On the hunt again
- Thread starter Dazz
- Start date
Comprop, you're obviously in the bigger end of the business. How can Dazz possibly get this leverage if he's not in the big league? It sounds like he's being screwed because he's not big enough. Is there really any angle he can play that you know of? Is there a way forward for the little guy? (No offence, Dazz. It's all relative.)
You've got to get the size of the Vendor vs me into perspective here. They owned something like 600 shopping centres, and this little ratsnest was something like # 597 on their list. Suffice to say, it didn't get much of their attention.
Little things like Leases and technical complications for some poor schmuck sod coming along the line buying it off them wouldn't have even crossed their corporate minds. Their Bank said "it's a tiddler, get rid of it" and so they did. They sort of hunt in the 100m+ per property region, where each individual rent bill is larger than what this property is worth.
We on the other hand, were stretched to the max to buy it, and are hanging on for grim death with the tip of our pinky fingernails. This is all I do, so I have plenty of time to dig through the details and see just how poor a job they did with the finer details that I have inherited with the acquisition.....and sure, I did 95% of my DD before signing the contract, but you only truly know where you stand when you put the wording to the test and finish a ding-dong with the Tenant. Then and only then can you say whether the wording is robust or not.
I wouldn't be having any issues at all if it was empty cos the Bank would have laughed us off and we never would have been able to buy the property in the first place. We got a bargain no doubt on the purchase price.....it's just the terms of the Sales Contract sucked, and the Lease wording sucks compared to what I'm used to with my own Leases, and the over-riding legislation sux big time....which I knew about.
This isn't the first time I've sacrificed almost everything to get a low purchase price. Things can be turned around with a little bit of elbow grease, determination and putting good systems in place. What can't be rectified is paying too much at the start of a project.
I don't particularly like Tenants writing me letters after I demand something of them by quoting the Lease and they reply with something like "Despite what is written in the executed Lease, as per section x.x of the legislation, you have no right to demand that and we are not obligated to provide / pay what you demand. As such your request is denied."
Perhaps I am just whinging cos I've had it so good in the C&I paddock. It'll turn out OK in the end, it's just my tolerance level for listening to pathetic M&D business people telling me their sob stories about why they can't afford to pay the rent just before hopping in the Mercedes to drive home is about negative 3 at the moment.
I bleated on about this before.......
Most of my 30 odd years of working life has been in the golf industry - as a teacher and a retailer.
I have a number of close contacts who are still in the same game, but I am now in the tyres and car servicing game as many here would know. Got sick of loads of hours and ever-decreasing retail dollar profits.
Just using the golf industry as one microscopic example of how retail in Aus works now is that pretty much the whole market here in Aus is saturated with (golf) retailers.
Hence, they are all trying to make a dollar, and will special out any slow moving stock to improve turnover. Fair enough.
Today's consumers are a lot more educated and computer savvy - even the Grannies and Pops, and they are able to milk the specials situations and buy items at very low prices if they use the internet and shop around. Good luck to them of course.
BUT....
Then, along comes on-line buying and Ebay, and the market is now Global - with no penalties for bringing in product other than shipping costs.
The reality is that now you can buy almost any product you want online and from overseas, and pay less for it than you would here in Aus from a retail shop - even after postage and handling.
One of the Members at the Club where I play recently bought 12 dozen Titleist Pro V1 golf balls on-line. This is the ball preferred by almost every Touring Pro on earth. A very hot item in today's golf retail world.
He had them landed (including shipping) from the USA at his front door for less than what the Pro at my Club can buy them wholesale. The Pro is basically a laughing stock trying to sell this ball at anywhere near retail price, and the turnover is not good enough to justify selling them at near cost and try to make dollars out of volume.
Once the "grapevine" kicks in around the Club about this amazing on-line purchase, guess what will happen.
Of course, for the consumer this is all good news.
well without seeing the details and knowing the local market of this investment I can't help all that much.
that said this is a common theme among shopping centre tenants one of my friends ended his lease with centro owing over 100k in rent.
they let him walk as they had another tenant however he is still paying this debt as he likes to pay his debts.
I deal with landlords in the mid to low tiers however the Act that applies in my mind does not prevent you from taking the hard line to these people. it only gives them an option to fight it for another month or so.
that said dazz I would be more then interested in what requests you sent to these people and what sections they referred to as this doesn't sound right. Whilst I am sure the solicitors knew what they were doing it doesn't sound like they wanted to press the issue instead only wanted to take the path of least resistance and ask you to drop it.
retail is undergoing changes and with Centro's, Westfield's etc putting up shopping centre complexes in almost every suburb in my area it shows that tenants are spoilt for choice.
doesn't work out in shopping centre A that's ok because shopping centre B will give you the keys to new shop fully fitted out and at a lower rental then the place before.
the market is becoming more and more saturated with shopping centres and home maker centres. this means in my mind that consumers instead of going to the bigger centres now need only to go into the next town to get what they need.
pm me if you want dazz
that said this is a common theme among shopping centre tenants one of my friends ended his lease with centro owing over 100k in rent.
they let him walk as they had another tenant however he is still paying this debt as he likes to pay his debts.
