Why wouldn't you go for commercial?
- Thread starter Sunfish
- Start date
The "For Sale" sign is still up Lizzie.
volatility is of course one of the riskier aspects of commercial. I have heard of places that were $5m now transacting at $2m etc. Development sites even worse. a contact recently picked up a site (i think it was vacant I am not sure) for $8m, bank debt on it was $12m against a val of $16m. Bank just wrote off the difference.
More to the point there is a ex bank right next door that has closed down is now reused for other purpose.
(the beauty of street view
)Cheers
I am a fan of commercial, but generally start up costs are massive compared to residential. That said, I have one commercial IP, for a bit over 4 yrs now, and it has been a mixed bag, but has been my smartest ever financial decision.
The main issue revolves around tenancy. Long periods between tenants are not uncommon and the bookwork is considerably more. A property with multiple tenants reduces the risk and is what has been my saving grace. I have had Local & State Govt agency tenants, (still do) and they are generally stable producers if you can keep them on board. Small business tenants are a mixed bag.
I much prefer Com IP but unfortunately, most are well out of my price range.
The main issue revolves around tenancy. Long periods between tenants are not uncommon and the bookwork is considerably more. A property with multiple tenants reduces the risk and is what has been my saving grace. I have had Local & State Govt agency tenants, (still do) and they are generally stable producers if you can keep them on board. Small business tenants are a mixed bag.
I much prefer Com IP but unfortunately, most are well out of my price range.
http://www.realcommercial.com.au/cg...3&s=sa&snf=as&tm=1247397601&cu=fn-realcom_CBR
Wouldn't mind a nice $1.5mil net per annum to keep the bills paid.
For those earlier in the thread who complained about links going to the generic page rather than the actual property listing it's due to the way they've designed the page. When people copy and paste the address bar that's all you get.
To prevent this, when linking to others, right click on the underlined title of the advert eg SUPERB RIP OFF BUILDING and click Copy Link Location. You can then post it in a forum post for others to see as I have done above.
Hope this helps
Wouldn't mind a nice $1.5mil net per annum to keep the bills paid.
For those earlier in the thread who complained about links going to the generic page rather than the actual property listing it's due to the way they've designed the page. When people copy and paste the address bar that's all you get.
To prevent this, when linking to others, right click on the underlined title of the advert eg SUPERB RIP OFF BUILDING and click Copy Link Location. You can then post it in a forum post for others to see as I have done above.
Hope this helps
Watched this one being built over the last 18 months. For me, the above ground carparking on the first 4 levels ruins it.
I must admit, my commercial property knowledge is not very good, actually NIL is a better word,
Naturally, you generally get higher returns, based on a higher supposed rate of risk due to commercial tenants with usually 3-5 year leases!
hence risk vs reward??
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I dont see banks staying in most of their current locations for very long and expect most to move within the next 10yrs.
I can hear Daz slamming away on his calculator as we speak!
No doubt - that's what investors always do....isn't it ??
Hmmm.....$ 11,942 per week rent.
Townsville - 8.75% nett yield on asking price. Tenants look good, but having read many Govt Leases, there are plenty of downsides compared with strong corporate Leases.
Sunfish - a minimum of 9.0% nett yield is achievable in Sydney CBD for the average Joe. Going up to Townsville would necessitate a risk premium above that to make it attractive, IMO.
The trick of course is in getting the finance nowadays on attractive terms.
Bayview may have a point re: the relative size of the asset compared with the remiander of the portfolio. It'll either swamp you if you are too small or push you up on it's cash rocket.
Hi DazNo doubt - that's what investors always do....isn't it ??
Yep
Townsville - 8.75% nett yield on asking price. Tenants look good, but having read many Govt Leases, there are plenty of downsides compared with strong corporate Leases.
Could you please elaborate on the downside of Govt leases?
Cheers
Hi handyandy, good question.
The downsides of a Govt Lease are all fully connected with the upsides of a Govt Lease.
Investors, Lenders and almost everyone in the market perceives them to be more secure than corporates - no matter how big the corporate is....and I'd agree with that also. Due to that perceived increase in 'security', the Govt negotiators extract every last drop they can from the Landlord....as opposed to a corporate tenant.
I've chosen thus far not to give in to their demands and have stuck with the higher paying corporate folks. I'll take my chances that things aren't quite as bad as what the big Banks make them out to be.
Examples of what the Govt may be able to have in their Lease that a corporate wouldn't be able to get away with ;
1. Initial face rent may be up to 10 or even 15% lower.
2. They may not stump up any Bank guarantee.
3. They may not contribute to a sinking fund if strata'd.
4. They may ask for and be granted excessive number of carbays.
5. The escalation rates in rent may be say 3.5% p.a. instead of 5% p.a.
6. Often they choose to pay a lump sump gross rent figure, and then over the next 10 or 15 years the outgoings - especially Land Tax impost, slowly eats away at the Landlord's nett take.
