Market Rental Review

[Perp]

I find this thread really amazing how ignorant many are here.

I find it amazing that you'd be so arrogant as to accuse Dazz (I assume) of ignorance, then go on to make sweeping - and erroneous - generalisations.

 

[Perp]

What happens if they put the company paying the rents into liquidation, move their staff and assets to a new entity?

If done with the intention to avoid their responsibilities with regard to an existing contract (the lease with Dazz), it could all be unwound. But I do agree with your point; parties who are in the right can go bankrupt attempting to prove that they're right in court.

I don't think Dazz's situation will escalate that much, though. Given the size of his tenant, his clear legal advantage, and that they'd have to pay the market rent if they went elsewhere (let alone the extra cost of an organisation of that size relocating), I'm betting they'll cave and pay it, either in full, or possibly if they find some "wiggle room" they'll negotiate a slightly lower figure (but still a huge increase). A few letters back and forth between lawyers is just the tenant testing whether Dazz is serious. Whether it's the full amount or the full amount less a few %, I hope it's enough for you to toss in the job, Dazz.

 

[BoatBoy]

Well said......also hope Dazz is dealing with guys who go by the law....otherwise a couple of Rebel bikers maybe paying him a visit...LOL! He maybe needing a knee replacement or two.

I'm sure I saw a pic floating around somewhere of Dazz with the big moustachio look and doesn't he have a steppie?

It might be Dazz with the biker mates doing the kneecapping

Dave

 

[boomtown]

If done with the intention to avoid their responsibilities with regard to an existing contract (the lease with Dazz), it could all be unwound. .

There's nothing to unwind if all debts are not paid in full because you cannot wind up a company until all debts are paid.

Daz - if you really really want to get their attention and really piss them off - bring an action to petition them into bankruptcy for unpaid debts. I guarantee you will get the immediate attention of their CEO. You also won't get an Xmas card.

 

[PrimeCommercial]

There's nothing to unwind if all debts are not paid in full because you cannot wind up a company until all debts are paid.

I don't think Ozperp is referring to the winding up of a company. I think she is referring to the transfer of assets to another entity. If done within a certain time before going into liquidation, creditors can have the assets transferred back into the entity to pay off creditors. So its the transfer of assets that can be 'unwound'

 

[buzzlightyear]

Apart from some states having laws to protect retail tenants, my understanding was that commercial leases were minimally regulated, and could contain whatever the two parties agreed upon. Can anybody confirm/deny?

On further investigation and its a Vic reference only, if the lease falls under the Retail Leases Act (Vic) 2003, defined as

While the primary criteria for retail leases is still whether the premises are to be used wholly or partly for the retail provision of goods or services, the Act no longer uses area as a determining criteria. The Act will apply:

* if the occupancy costs at the commencement of the lease are less than $1 million per annum;
*if the tenant is not a company or a subsidiary of a company which is listed on a stock exchange either in Australia or overseas; and
*if the premises are not within the category of premises prescribed by Ministerial determination.

it then prescribes the following;

The security deposit. Security deposits must now be lodged by the landlord in an interest bearing deposit on behalf of the tenant. The landlord must give the tenant details of accrued interest so that the tenant can include it in its tax returns. This is an additional burden that landlords might be keen to avoid and therefore require bank guarantees rather than security deposits.

Link here.

Given the property in question in this thread is in WA and (I am assuming here) seemingly wouldn't be defined under this Act to make it applicable even if it was in Vic, it might mean the rules, like everything else, are down to lessee & lessor.

Anyway, back to the thread now....

 

[boomtown]

I don't think Ozperp is referring to the winding up of a company. I think she is referring to the transfer of assets to another entity. If done within a certain time before going into liquidation, creditors can have the assets transferred back into the entity to pay off creditors. So its the transfer of assets that can be 'unwound'

Correct - if the transfer is done with the intention of defeating creditors then it can be unwound.

Its all a bit academic though as Dazz's lease will almost certainly have a parent company guarantee.

 

[sash]

Dear Dazz

Gee Dazz.....I noted that you must be getting flustered as you penned a message....but did not complete it??....LOL!

Any case, I thought I would leave you with something in the press....

http://business.smh.com.au/business...his-dip-is-distinct-20090201-7uv5.html?page=2

Whilst, I take these articles with a grain of salt....they do have some underlying facts...such as the foreign banks pulling out of Commercial Loans.

So Dazz....based on an economics 101 lesson.....when funding for Commercial Loans get tightened....the jockeys in credit in banks get nervous...sometimes they even do stupid things like call in their loans or ask their clients to tip in extra equity. Now here is the real kicker......they usually focus on the market which is doing the worst.

Dazz....a smart chap like you will be able to figure which market is going to take a clobbering. After all you did structure some water tight Commercial contracts. The question is whether you also covered your risk management side from a finance perspective (by the way Bill Zheng is pretty cluey on this...property is the vehicle but financing is deal maker). Given that Commercial Loans are structured typically for 5-15 years....one must hope they don't come to their natural life within a down period. The big boys like Centro and Westfield found this out the hard way!

