Leveraging Up...

HiEquity said:
Hi Aaron

Fair enough but I guess I was thinking there are at least as many niches like this in the CIP market as there are in RIPs. There are an awful lot of developers who have made an awful lot of money in such niches within the CIP market...
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no doubt no doubt!

but you must admit that resi is a more easily understood investment class because it is immediately more familar investment class. depends on your background, i guess - but i don't think either party should be writing off the other.

i've just structured a resi development with a 12% yield and 25% CG - by doing nothing more than targeting a different demographic within the suburb without requiring any concessions or "special tricks".

just got to know your market ;)
 
Dazz said:
.My father and I were sitting out there having lunch in the park opposite, after having repaired 9 things in the morning that had been smashed, only to discover another 6 things vilfully smashed since last week. We both agreed retail was like residential on steroids and what the hell were we thinking buying this ******* heap of ****.


If you want to be kept busy and earn no money, then retail property is an excellent investment vehicle....similar to a one cylinder moped with square wheels - it's a vehicle alright but ain't quite smooth. This wood-duck carry on can be for some other sucker.
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What are you talking about Dazz? What type of retail is this?

Ours have a BC (tenant pays BC fees as part of tenant outgoings) who fixes all exterior stuff. Interior is just a concrete shell with tenants fitout....

Is yours a big shopping centre with common areas or something different?
 
HiEquity said:
And that leverage advantage only applies if you get some capital growth in the first few years, which may not necessarily occur. If it doesn't, the superior cash flow from CIPs will swamp that advantage
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You're right, if the RIPs don't grow much the RIP first strategy won't work.
 
Dazz said:
.....yes, well, that's called "knowing and learning thy retail No No lesson"....never again.


It's similar to driving down a road saying "hmmm, that's a big pothole - best not to drive into that" then on the way home when you've already registered that lesson, you seem to drive into it just to see how bad the pothole really was....


My father and I were sitting out there having lunch in the park opposite, after having repaired 9 things in the morning that had been smashed, only to discover another 6 things vilfully smashed since last week. We both agreed retail was like residential on steroids and what the hell were we thinking buying this ******* heap of ****.


If you want to be kept busy and earn no money, then retail property is an excellent investment vehicle....similar to a one cylinder moped with square wheels - it's a vehicle alright but ain't quite smooth. This wood-duck carry on can be for some other sucker.


We are both looking forward to dumping the jalopy and getting back into our road trains and rolling back down the ultra slick industrial and commercial freeway of wealth.
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Why not set up your own commercial property maintenence business to service your ventures, pass on cost as outgoing and then sell the business? Hire a few casuals to do the work and yipee! your entrepeneurial skill has created something from nothing.:D
 
Dazz said:
.....yes, well, that's called "knowing and learning thy retail No No lesson"....never again.

If you want to be kept busy and earn no money, then retail property is an excellent investment vehicle....similar to a one cylinder moped with square wheels -
Click to expand...

I thought the numbers on this sounded good when you first mentioned them - you haven't spent that much on razor wire have you?

I'm late to the post also HE, but sincere congrats again on the first CIP. Any major lessons learnt from this one that you would apply to the next, or would you just repeat the process?.
Cheers
CE
 
Thanks Perp!

capitalEyes said:
I'm late to the post also HE, but sincere congrats again on the first CIP. Any major lessons learnt from this one that you would apply to the next, or would you just repeat the process?.
Cheers
CE
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Hi CE

Thanks! As usual, it's far too early to tell whether this was a good idea or not. It will be a couple of years before we will know. Although having a monthly rent payment hit the account which is more than double the usual annual net amount from some of of our RIPs is definitely a good start... :rolleyes:

Some minor lessons though:
- Selection of settlement agent is very important to your sanity during settlement.
- Commercial property managers are no better than residential ones, perhaps worse - the jury is still out on that! Might have to start shopping around soon...
- When your broker says finance approval should take 30 days, double it and then add a bit!
- I wouldn't just repeat the process. I think it's important to have diversity of location, tenant/s, land content and lease duration in the portfolio so this will now colour any future searching for us.

BTW, how are you finding life in this little pond of barracudas?
 
Not too bad. Apart from a lesson in the value of personal guarantees from a defaulting tenant during the GFC (unconditional Bank Guarantees now in place as is new tenant) things are pretty smooth. Agree whole heartedly with your comment re property managers – our tenant is paying for ours and they’re bumbling along so I haven’t had much incentive to change things too much in that area. Apart from these minor tid bits all is good. Income is great, capital growth has been average. Ability to leverage again on a larger CIP still isn’t there. But there’s been heaps of lessons along the way that I think will help with the next buy - I’ll definitely take a leaf out of your book next time and negotiate more off the purchase price.

Market rent reviews are good fun too. Current tenant didn’t have any idea that it had come about recently or what the mechanism was to review the rent, and actually admitted to me that they should have paid more attention when they signed onto my option take up docs (They agreed to change the option periods on expiry of the base lease, which opened up changes to rent reviews). They then didn’t want to spend any time determining where the market was but were certain that it had only moved a maximum of 5%! Seems also that the fact that they haven’t defaulted, trashed the place or simply walked out should also factor into the commercial negotiation on rent. Educating the tenant on the workings of the lease after they’ve signed it is quite enjoyable.
 
Good post chief.


capitalEyes said:
Educating the tenant on the workings of the lease after they’ve signed it is quite enjoyable.
Click to expand...


Most people naturally assume that when a large organisation signs a document as a Tenant that controls the relationship between them and a Landlord for up to say 10 years, that someone has actually read the Lease and knows what they signed off.


My experience has been that that is definitiely not the case. In the rare instances when they farm it out to some consulting solicitor, that still doesn't help them much, cos years later when things like options and reviews come up, the Directors of the Tenant still don't understand what the hell is going on. They concentrate more on their business and just start assuming stuff with the Lease, and those assumptions naturally lean towards them getting a good deal. When they find out that isn't the case, that's when the tantrums and hissy fits usually start.


Anyway, that's what I've found.
 
Totally agree with the above two posts.

Funny how many tenants go to the tenant advocacy service then come back to me telling me how I shouldn't be doing X and Y is illegal. then I ask them who told them that. "Oh I spoke to consumer affairs" or "I spoke to a property manager friend of mine"

My response is always the same "did you inform them that it was commercial and that X or Y is in the lease"

Their response is two words "ummmmm no!" :)
 
HiEquity said:
- The only fly in the ointment is there is only a couple of years left on the anchor lease. Can't have everything I guess... but there is a five year option and we would be genuinely surprised if they didn't take it up as they are making money and the setup is perfect for their operations.
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Time to update this thread.

The anchor tenant has just signed their five year option so we are doing cartwheels!

There we were, thinking the only reason the vendors (who were doctors) were selling this thing was because they knew something about the tenants wanting to move that we didn't.

Turns out they never had any intention of moving and are happily making plenty of money where they are, thank you very much. The real truth was that the vendors were in a partnership where they didn't like each other and really wanted to get out of the shackles the partnership provided - just like the agent said - who'd have thunk it?

So now it's time to have an argy-bargy about the rent review. Looking forward to that!

Quite literally over the moon right now, considering we have just been through some absolute $)^% in our lives.

Might have to even buy some toys to celebrate properly this time.

Onward...
 
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