37 Armstrongs Road, Seaford Victoria - Your feedback please

Discussion in 'Commercial Property' started by Dave_Seaford, 15th Jun, 2017.

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  1. Dave_Seaford

    Dave_Seaford Member

    Joined:
    24th Oct, 2016
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    Location:
    Victoria
    Hi Folks,

    Looking to purchase our first IP. Link below.

    37 Armstrongs Road, Seaford, VIC - Commercial Retail for Auction

    I would appreciate any positive/negative thoughts about this property which I am considering for purchase.

    Downstairs is a café (97 sq meters) - with income of $13,458.76. Leased on a 2 year term expiring in May 18, with an option for two further 2 year terms. Fixed increase of 3.5% annually and a market review on commencement of further terms.

    Upstairs is a 2 bedroom unit with its own street frontage and private entrance at rear via a laneway. Income is $13,008. Lease expires in May 18.

    Asking price is $550K +.

    The property last sold $320K in December 2014.

    My thoughts...

    Let's assume I manage to secure the property for $540K, allowing for purchasing costs, that becomes ~$580K.

    Yield is 4.5%

    Also, given the sale price only 2.5 years was $320K, the seller seems to be looking for a large capital increase. Obviously is a reflection of the excellent growth seen in the area.

    Good buy / bad buy at $540K? Any other pitfalls to watch out for?

    Thanks,

    Dave
     
  2. Simon Moore

    Simon Moore Residential & Commercial Mortgage Broker Business Member

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    Level 2 287 Collins St Melbourne VIC 3000
    Hi Dave,

    The yield looks to be low, how does the cost per square meter compare to other retails shops sold in the area recently? I generally consider suburban retail, especially those without an 'anchor' tenant (Coles, Kmart etc.) to be quite risky.

    The big trap to look out for is getting finance (if required). If this is your first commercial investment, commercial finance is a whole new world.

    Consider having the lease reviewed in addition to the contact of sale. These can be a large variance in commercial leases.
     
    Last edited: 15th Jun, 2017
    larrylarry likes this.
  3. Dave_Seaford

    Dave_Seaford Member

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    Victoria
    Thanks Simon.

    What would you consider an acceptable yield for this type of property in this type of residential strip?

    I have around $115K in equity to put towards the purchase price. What sort of financing issues would you envisage I might have?

    By lease renewed, you mean executing a new 2 (or ideally 3) year term?
     
  4. S.T

    S.T Well-Known Member

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    What's the cafe like? Have you been there and checked out the service, does it look like a good business? Plenty of customers? You're income is linked to the business, handy to do some DD on that part of it.
     
  5. Simon Moore

    Simon Moore Residential & Commercial Mortgage Broker Business Member

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    Mid 5's? But I don't know that area well.

    The shorter loan term, lower LVR, loan reviews and upfront costs are generally where people get tripped up. Commercial finance is totally different to residential finance, don't win this property at auction then find there is no chance you can get finance!

    Sorry, that was a typo by me, I meant to say 'reviewed' by a lawyer.
     
  6. kelly_seaford

    kelly_seaford New Member

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    We actually live local to this building and the cafe opened at the start of the year ( it was previously an organic fruit shop that leased the space for around 7 years) the cafe is thriving as its child friendly - I've looked around on social media and it's always a recommended cafe in and around bayside areas for "mum" catch ups - weekends are always busy when we walk past.
     
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  7. Natascha

    Natascha Active Member

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    Beware of childfriendly cafes. They can be super busy and still not generate a lot of revenue. Mostly because mums often don't go out for drinking/eating mainly but to chat. The number of non consuming kids fills up the space as well. I am not saying that this must be the case but I know of a few cafes here in Sydney that had to shut down for these reasons and they were always booked out.
     
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  8. Scott No Mates

    Scott No Mates Well-Known Member

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    I'd be concerned about the uplift since the previous sale if there has been no capital spent on the building in that time. The laneway and parking area are in a bad way so will require $$, how's the drainage?

    Looks like they purchased as VP or with the resi tenant at best. Is the upstairs tenant also the cafe tenant or the vendor?

    It's a very small set of shops purely convenience - few comparable sales even in the wider area.

    I'd probably be looking for high 6%+ return on this site as there are limited offerings/tenants.
     
  9. Dave_Seaford

    Dave_Seaford Member

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    Thanks everyone, yes all really good points. I'm inclined to think sticking to the Nepean Highway strips between Moordialloc and Frankston (or inner Frankston) might be a better way to go.
     
  10. alicudi

    alicudi Well-Known Member

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    Location:
    Melbourne, Australia
    Hi

    I live around the corner in Patterson Lakes and have a number of retail ip's in the area. I did put an offer on this property a couple of years ago but didn't want to go above $300,000 so was happy to have missed out at that point in time.

    I like the fact it has 2 separate addresses for the front and rear but do understand in its current format could never be subdivided due to the way it is built.

    I do like the fact that the rear lane way has a beautiful house in it which does lift up the quality of the rear entrance but the neighbouring shops do let down the rest of the rear laneway.

    If it were me I would not pay anymore than $500,000 but if I wanted to occupy a small office and live on top of that office this is a perfect site for that. I don't think the existing cafe is a high quality tenant (that is my personal opinion) and if they leave you could be left with a vacant retail premises for a very long time. Remember that out of the 4 shops in Armstrongs Road you already have 1 other vacant shop to compete with if this had to go up for lease today.

    I don't think you will have issues leasing out the apartment upstairs though at the right price if and when the current tenant leaves.

    You may also wish to look at a shop for sale in Stephensons Road Dandenong North and Ferntree Gully that are for sale with residences and would also fit within this price range..

    Address available on request, Dandenong North

    Commercial Real Estate - LIFULL Australia Real Estate

    Were you at the open for inspection that took place at 12 noon last Tuesday the 13th of June?

    Whilst a Nepean Highway location could be a safer bet try to stay away from Carrum as I have seen retail premises remain vacant for years in that location. Also keep in mind sky rail will change the dynamics of some of the retail shops along Nepean Highway.

    To Dave Seaford: Do you often have coffee at The Lake cafe in Patterson Lakes that is located next to the ANZ bank?

    Regards,

    alicudi
     
    Last edited: 18th Jun, 2017
  11. alicudi

    alicudi Well-Known Member

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