Must be a bubble on...

[HiEquity]

This sale evidence just floored me.

- Bank in "prime retail" location (whatever that means...) in what looks to me like a pretty old building.
- Less than four years left on the lease.
- SOLD for 3.8% net yield

Somebody really, really, really wanted stability of cashflows for the next four years or so... I guess? Seriously, who buys this type of property at these prices? Someone who obviously doesn't have to borrow any money and really hates bank accounts but loves bank tenants I guess? Don't they know the world is teetering on the financial abyss - again?

Obviously not. Prime evidence of a bubble out there in CIP land! Be very careful!

Oh what I would do for that type of yield on medical centres in Perth right now! Might put a bit of a dampener on buying anything else though...

 

[Player]

Thanks for sharing Mr. Equity.

Ahh, the foolishness continues. It was worse last year though in Melbourne. Yields on purchase from 1.9 % to 2.5 % were not uncommon. All retail. Some people with more cash than sense believe that well located retail strips have shops that will have capital gains akin to blue chip homes in their respective suburbs. This relies on the greater fool theory to keep such purchasing notions flowing...............until of course one of these darlings vacates and (in current market at least) a rent review will likely be to the downside for a new tenant or exercise of an option.

Doesn't mean all retail is bad, however some purchase yields make you wonder what people are smoking.

For those sort of bucks office and/or warehouse with office component should give circa 9 % and over. They exist..............

 

[Dazz]

Droooolll....

Could you imagine offloading a property for a 3.8% yield.

Come in spinner.

 

[Peterw]

While the building does not look new, I do assume that there may be some building allowance available, which may inprove the returns. The first market review is still some way off, and as its already nearly $570 a metre, is there upside?

 

[StefanA]

Obviously not. Prime evidence of a bubble out there in CIP land! Be very careful!

Hmmmm....now why can't the following reasons for buying RIP at similar yields apply?
- yeah but I am holding for the long term, more than one economic cycle.
- inflation will drive up the rent, and capital value.
- I have a tenant, therefore there's a shortage of properties.
- it is in a good suburb.
- I have a tenant on a long lease.
- I need the negatve gearing.

 

[Bigtone]

Read a report from CB Ellis saying commercial sales for the 1/4 up 425% last 1/4 to $2.7B

1/4 figures can be very misleading but that is a hell of a jump.

not my field so I cant comment on the stats just stating what the report said.

 

[INVSTOR]

Read a report from CB Ellis saying commercial sales for the 1/4 up 425% last 1/4 to $2.7B

1/4 figures can be very misleading but that is a hell of a jump.

not my field so I cant comment on the stats just stating what the report said.

Dazz, sshh! can you stop spreading the word on how good commercial properties can be.

 

[Player]

Droooolll....

Could you imagine offloading a property for a 3.8% yield.

Come in spinner............or $ucker

As I indicated in an earlier post, the yields were far worse last year when Melbourne was insane (or far better for the vendors )

When folks are contemplating selling something, a useful question to ask oneself is.....would I be happy paying this (selling) price for this asset if I were a purchaser? If the answer is NO, then this should seal the deal and the sale should free up funds for a higher and better use IMO.

I wish you well kimosabe with any intent you might have along these lines

 

[Belu]

easy answer on this one - it would be for development potential. Good spot, corner of decent residential strip (i live a km away or so) and starting to be some development in the area, so in 4 years, put on a mix of comm and resi over 4-5 stories and you're happy as larry

 

[Dazz]

easy answer on this one - it would be for development potential. Good spot, corner of decent residential strip (i live a km away or so) and starting to be some development in the area, so in 4 years, put on a mix of comm and resi over 4-5 stories and you're happy as larry

...yeah...but larry would need to be one hell of a patient man.....cos the Seller has just given the Tenant control of the property until May 2030.

I have no idea where you get this 4 year bit from....but if the Tenant wants to keep paying you a 3.8% return on your money, you're going to have to cop it sweet for the next 19 years.

Tenant MAY decide to up stumps....but if they don't, the Buyer is stuffed.

 

[Belu]

yeah just saw the option - didnt read through it that well. Could the property be really under-market at the moment?

 

[APerry]

That looks like a truely terrible buy, the landlord is stuck with a crappy lease for up to 20 years with a tennant who can choses to exit every 5 years if they feel sorry for them. I have seen worse however, the very last shopping centre that Centro bought before getting into trouble was from one of our clients, it changed hands at a 3.9% yield.

 

[Player]

yeah just saw the option - didnt read through it that well. Could the property be really under-market at the moment?

Hey there Ben, it may be underlet, however usually banks run the lease......they have all the cards stacked in their favour for 19 years. One would envisage that the land being a corner as you've indicated, will lend itself to a mixed use hybrid development as it is close to the train and so forth. However the purchaser will be bled dry by then, assuming they've borrowed for this. If not then their cash can earn 6.4 % or thereabouts online

I had a very quick search and it is about on the money for retail leases in that area ($ 570 p sq m).........more a case of buyers with an itchy trigger finger. It was worse last year when all things resi and retail were white hot in Melbourne.

The seller is a happy camper.

 

[HiEquity]

I have seen worse however, the very last shopping centre that Centro bought before getting into trouble was from one of our clients, it changed hands at a 3.9% yield.

Wow, just imagine selling a shopping centre for that type of yield...

Drool indeed!

 

[jacbmw]

That looks like a truely terrible buy, the landlord is stuck with a crappy lease for up to 20 years with a tennant who can choses to exit every 5 years if they feel sorry for them. I have seen worse however, the very last shopping centre that Centro bought before getting into trouble was from one of our clients, it changed hands at a 3.9% yield.

LOL, love this bit...