Having experienced the "recession" we had to have....that is a long time between drinks....it was about 12 years between when Perth tanked (1990)and took off again (2002). How do I know....my parents used to live in Bateman Perth (near Booragoon). And in 1990 very similar thing happened in Perth when the resources boom ended!

I am sure it will interesting to see the correlation with the prices we get for commodities when we renegotiate prices in Mar/April 2009 and economic activity.

As I always say....time will tell.....

See ya....wouldn't want to be ya!

 

[steveadl]

The big boys like Centro and Westfield found this out the hard way!

ummmm unless you know something the market doesn't - Westfield isn't having problems with their debt profile. Only small portion due next year, leverage only 40% including the recent $3B write down (debt covenants allow 65%), gross assets increased on last year due to currency movements, $1B cash coming in over next year without any capital raising, rumors of them going bargain hunting (in which case they may raise capital anyway).

Care to elaborate on your comments in regard to Westfield?

 

[jaycee]

What happens if they put the company paying the rents into liquidation, move their staff and assets to a new entity?

Have you a clause for that?.....

Why would I have a clause ? I have a clause for nothing.... ? Why would I it is not me with the lease and property..

All I said was.... Dazz inherited a valid lease.. has followed the lease... and now the tenatns are trtying to get out of the conditions of the lease (which they signed before Dazz).

I find it interesting to read what has happened....

If you have an issue against Dazz personally, that's fair enough, I do not know you / Dazz etc.... therefore I have no idea why your posts seem to predict and wish the end for Dazz financially or maybe commerical property investors ?...

I actually have no such feelings towards anyone I know in real life, let alone over an internet forum... anyway.....

Please don't make the same catty remarks to me when there is no reason to do so as you may do to Dazz

 

[sash]

Well time will tell all......

As for their writedown...a portion did go into asset devaluations. You are correct about their debt profile...they are quite sound there in most countries...but the USA & UK might be problematic as their loans mature...as there has been asset deflation....banks might not lend any further. Annual reports are just glossed up sales reports....so take those with a bit of salt.

I belief that they are trying to get their leveraging down further....they have put the screws on spending. For example they tried to convert parking in the Chatswood NSW from 3 hours free to 2 to recover more revenue....had to reverse it due to council reading them the riot act.

Have also have heard that their leases with clients on renewal are going to be interesting.

Steve, retail spending habits over the next 12 months are going to change. The stores that do well are value for money shops....they work on a very low margin...accordingly they are tough negotiaters on price per sqm of rent. Whilst people like Woolies who get the better rents as they bring people to the shops...you are going to find the smaller players will get tougher or quit if they can't organise less rent. Watch Woolies.....they are already have recognised this and they have changed things like more cheaper meat cuts, etc.

A good example is the shops on Bondi beach in Sydney.....shop owners over the years have has their rents raised to the point where they are paying $4-6k per month. Now there a quite a few vacant as no one can turn a profit ...as one guy was quoted....there is very little demand for $30 burgers and chips. The market eventually sorts issues in regards to supply and demand.

This also happened in the last recession of 1990. Shops in Mosman, Neutral bay remained vacant till rents adjusted. Very similar concept to residential housing!

I find the terse responses from some of the people who own Commercial property funny and very emotive. This just the normal part of the cycle. I thought last year that the downturn here would be mild and also said rates would drop by Oct. 2008. I was spot one item...but way off the mark on the other....such is life!! I have now revisited both....and believe that it will get even worse in OZ over the next 6-9 mths with a technical recession (2 qtrs of negative growth) a 80% certainty.

Having said that this period offers the best buying from a long term counter cyclical point. Looking at this logically....Sydney and Melbourne will do better economically as they typically lead OZ out of recessions.....when this happens WA & Qld (exception is Brisbane) does the worst. Brisbane is more diversified now so it will travel okay. Adelaide is also buffered by the Defence and some large infrastructure spend there and is also more diversified.

ummmm unless you know something the market doesn't - Westfield isn't having problems with their debt profile. Only small portion due next year, leverage only 40% including the recent $3B write down (debt covenants allow 65%), gross assets increased on last year due to currency movements, $1B cash coming in over next year without any capital raising, rumors of them going bargain hunting (in which case they may raise capital anyway).

Care to elaborate on your comments in regard to Westfield?

 

[jaycee]

Why did you single out ETHNIC businessmen in another post ? Is their success and knwoledge on how to avoid pitfalls due simply to their ethnicity ? WOW I wish I was a smart ethnic like them....

Does that imply when I read "businessmen" that this does not incldue anyone "ethnic businessmen " ? or is that only when you are talking ?

 

[AUSPROP...]

And in 1990 very similar thing happened in Perth when the resources boom ended!

I am sure it will interesting to see the correlation with the prices we get for commodities when we renegotiate prices in Mar/April 2009 and economic activity.

As I always say....time will tell.....

See ya....wouldn't want to be ya!

interesting that the Chinese are moving in on Rio now - why wouldn't they wait? or do they see this as a low point?

