use to hop on the roofs of 3-5 story buildings almost weekly it was the only way to get a solid understanding of what the hell they (the plumbers) were talking about. Funny two weeks later I got a letter from my boss telling me to stop doing it even though I was able to take photos and get things fixed the same day.

I spoke to a family that run a shopping centre in the area they had looked at this themselves, I asked about their expectations of such a employee and what "control" this person would have i.e. locking out tenants, approving maintenance. However as they ran it as a sort of family business they didn't go through with it.

I don't quite understand why responsibility would be an issue they are your employee they have your approval to pre-defined limits and should be able to handle the smaller issues

anyway sure it's a story in itself and maybe worth another thread but it is interesting that you didn't get any bites.

well look at the bright side it keeps you busy and learning instead of sitting on the couch, not that you could handle that from the sounds your other posts you might just go out and buy something else

 

[Dazz]

I use to hop on the roofs of 3-5 story buildings almost weekly it was the only way to get a solid understanding of what the hell they (the plumbers) were talking about. Funny two weeks later I got a letter from my boss telling me to stop doing it even though I was able to take photos and get things fixed the same day.

Hmmm....your boss sounds like far too many modern people I've met lately....running **** scared of litigation and ambulance chasing lawyers.

The roof is literally the main thing. Roof protects the building from all weather. Look after the roof, and 85% of the job is done.....doesn't help when the big scared girly men say they won't go up on the roof....so what....we now discuss the minor 15% of the job that you can do ?? Don't think so.


handyandy - it simply isn't worth my time to go set up yet another business - we are simply in there with one main objective. Buy cheap...check, do it up...ongoing, lease it out completely...still to do, flog it off...yippee. There is enough dosh in doing that, that I'm not prepared to fizz about with some irrelevant little maintenance contract. Yes, there is something to be made out of it, but I'd rather concentrate on the steak and forget the peas.


If nothing else, Wednesday's have become a fantastic bonding day for Dad and I. Keeps his mind and body active, he gets to tinker and dabble in all the stuff that the little unruly motherless mongrels regularly twist and snap and break and vandalise.....and I get to mix with some pretty decent honest business folk just trying to keep their head above water with this Labor Govt doing everything in their power to hold them back.


Weird stuff you get to know from owning a shopping centre include ;

1. One of those big 650m toilet rolls lasts 6 days in the Tenants only toilet, but lasts less than a day in the female public toilet.
2. A/C operation is the focus in summer
3. Leaking rooves are the focus in winter
4. Clueless dopey people can trip over the smallest things
5. "Fire exits only" are the preferred sneaky entry / exit route for the locals
6. Most break-ins occur from the roof
7. It's against the law to put up razor wire on the roof or sit up there with a shotgun waiting for the little dears
8. Small kids can slide and crawl thru some amazingly small gaps
9. Optometrists and pharmacies are able to pay the highest rate - yes - they are all playing on your fear of health and sticking you with massive mark ups
10. Sods law says that good honest folk take about 5 minutes to complain about graffiti and mess that vandals make, but no-one ever holds the vandals responsible
11. Buskers think by standing right outside the front door they aren't on your property
12. Most people you meet don't believe that individuals can own shopping centres - they either think some huge corporations owns it or they never thought about it being owned by anyone, sort of some "community asset".
13. Litter is mainly coke cans, cigarette packs, cigarette butts and chocolate wrappers. The diet is woeful.
14. There is buku money in selling alcohol
15. Carparking is one of the biggest issues
16. Letterboxes must be a certain height, otherwise the fat posties won't deliver nowadays (contravenes their self imposed OH&S laws)
17. Letterboxes need to be within direct view of and near the front door (so the brats don't nick their bike or burn themselves on the muffler)
18. Roof collects over 4 tonne of water for every mm of rain

 

[Compropmanager]

Hmmm....your boss sounds like far too many modern people I've met lately....running **** scared of litigation and ambulance chasing lawyers.

yeah you'll be amazed at the amount of reports we now have to generate thanks to some stupid PI insurance advisors scare tactics.

The roof is literally the main thing. Roof protects the building from all weather. Look after the roof, and 85% of the job is done.....doesn't help when the big scared girly men say they won't go up on the roof....so what....we now discuss the minor 15% of the job that you can do ?? Don't think so.

roflol you are so right

Weird stuff you get to know from owning a shopping centre include ;

1. One of those big 650m toilet rolls lasts 6 days in the Tenants only toilet, but lasts less than a day in the female public toilet.
2. A/C operation is the focus in summer
3. Leaking rooves are the focus in winter
4. Clueless dopey people can trip over the smallest things
5. "Fire exits only" are the preferred sneaky entry / exit route for the locals
6. Most break-ins occur from the roof
7. It's against the law to put up razor wire on the roof or sit up there with a shotgun waiting for the little dears
8. Small kids can slide and crawl thru some amazingly small gaps
9. Optometrists and pharmacies are able to pay the highest rate - yes - they are all playing on your fear of health and sticking you with massive mark ups
10. Sods law says that good honest folk take about 5 minutes to complain about graffiti and mess that vandals make, but no-one ever holds the vandals responsible
11. Buskers think by standing right outside the front door they aren't on your property
12. Most people you meet don't believe that individuals can own shopping centres - they either think some huge corporations owns it or they never thought about it being owned by anyone, sort of some "community asset".
13. Litter is mainly coke cans, cigarette packs, cigarette butts and chocolate wrappers. The diet is woeful.
14. There is buku money in selling alcohol
15. Carparking is one of the biggest issues
16. Letterboxes must be a certain height, otherwise the fat posties won't deliver nowadays (contravenes their self imposed OH&S laws)
17. Letterboxes need to be within direct view of and near the front door (so the brats don't nick their bike or burn themselves on the muffler)
18. Roof collects over 4 tonne of water for every mm of rain

1, 4 and 7 made me laugh, interesting stuff I can agree with 2, 3, 14 and 15.

good to hear that you are still enjoying though why such an emphasis on selling it (or are you talking 10+ years from now) wouldn't it be better to hold it and pay down the loan and have it become your own personal atm?

what sort of demand does it place on you? I think you said that it is on autopilot most of the time does this mean that you have time to sit back and relax? For example lets say you wanted to go overseas for 6 months could you do this if time was the only factor?