7. They often demand to have a 4.5 or 5 star energy rating on the building means the Landlord must fork out big mobs of money to upgrade to their standards. Doesn't help when they change policy, and up their policy from say 4 to a minimum of 4.5 stars, and your building is rated to 4 stars and will cost an extra 2M to upgrade the lifts / lighting / air con IF you wish to keep them.
I'm sure you get my drift handyandy.
The downsides of a Govt Lease are all fully connected with the upsides of a Govt Lease.
Investors, Lenders and almost everyone in the market perceives them to be more secure than corporates - no matter how big the corporate is....and I'd agree with that also. Due to that perceived increase in 'security', the Govt negotiators extract every last drop they can from the Landlord....as opposed to a corporate tenant.
I've chosen thus far not to give in to their demands and have stuck with the higher paying corporate folks. I'll take my chances that things aren't quite as bad as what the big Banks make them out to be.
Examples of what the Govt may be able to have in their Lease that a corporate wouldn't be able to get away with ;
1. Initial face rent may be up to 10 or even 15% lower.
2. They may not stump up any Bank guarantee.
3. They may not contribute to a sinking fund if strata'd.
4. They may ask for and be granted excessive number of carbays.
5. The escalation rates in rent may be say 3.5% p.a. instead of 5% p.a.
6. Often they choose to pay a lump sump gross rent figure, and then over the next 10 or 15 years the outgoings - especially Land Tax impost, slowly eats away at the Landlord's nett take.
7. They often demand to have a 4.5 or 5 star energy rating on the building means the Landlord must fork out big mobs of money to upgrade to their standards. Doesn't help when they change policy, and up their policy from say 4 to a minimum of 4.5 stars, and your building is rated to 4 stars and will cost an extra 2M to upgrade the lifts / lighting / air con IF you wish to keep them.
I'm sure you get my drift handyandy.
Great post TPFKAD
Government & Corporate Leases
You need to keep in mind that what is contained within a lease requires agreeance of both parties. This means that entering into a new lease, terms & conditions are negotiable.
You can have great government & corporate leases (terms & conditions) & you can have leases with conditions that it’s difficult to understand why anyone would have agreed to them.
I have seen leases for retail space that are so complicated that even the legal specialists have difficulty qualifying the intent of some clauses.
Bottom line is that clear, fair & favourable lease terms & conditions are not exclusive to corporate clients.
Philip
You need to keep in mind that what is contained within a lease requires agreeance of both parties. This means that entering into a new lease, terms & conditions are negotiable.
You can have great government & corporate leases (terms & conditions) & you can have leases with conditions that it’s difficult to understand why anyone would have agreed to them.
I have seen leases for retail space that are so complicated that even the legal specialists have difficulty qualifying the intent of some clauses.
Bottom line is that clear, fair & favourable lease terms & conditions are not exclusive to corporate clients.
Philip
sorry to hijack/redirect the thread but
for those commercial property experts.
Does this mean that if there is a residential house on a mainy road that already has a few other similar properties that have been converted/used/rented for businesses, eg doctors clinics, etc, that your property is worth a lot more, or worth the same???? compared to a house on a side road that has no/not allowed to have any commercial businesses assuming that the house is identical????
Ive just recently seen a house where apparently a doctors clinic showed interest in renting it a few years ago, however the only thing with that is I was intending to subdivide it, however, if a doctor was going to use it, I wouldn't be allowed to subdivide as they would need the extra space for a carpark etc. so I am just trying to put it all in pespective as to whether commerciability is going to be a Pos/neg/neutral.....
thanks anyway everyone
for those commercial property experts.
Does this mean that if there is a residential house on a mainy road that already has a few other similar properties that have been converted/used/rented for businesses, eg doctors clinics, etc, that your property is worth a lot more, or worth the same???? compared to a house on a side road that has no/not allowed to have any commercial businesses assuming that the house is identical????
Ive just recently seen a house where apparently a doctors clinic showed interest in renting it a few years ago, however the only thing with that is I was intending to subdivide it, however, if a doctor was going to use it, I wouldn't be allowed to subdivide as they would need the extra space for a carpark etc. so I am just trying to put it all in pespective as to whether commerciability is going to be a Pos/neg/neutral.....
thanks anyway everyone
I'm no expert and obviously can't comment on this particular example (too many variables at once!) but commercial / industrial property is generally considered to be the "higher" (as in more valuable) zoning as the land can be used for more profitable purposes. You will (generally) find land values are higher for CIPs than RIPs for an equivalent location, although how to work out equivalency in location can be difficult - eg would a central CBD office tower be a good or bad resi location?
There's still much gloom & doom in CIP and bargains out there as I'm still seeing CIP at ~10% return in the 3-5mil range, some with good tenants.
I don't think it's going to get any better soon with banks tightening credit policies.
I'm patient, no hurry yet.
I don't think it's going to get any better soon with banks tightening credit policies.
I'm patient, no hurry yet.
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