 

[steveadl]

A good example is the shops on Bondi beach in Sydney.....shop owners over the years have has their rents raised to the point where they are paying $4-6k per month. Now there a quite a few vacant as no one can turn a profit ...as one guy was quoted....there is very little demand for $30 burgers and chips. The market eventually sorts issues in regards to supply and demand.

Same has happened where I am. Won't go into specifics, but we pay some of the highest rents per m2 for our relative position/store size in the whole of SA (and come to think of it, a while back we were listed in the Top10 in Aust.). I mentioned this in another thread with TheAnalyst (or was it this one?), and as I said then - that's just the way of the market.

If an area becomes popular, then rents are going to increase. It has less to do with the overall market and debt etc. If a strip centre of 300 shops becomes really popular over the years - the move will go from small business owners to franchises/corporates. If the area continually increases in popularity - why would you think the rents would reverse? The strip still has the same 300 shops to rent as it did 20yrs ago (bar some tinkering on the outskirts as it expands), except now every retailer in Aust. wants a location there. End result? Higher rents, weak fall to the way side one by one. The "commercial market" could crumble and this commercial pocket will still kick along.

But again, I think I digress and don't want to derail Daz's lease thread. I think people are just taking exception to the way you seem to be having a go at Daz specifically. You don't know him and his properties, even if you are a guru on the "entire market" of Aust. commercial properties, the same as the point I'm trying to make above - micro markets will still do well, and Daz is one guy relating his story.

 

[sash]

Having a go at Dazz.....naahhhh!!!...is that possible....sacre bleu!! It would be paramount treason on this site!

You are correct that Dazz is only in one micro market....what was that about diversification again...

As for the industrial property market doing well....time will tell.

Time reveals all....having survived at least one recession...posisbly two....only time will tell.

Interesting times indeed.......

PS....people saying Commercial Property won't drop 30%.....well residential has done 30% at the higher end particularly in Perth.......

But again, I think I digress and don't want to derail Daz's lease thread. I think people are just taking exception to the way you seem to be having a go at Daz specifically. You don't know him and his properties, even if you are a guru on the "entire market" of Aust. commercial properties, the same as the point I'm trying to make above - micro markets will still do well, and Daz is one guy relating his story.

 

[boomtown]

interesting that the Chinese are moving in on Rio now - why wouldn't they wait? or do they see this as a low point?

Its less to do with price and more to do with securing long term supply of raw materials - which is a national security issue to them.

 

[jaycee]

Isn;t what happens to Dazz's portfolio his buisness ?

How is that relevant to this post wherer he is telling a story as it unfolds about his lease ?

why don't pple keep personal vendetqta's private ?

Sometimes, it is not that interesting to others to read someone taking the piss out of what another operson does / has done or what they hope hwill happen to them

 

[sash]

Jaycee....it would seem the water is boiling in WA....lots of frogs boiling slowly.....LOL

It is not a vendetta...just a personal observation. Dazz phrases his comments in a similar fashion.

For the record....I am supporting my observations with the facts at hand and potential scenarios.

If you don't like it.....there is an option...don't read it.....beauty of choice...isn't it!

I did not go off topic....as it is Commercial Property - Market Review...so scenarios in relation to potential risks is well within parameters.

Isn;t what happens to Dazz's portfolio his buisness ?

How is that relevant to this post wherer he is telling a story as it unfolds about his lease ?

why don't pple keep personal vendetqta's private ?

Sometimes, it is not that interesting to others to read someone taking the piss out of what another operson does / has done or what they hope hwill happen to them

 

[nonrecourse]

Sash this thread is about the market review not about the crash in commercial property prices so lets stick with that or we all end up being the poorer because (a) Dazz gives the forum the flick because of tall poppy cutters or (b)one of the guardians of this site closes the thread off because it is off topic

Now getting back to Market review in a retail lease versus a commercial lease. Here in Victoria it appears that with a retail lease if there is another term or option in the lease the market value cannot go above 25% as otherwise this is viewed as excessive. (Gee I'd like to apply that rule to land tax)
Whereas in a commercial lease your considered a big boy, i.e. your a publically listed company or have a rental agreement in excess of a million dollars.

It seems to me that the state governments like to act as robbin hood stealing from the landlord and pretending to be on the tenants side... Problem is the excessive land tax imposts (NSW takes the cake) are obscene. Every time we raise the tenants rent we make them aware who the real bandits are. Not in writting of course cause in Vic it is illegal to raise the tenants rent to cover your land tax costs

Ya right pull the other leg sheese. Is it any wonder why property prices have reached unsustainable stratispheric levels. The state and local governments have a ponzi scheme going and labour governments love to put their hand on their heart and swear they will legislate to stop the greedy landlords

 

[Dazz]

But again, I think I digress and don't want to derail Daz's lease thread.

I foresaw this debacle in my initial post for this thread.

Once again, the few spoil it for the many. I shall not be posting on this particular subject again.

you are a guru on the "entire market" of Aust. commercial properties

Any questions from now on this subject or any other please forward to sash or TheAnalyst. Have a good day.