Opinions on two commercial properties
- Thread starter china
- Start date
A fair point. I do know of a case where a property which had details posted (not explicitly, but enough details that it could be identified), where forum members bid against the poster.
At least these give an idea of what China is thinking so may help to clarify future responses when details given are of a more general nature.
The property at tweed... its strata title first floor so why would you believe that you have ownership of the land to redevelop? Sounds like 4 million for a floor in a mini hospital.
I would ensure you also leave enough resources, if it is freehold, to pay for repairs and maintenance as capital works are often exclude from leases. Eg replacing building services eg water towers, lifts etc. You could easily chew through a few hundred grand to replace a lift and fire systems.
so does that mean the loan has to be paid off within that period?
Yes. Most common is first 5 years interest-only followed by 10 years P&I. Of course most people refinance after 5 years to extend the IO term but that's another issue.
And yet the resident silverback lambasted me as being selfish and destroying the integrity of the forum when I withheld the location of a property I was interested in
I don't like the long lease of the Tweed one, but that's only because I don't know all the details of how it is set up.
Neutral Bay is Neutral Bay. It will always have a high population, but it also has a relatively high transient population.
Hi,
I think over long leases are over rated. 10 + 10 sounds good to me.
25 years on the same terms is awful if you get a boom period & you're stuck on only CPI increases.
I would check the provisions for rent reviews. However, valuations can be costly.
Having said that, you're in the perfect position to leverage your PPOR into a commercial property. Straightaway, you're in CF+ territory.
Good luck. As always, if your gut says 'Go for it', the go.
There's something called overanalyzing.
I always went with the gut, & it's never been wrong.
KY
I think over long leases are over rated. 10 + 10 sounds good to me.
25 years on the same terms is awful if you get a boom period & you're stuck on only CPI increases.
I would check the provisions for rent reviews. However, valuations can be costly.
Having said that, you're in the perfect position to leverage your PPOR into a commercial property. Straightaway, you're in CF+ territory.
Good luck. As always, if your gut says 'Go for it', the go.
There's something called overanalyzing.
I always went with the gut, & it's never been wrong.
KY
Nice properties China but there's just not enough information to really comment for me.
What is the term of the initial lease (option terms have very little value compared to leases and if they come with fixed rent reviews that lock you out of cashflow upside then it's a "regressive lease")? What are the rent reviews like - indexed / market / ratchet? What is the outgoings treatment like - who covers repairs and maintenance, capital items, Property Management etc etc? Are there make good provisions? Are you paying above market compared to similar vacant space down the road? Is the rent currently around market or above or below?
Without knowing all the above and more, it's impossible to quantify both the likelihood and consequence of both the upside and downside. You need to know the risks and benefits before you can arrive at a value.
If the lease is long term and to a strong tenant then talk to a broker about how that may improve your finance options. But this is a case by case thing... Let us know how you go!
BTW I do agree with others that posting a good deal on the forum can easily become an invitation for someone else to buy it! So make sure it's something you're happy to lose out on...
What is the term of the initial lease (option terms have very little value compared to leases and if they come with fixed rent reviews that lock you out of cashflow upside then it's a "regressive lease")? What are the rent reviews like - indexed / market / ratchet? What is the outgoings treatment like - who covers repairs and maintenance, capital items, Property Management etc etc? Are there make good provisions? Are you paying above market compared to similar vacant space down the road? Is the rent currently around market or above or below?
Without knowing all the above and more, it's impossible to quantify both the likelihood and consequence of both the upside and downside. You need to know the risks and benefits before you can arrive at a value.
If the lease is long term and to a strong tenant then talk to a broker about how that may improve your finance options. But this is a case by case thing... Let us know how you go!
BTW I do agree with others that posting a good deal on the forum can easily become an invitation for someone else to buy it! So make sure it's something you're happy to lose out on...
One appears to be vacant possession .( I seem to recall vacant properties when last going along military road , several in fact )
How long is the current lease on tweed heads ?
Some companies plan ahead . Ie we're going to move 5 years time time , lets set up a lease and sell while we get a good price ...
Mayne health WAS one of the biggest providers of private hospitals in Australia until they managed to alienate all the dr's working there by bringing in cost cutting measures . Their share price started drifting down and no one knew why . All the doctors who worked there were unloading their shares in their SMSF prior to resigning and moving to the main competitor . To the best of my knowledge Mayne no longer have any / significant exposure to the oz hospital market .
The private hospital market is ruthless and cut throat . Are you ? It is not a set and forget investment . If one of the big players or a syndicate of local doctors decides to build a new 50 mill state of the art facility over the road and offers cheap one year rents to all the local specialists you have a vacant building.
I wouldn't buy either , but if someone put a gun to my head and said choose . I'd go military rd . High exposure , good central sydney location .
But you'd need to know the rental market or have deep pockets in case of initial vacancies.
Cliff
How long is the current lease on tweed heads ?
Some companies plan ahead . Ie we're going to move 5 years time time , lets set up a lease and sell while we get a good price ...