I deal with landlords in the mid to low tiers however the Act that applies in my mind does not prevent you from taking the hard line to these people. it only gives them an option to fight it for another month or so.
that said dazz I would be more then interested in what requests you sent to these people and what sections they referred to as this doesn't sound right. Whilst I am sure the solicitors knew what they were doing it doesn't sound like they wanted to press the issue instead only wanted to take the path of least resistance and ask you to drop it.
retail is undergoing changes and with Centro's, Westfield's etc putting up shopping centre complexes in almost every suburb in my area it shows that tenants are spoilt for choice.
doesn't work out in shopping centre A that's ok because shopping centre B will give you the keys to new shop fully fitted out and at a lower rental then the place before.
the market is becoming more and more saturated with shopping centres and home maker centres. this means in my mind that consumers instead of going to the bigger centres now need only to go into the next town to get what they need.
pm me if you want dazz
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Thanks for the update.
A very insightful viewpoint, and a topic thread which will be referred to for many years to come.
Given what you know now, would you say that bank guarantees are the best way to go. From my limited understanding, the trade off is a overall lower $ value gurantee (as the tenant has to provide something to the bank to get it), but when the S&&T hits the fan, at least one can call the bank and say pay up.
A very insightful viewpoint, and a topic thread which will be referred to for many years to come.
Given what you know now, would you say that bank guarantees are the best way to go. From my limited understanding, the trade off is a overall lower $ value gurantee (as the tenant has to provide something to the bank to get it), but when the S&&T hits the fan, at least one can call the bank and say pay up.
Thanks for sharing Dazz,
A fascinating story. Even though it's not as easy as it seemed, it still seems like it will turn out worthwhile.
I'm learning a lot from it, even though it's out of my current abilities and skills.
A fascinating story. Even though it's not as easy as it seemed, it still seems like it will turn out worthwhile.
I'm learning a lot from it, even though it's out of my current abilities and skills.
Dazz,
it sounds to me as though your experience and knowledge is more than good enough to buy a business (or more) and have it managed.
You sound as though you are operating at a level now which could afford you the opportunity to buy a significantly sized one, with the proportionate income return.
And, then buy the premises in which those businesses operate and make yourself the the tenant.
Managing staff has it's headaches as well, but it is a bit easier to get rid of non-performing staff than a loser tenant who won't pay you.
What sort of business? Doesn't really matter; as long as the staff are good and the manager/s are competent.
I am with you; had a gutfull of the rights of tenants, and the lack of cashflow associated with IP's (in the short term).
To me, every say $400k I spend on a business which I would have spent on an IP will return a pos income of at least $80k in my pocket per year.
Now, imagine what the returns could be if you are buying a business in the $1mill plus level, or $5 mill plus level.
The workload for you to run one would much the same (manager/s in place).
it sounds to me as though your experience and knowledge is more than good enough to buy a business (or more) and have it managed.
You sound as though you are operating at a level now which could afford you the opportunity to buy a significantly sized one, with the proportionate income return.
And, then buy the premises in which those businesses operate and make yourself the the tenant.
Managing staff has it's headaches as well, but it is a bit easier to get rid of non-performing staff than a loser tenant who won't pay you.
What sort of business? Doesn't really matter; as long as the staff are good and the manager/s are competent.
I am with you; had a gutfull of the rights of tenants, and the lack of cashflow associated with IP's (in the short term).
To me, every say $400k I spend on a business which I would have spent on an IP will return a pos income of at least $80k in my pocket per year.
Now, imagine what the returns could be if you are buying a business in the $1mill plus level, or $5 mill plus level.
The workload for you to run one would much the same (manager/s in place).
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No thanks chief, I never asked for anyone's help.
I'm here 6 months after the deal simply having a chin-wag cos it is my pleasure and passion. I'm here getting this off my chest cos I enjoy having a chin-wag about real property issues.
I'm not here having a chin-wag on the hope of securing some sort of free unsolicitored advice from unqualified unknowns.
The intricate details and minute specifics will only ever be known by myself and my solicitors.....thanks for the offer, but no thanks.
No I definitely wouldn't IV. Have you ever tried claiming on those so called "unconditional Bank Guarantees".....nightmare.....I tried with both Westpac and the CBA. Frickin' nightmare. Westpac has no less than 11 conditions that you need to satisfy before you can extract monies from their "unconditional Bank Guarantee".
I asked for a print out one day of these 11 conditions, the guy representing the bank swung his monitor around briefly. At the bottom of the list of conditions, in bold red, the line reads "this list must not be shown to any customer or favouree". The Favouree of course is the one the Bank Guarantee is made out to - usually the Landlord.
We much prefer non-interest bearing cash deposits straight into our bank account. When the money is in your bank account already, normally I don't argue with myself....
The other good thing about direct non-interest bearing cash deposits is that it is way less painful and way less costly for the Tenant to set up. This only gets better when the BG needs changing, like every year when the rent increases and so to must the BG proportionately if tied to the rent level. Banks usually charge them $ 250 at least to change the document, even if it's for a few hundred dollars. That normally peeves the Tenant right off, and we have successfully used that to get the majority of Tenants to use our preferred method.
