Why has noone bought this high yield ppty

[888Katone]

Why has noone purchased the following property:

Swim Centre in established melbourne suburb
200,000 yearly rental with 4% increases.
Just started a 7 year lease with 3 or 4 further 7 yr options
Off a busy main road
3/4 of an acre in Eltham - a long driveway with pool centre on the rest of the property.
Zoned residential 1 - could be redeveloped in future.
Price vendor asking is 2.5m - but is open to negotiation.

Vendor built the building himself 14 years ago - and the business is being sold separately - the current manager of swim centre is taking over.

Why has noone bought it yet ?

 

[NedKelly]

You may have to hold the property for 28 years with returns no better than bank interest.

 

[yo yo ma]

This would be the pool... With interest rates at 8%, the place is neutrally geared. If next year, rates go up to 9% and rent goes up by 4%, you are looking at a $17K loss (rough figures). I guess the reason it is not selling is because of the uncertain current economic climate. I am unsure whether the location has anything to do with it, as I don't know the area.

 

[Dazz]

Without knowing a jot about the place, the first and only thing I'd be checking for it whether the Lease is generously sprinkled with "market reviews".

The way I read it, the Seller is the tenant or thereabouts.....if that's the case the Lease will be as weak as water.

If it is just 4% straight increases for 28 years (which sometimes happens when the above situation happens) then they are simply waiting for a woodduck to buy the place.

No market review at option take up.....drop it.


I suppose pools aren't reknowned for having a booming business.....you won't be able to impose 100% lifts in rent etc....so don't expect an outrageously successful tenant.

Gym and pool owners also regularly have their residential hats on (i.e. happy to call up the Owner and have a whinge about something to fix).

If you're going to put your toe into these waters, you need to avoid people like that like the plague.

 

[888Katone]

Very interesting on all your thoughts...we question marked it straight away...anyone else have their own theory ?

 

[AlmostBob]

If it was a good deal, the business buyer would buy the property as well.
They didnt, it aint.
The money is in the business, the property is a dog

 

[evand]

You hit the nail right on the head. The reason no one has taken it up is because its not such a great deal.

If it was a good deal, the business buyer would buy the property as well.
They didnt, it aint.
The money is in the business, the property is a dog

 

[Perp]

For those more seasoned commercial investors, do you think the residential zoning is another issue? Wouldn't it limit future development potential?

Another anomaly that I'd be wanting explained is that when you look at a map of the lot (go to maps.google.com.au and put in the address), the swimming complex looks to take up at least a third and perhaps a half of the lot, yet the numbers say that the floor area is only 400m2 compared to nearly 4000m2 of land on the lot. What's up with that?

Also remember that lenders will look at what the property would let for if your tenant goes bust. Could this property be used as anything other than a swim centre (probably not), and if you got another tenant, what rent would they be willing and able to pay? I suspect it's this aspect that makes the deal less attractive - valuers probably value it much lower than the asking price. Ring up some commercial valuers in the area and ask some probing questions.

 

[Nicko]

It's highly specialised and unlikly to be used for anything other than a swim centre. The likelihood of finding a swim centre operator would be very slim. Bank is likeliy to consider it high-risk and require 50% equity. Peculiar if it is a recently built commercial use on Residential zoned land. Making-good a swim centre (ie changing teh use) would cost HEAPS! Keep in mid tenants walk irrespective of what the lease says. My biggest concern is re-renting out your land and buildings if you have to!

That said, if it is a lease-back to an owner operator you may be able to package a good deal up for yourself.

Would suggest any lease have a turnover clase; ie one where the annual revenue of the business could be mnitored by the Landlord.

 

[twobobsworth]

It's highly specialised and unlikly to be used for anything other than a swim centre.

maybe an aquarium??