Leveraging Up...
- Thread starter HiEquity
- Start date
Very much a belief today and in the future I suspect.
Most businesses arent in commercial real estate............they make their dough from whatever that core business is
ta
rolf
The two biggest GP healthcare providers Sonic and Primary lease the majority of their sites.
congrats - that is an impressive yeild! Moving forward in your investing have a look at balmain for your finance needs we are helping many clients with this gearing up process as the market recovers and as you know there are some great value properties around!
HE, you mentioned the three years you spent solidly looking before this deal came along
That's a long time if you had such an amount of equity ready to invest in a CIP. Did you find it hard to hold your equity and wait for the 'moment'?
You must have seen lots and lots of mediocre ones along the way.
Maybe you narrowly missed one or two along the way.
But i am sure it is now paying off handsomely and that LVR will be dropping like a stone with such a cashflow.
That's a long time if you had such an amount of equity ready to invest in a CIP. Did you find it hard to hold your equity and wait for the 'moment'?
You must have seen lots and lots of mediocre ones along the way.
Maybe you narrowly missed one or two along the way.
But i am sure it is now paying off handsomely and that LVR will be dropping like a stone with such a cashflow.
The first 18 months were spent learning about the different sectors, different cities and states, legislation, reading IMs, seeing the differences between leases and comparing different properties. Much of that time was spent wishing we had more equity - the deals do indeed start looking a lot more attractive in the $5m-$10m range! Better yields, better tenants, better properties and better leases, all at the same time - it's no wonder syndication happens.
The next 12 months was spent on a number of potential deals that fell away for one reason or another, some of which I posted up on here. The main reason was just dealing with vendors who weren't motivated enough to actually sell in the post GFC market and were happy to hold out for their price, as is their right. Learning to just move on when we came up against this took a little while - the market was pretty thinly traded there for awhile. Eventually we found vendors who were willing to meet the current market.
The following 6 months was spent researching and settling this deal. Never a dull moment...
I think another aspect that plays a significant part in business choosing NOT to purchase their own property is is it's inherent lack of agility.
Example 1:
Say for arguments sake you are small retail outlet (I'll use a convenience store as an example as there is one two doors down from our office).
They have invested significant funding in fitting out the premises with lighting, plasma screen advertising, neon signage...the lot. Unfortunately they have barely been there 12 months and IGA have just decided to lease out the entire floor of a brand new building directly opposite to house a new IGA Express).
It's open the same hours, has a vast amount more stock and has the buying power of a national chain.... Who do you think will win that battle..
If the small convenience store had purchase the property, they are probably looking at a sales process of selling a now *untenanted* property that could take somewhere between 6-12 months.
Instead, they will have to break to lease which won't be pretty but at least then they will have the ability free up their capital and move somewhere else. If they owned it.... that's not an option for 6-12 months..
I have a number of friends in retail but the above reason is exactly why I would never go into my own retail business. You can control many things but none will ever prevent a competitor from setting up next door and running you our of town..
Example 2:
I'm a manufacturer and we need warehousing space. If you ask most CEO's they will have grand plans of expected future growth and how they will outgrow most premises within 5 years. Now despite history telling us this rarely happens, it's still doesn't dampen the plans of Mr CEO and so he would be silly to commit to purchasing the one premises when renting gives them much more agility to expand (or heaven forbid contract) if and when they need to..
At the end of the day though, I'm more than happy to play the boring old rent collector that sits innocuously in the background slowly chipping away on his wealth creation plan..
cheers
B.D
I wonder if medical centres are different to other sectors. Medical centre cash flows are amongst the most stable across the economic cycle, and competition between large centres is not common from what I have seen.
The risks I sense for High Equity's investment are a Govt super clinic, which should be reasonable transparent to confirm I would think, and the health care company tenant having the upper hand in rent negotiations. i.e. "This is the rent we are prepared to pay. If you don't like it, we'll move elsewhere". I would have contacted the owners of property leased to this company as part of due diligence to see what negotiation tricks the lessee uses.
The risks I sense for High Equity's investment are a Govt super clinic, which should be reasonable transparent to confirm I would think, and the health care company tenant having the upper hand in rent negotiations. i.e. "This is the rent we are prepared to pay. If you don't like it, we'll move elsewhere". I would have contacted the owners of property leased to this company as part of due diligence to see what negotiation tricks the lessee uses.
"Good morning, I am Mr Nobody from BumF Nowhere. I see that you are the Owner of this large establishment that has a medical organisation as your Tenant. Could you please tell me all of your most intimate negotiation tactics, as well as theirs, when trying to put together a large 10 or 20 year deal."
Click. Next.
Because it will effect the ROE of the company. A couple of major companies do such as Harvey Norman, but this is probably because Jerry Harvey is a significant shareholder. But notice that the market actually forces a price discount for this (ie the company is penalised by the market due to 'lazy capital')
Interestingly if one looks at some of the small and micro cap listed stocks, its quite common for senior managment to privately own the building and then 'lease it' to the listed company.
This can be especially so when a small company goes from private to public. ie when management list the company they keep the building in their own private investment vehicles.
but a govt superclinic is not likely to open up somewhere already serviced by private GPs.
go talk to the doctor's union about that one - there'd be campaign money pulled left, right and centre - it'd be politcial suicide.
You never know until you ask, and it costs nothing but ego.
You win some you lose some, and experience is an expensive teacher.
Besides, the lessor being asked the question, when asking themselves what's in it for me to answer Mr Nobody, might wake up it is better large medical organization is not getting walk over deals from anyone. The market is as soft as the most naive players.
There's nothing wrong with a bit of collusion when initiated by small independents in their dealing with large corporates. It goes on all the time in my experience and is the nature of cooperatives and buying groups.
OK, so we saw a deal one day...................... Now, onto the next one...
Here i am commenting on other points when my first comment to this thread should have been congratulations.
Ah well better late than never
Good on ya and congrats.
Onya' HE, living up to your name!
After three solid years of looking for a decent CIP we have finally found something and jumped straight into the deep end. We shall find out in a couple of years time whether or not it was a good idea!
Seen any scary looking big fins circling yet ??