Mayne health WAS one of the biggest providers of private hospitals in Australia until they managed to alienate all the dr's working there by bringing in cost cutting measures . Their share price started drifting down and no one knew why . All the doctors who worked there were unloading their shares in their SMSF prior to resigning and moving to the main competitor . To the best of my knowledge Mayne no longer have any / significant exposure to the oz hospital market .
The private hospital market is ruthless and cut throat . Are you ? It is not a set and forget investment . If one of the big players or a syndicate of local doctors decides to build a new 50 mill state of the art facility over the road and offers cheap one year rents to all the local specialists you have a vacant building.
I wouldn't buy either , but if someone put a gun to my head and said choose . I'd go military rd . High exposure , good central sydney location .
But you'd need to know the rental market or have deep pockets in case of initial vacancies.
Cliff
yes and if you can't fix it per the above you have a life threatening disease and should call 911 immediately... do not pass go.
More info has arrived with regard to Tweed
1. Lease commenced in 2000. Initially 10 years then a further 8 by 5 years options, so 37 years from 2013
2. Annual 3% rent rises + open to market review when options exercised
3. The price buys building and land
4. The tenant is Healthscope an ASx listed private company that runs 22 hospitals in this country. Healthscope was acquired by an american venture capital company in 2010
5. The building is strata titled. The tenant healthscope subleases to surgeons inside the hospital and runs operating theatres.
6. Outgoings are all by tenant including any land tax. I am not sure regarding the details of capital works etc.
7. A vacant block on the same street is listed for sale at 2.2mil
8. I am concerned about a few issues:
- Why havent' the surgeons inside the building purchased it? They can easily afford this price range
- What happens if Healthscope - the tenant - folds. These companies usually have a pattern of collapsing every decade or so or are taken over. With rent re-negotiation, I as the owner would be disadvantaged because the building would not be suitable for any other usage. The new operator of the hospital could give me a low rent and then say, take it or leave it. I would be unable to find another type of tenant.
- I don't know how business is going at this hospital
Please keep sharing your thoughts. No information has come yet regarding Neutral Bay - which is essentially a few strata units within a large complex and would involve me renegotiating leases every five years -but the Neutral bay property is suitable for all sorts of retail tenants not just medical
Hi china
I think you've answered the question in your last post . Good analysis .
What's the correct conclusion ?
I haven't met some one who' started their career with a big commercial purchase . It tends to be a letter career move , but dazzling .... What do you do ?
Handy Andy who is talking about commercial ATM , own a substantial residential portfolio , unless he's cashed out which I doubt .
Cliff
I think you've answered the question in your last post . Good analysis .
What's the correct conclusion ?
I haven't met some one who' started their career with a big commercial purchase . It tends to be a letter career move , but dazzling .... What do you do ?
Handy Andy who is talking about commercial ATM , own a substantial residential portfolio , unless he's cashed out which I doubt .
Cliff
jesus. so in the vast majority of instances you really arent seeing any money in your pocket each week if youre paying principal too
Just keep rolling it at the end of the IO period sanj - usually this allows you to tap the equity if the value has gone up. Not unlike residential 5 year IO periods in that respect.
Although having had experience of a "non-reviewable" loan product from a smaller commercial lender becoming reviewable a year in (as a result of APRA changes) I wouldn't give any credibility to a CIP product that says it's "non-reviewable". Just check the loan agreement to see what the reality of the situation is!
With regards the second one, an 8 % yield (I'm presuming net) is nothing special for an asset of that pricepoint in a regional centre. Is the tenant Ramsay?
Also being a day hospital it has a very unique fit-out to suit the end user. If you lose that tenant, it can't just be painted, recarpeted and leased out as offices just to give one example. Also check what the make-good requirements are in this instance. I would also be interested to know.
China, it will be good practise for you to obtain the leases for both of these if you haven't already and dissect them and get used to seeing what sort of lease terms are being made in the medical space. Also beware the too tenant friendly clauses although these are usually more common in the retail space.
Thanks for sharing and good on you for getting out there and looking........
That's not the way to look at it. The reality is that this is a two year lease, probably less by the time you settle, with the possibility of longer. It's not worth any more than any other two year lease out there. I can assure you that's all that any bank will consider it to be...
With exposure to market reviews at every option, the tenant has no reason to stay there other than the (not insignificant of course) cost of moving. Just like any other tenant then... but if you are still interested just check the tenant has to exercise their options before the market review process starts - you don't want them holding option renewal over your head while you try to negotiate the market rent!
BTW, when you say this buys "buildings and land" it is still actually a strata title. As for the doctors, IME the doctors are too busy paying off their prestige house, car and private school fees to have any money for this sort of thing. In CIPs, you will go mad if you start thinking "why doesn't the tenant just buy it?" - there are hundreds of reasons both good and bad.
thanks. im presently starting to think about a particular commercial strategy and may have a site in mind, might get in contact with you to pick your brain if you dont mind.
No comments on the actual properties, just how do you/would you feel having all of your eggs in one basket?