Of course, as usual, the good Tenants who pay rent to you on the dot as required have no problem with this. The bad Tenants who fall behind never pay you the DCP or BG, so you struggle with them regardless.
Yes, we are quietly confident all will turn out for the best. That's what I am working on every day, so it'll be alright in the end no doubt. The land and buildings aren't going anywhere in a hurry, and that's where the store of value is.
I do not think "unconditional" means what Westpac think it means.
You're probably right Marc, but I have stumbled onto an area in which I like investing, have a few runs on the board and for me, the risks now are fairly low due to my knowledge and experience, and the Banks support me with my systems in place.
It's a well known fact that once you find a profitable niche, to just grind away and work that advantage. That's what I intend to do.
Owning a business that employs people (and to be equivalent it would need to number in the hundreds) doesn't interest me at all. Making a huge payroll every month is a pressure I don't need....not to mention the laws surrounding all of the people aspects (discrimination / rights of workers / unions / awards / OH&S / maternity leave / hols). What a PITA. I have no time for any of it.
As you know, I'm not the best at human stuff. It's all way too fluffy and circular for me. I like deadpan boxes. Sit in my box and pay me money. End of.
Having been in the game for a while now, for a low headache version, we have pretty much agreed that purchasing strata offices in the CBD with big sitting corporate Tenants is the way to go on long Leases. They pay for everything, including the building manager who takes care of everything and there is nothing to do but two things. Send the 1 page invoice every month which takes 5 minutes to rattle off, and check the bank account every month to see the money is there. Not too taxing. No employees needed for that, and you can do it all in the Swiss Alps if necessary.
No I definitely wouldn't IV. Have you ever tried claiming on those so called "unconditional Bank Guarantees".....nightmare.....I tried with both Westpac and the CBA. Frickin' nightmare. Westpac has no less than 11 conditions that you need to satisfy before you can extract monies from their "unconditional Bank Guarantee".
We much prefer non-interest bearing cash deposits straight into our bank account. When the money is in your bank account already, normally I don't argue with myself....
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thanks. Interesting view point about cash deposits.
Great post Dazz thanks for sharing.
I have a couple of comments on the strata idea and recognise they provide good cashflow from sales but a few downsides are:
you are now tied in with other owners as to the success of the centre who may not share your vision;
you loose control of the tenancy mix as you don't own the shops;
you could end up with 15 $2 shops;
you can no longer control the specialty shop rentals;
there may be a clause in your majors lease preventing strata title;
similarly there may be clause stipulating a level of occupancy or tenancy mix and if that falls then your major tenant may be only paying a fraction of the base plus turnover
Anyway best of luck with it, i am sure you'll be able to turn it around.
I have a couple of comments on the strata idea and recognise they provide good cashflow from sales but a few downsides are:
you are now tied in with other owners as to the success of the centre who may not share your vision;
you loose control of the tenancy mix as you don't own the shops;
you could end up with 15 $2 shops;
you can no longer control the specialty shop rentals;
there may be a clause in your majors lease preventing strata title;
similarly there may be clause stipulating a level of occupancy or tenancy mix and if that falls then your major tenant may be only paying a fraction of the base plus turnover
Anyway best of luck with it, i am sure you'll be able to turn it around.
Leghorn,
Thanks for your post, as it prompted me to pull out the Lease and re-read it thoroughly for about the 6th time now, and amazing I'm still picking stuff up and sorting it out.
There is indeed a clause preventing the Landlord from strata titling the Premises, but it has the usual legal nonsense about the Tenant, after receiving written request, not unreasonably with-holding permission - so they cannot prevent it.
However, in searching for that clause, as it did ring a bell, I have just discovered / realised that I am short changing ourselves on the trading hours expenses.....that's just saved me a motza.
I honestly don't have my head around all of the minutae of the 23 Leases as yet. At 40 pages each, it's hard to digest every detail to know it like the back of your hand.....
Thanks for your post, as it prompted me to pull out the Lease and re-read it thoroughly for about the 6th time now, and amazing I'm still picking stuff up and sorting it out.
There is indeed a clause preventing the Landlord from strata titling the Premises, but it has the usual legal nonsense about the Tenant, after receiving written request, not unreasonably with-holding permission - so they cannot prevent it.
However, in searching for that clause, as it did ring a bell, I have just discovered / realised that I am short changing ourselves on the trading hours expenses.....that's just saved me a motza.
I honestly don't have my head around all of the minutae of the 23 Leases as yet. At 40 pages each, it's hard to digest every detail to know it like the back of your hand.....
Thanks for sharing Dazz, a very interesting and informational thread specially for me looking to get into the 'game'.
I just have some questions if you don't mind. Knowing what you now know, would you still have gone into this deal knowing what you now know?
If you do, would you have changed your approach and what would those changes be?
Thanks.
I just have some questions if you don't mind. Knowing what you now know, would you still have gone into this deal knowing what you now know?
If you do, would you have changed your approach and what would those changes be?
Thanks.