 

[Dazz]

why such an emphasis on selling it (or are you talking 10+ years from now) wouldn't it be better to hold it and pay down the loan and have it become your own personal atm?

Thankfully, both options are attractive. The cashflow and tax benefits side lean towards keeping it.....the risk, legal exposure, whinging, horrible retail legislation and time constraints lean towards selling it.

The thing that tips it in the favour of selling is what each unitholder can do with their share of the profits.

what sort of demand does it place on you?

Sometimes none, sometimes just paperwork, sometimes negotiating, sometimes fixing leaks, sometimes scrubbing out the skip bin area, sometimes negotiating with Coles executives - that's fun when they discover you around the back scrubbing out the bin area...hahahaha....sometimes organising tradesmen.

It is my full time job - although I only go there maybe 3 times every fortnight, so not a bad full time job. The pay is 7 times what I could earn working as a high flying consultant engineer in the CBD, so not too shabby.

I think you said that it is on autopilot most of the time does this mean that you have time to sit back and relax?

Yes, for the other 11 days in the fortnight, but then the rest of the portfolio needs attention every now and again.

lets say you wanted to go overseas for 6 months could you do this if time was the only factor?

No I could not, and that is one of the factors why we are going to sell. Passive 'do nothing' stuff is my cup of tea. Do nothing, responsible for nothing, get paid heaps....that's the brief of all future property investments and ones that will be kept. If I need to pay something, if I by law have to do something, or it doesn't pour buku moolah into the pocket - then she's gone.

 

[Compropmanager]

reading through the act all I can say is Damn

W.A. seems to have a real sucky act compared to VIC's

I read this "(1f) If there is a provision in a retail shop lease in respect of any premises to the effect that the tenant is obliged to make a payment to or for the benefit of the landlord for management fees, the landlord is not entitled to recover, and the tenant is not obliged to make, that payment." and thought what the ....!

It is my full time job - although I only go there maybe 3 times every fortnight, so not a bad full time job.

Do you get the shopping centres wages paid/contirbuted to by the tenants??? more importantly your wage

 

[Jonril]

Great read Dazz, thank you for sharing.

One question I am curious about in regards to the shopping center is when you go to sell and potential buyers start their Due Diligence and start asking about Maintenance contracts/contractors and commercial property management arrangements, what will you have set up?

I presume most buyers will prefer to be less "hands on" than your current arrangements.

 

[Dazz]

Do you get the shopping centres wages paid/contirbuted to by the tenants??? more importantly your wage

What's that ?? No wage....no PM fees or management fees oncharged to Tenants. The previous $ 11 Billion plonkers who sold it to us let most of the dodgy brothers in on gross Leases, so recovering outgoings is a bit of a non-event. Care factor is pretty low though.

If I had a choice of 8% nett + outgoings of say 3%, or a straight 17% gross yield....well, I chose the latter.

I'll draw my wage as a profit when we sell.....one doesn't want to get greedy now.

 

[Dazz]

when you go to sell and potential buyers start their Due Diligence and start asking about Maintenance contracts/contractors and commercial property management arrangements, what will you have set up?

Ah....I so look forward to the day of being a Commercial Seller.

It won't matter a jot what I've set up, as all of the BS squirrelly lawyer clauses shall be right up front and centre, absolving me of anything and everything.

There will be lovely little phrases sprinkled throughout, identical to what the Seller put me through, like ;


"The Seller doesn't warrant the Land."
"The Seller doesn't warrant any of the Leases."
"The Seller doesn't warrant anything about contamination."
"The Buyer cannot rely on any of the established contractors."
"The Buyer expressly excludes any and all forms of communications, whether written or verbal, either from the Seller or their representatives."

It's absolutely magnificent. They need to cross their fingers and go in with the little info from the information memorandum, but if any of it is wrong, too bad so sad love Dad.

The best bit is going through the standard REIWA sales contract (General Conditions for the Sale of Land) and specifically excluding all of those nasty clauses where the Seller is obligated to do anything. Shoving that down the Buyers throat and making them swallow the lot for a change is going to be just fabbo.

I just can't wait to sit at the end of the contract like a big fat bullfrog, with not a jot of responsibility other than to pick up the Bank cheque. I think I might even get someone to do that.

I presume most buyers will prefer to be less "hands on" than your current arrangements.

What they do with the thing after they've bought it is totally up to them. I would care as much about that, as what the Seller cared about it after settlement to me. Absolutely zippo.

Now - gather up yer mates and all chip in so you can put your Buyers hat on. Oh, it's gonna be fun....

 

[Compropmanager]

well dazz that is interesting I am in the process of deciding whether to aquire a site here in VIC shall post details soon however the difference between the gross and net rent options don't make sense. The only thing I can think of is that there were some pretty nice incentives for the ingoing tenants.

reading through this one lease from a shopping centre they covered it all tenant pays a base rent plus % of sales, outgoings and Building operating costs. the base rent alone is about 300% above the shops in the strip out the front and foot traffic is almost non-existant when compared to the strip.

Why did he do it "landlord contribution to fit-out of $120,000" what was he thinking?

 

[Belu]

Great thread Dazz - good reading.

Good luck with the leasing, sounds like you are having fun