$4.2m Ballarat historical building - Views sought.

Came across this commercial property in Ballarat. Interested in getting the thoughts of the PC community. Below is my quick assessment:

Particulars:

Asking price around ~$4.2m (via agent)

Operated as a bar and nightclub,

728 SQM of land

Zoned Commercial 1

Rental $354k + GST + outgoings (per year).

8.7% gross yield.

Tenant pays all outgoings (except land tax).

Security deposit from tenant = ~$100k (approximately 3 months rent).

Land tax (per year) : Single holding in company name : $52k per year.

Positives:

Rented to experienced operators

Historical building, not easily replicated.

Some adjoining under-utilised land (car park), so has development potential

Higher maintenance costs on an older building, but it has recently been refurbished.

Negatives:

The lease is for 5 years, but it only started on 1 August 18. This suggests very high risk. May have limited history of successful operation as nightclub. If tenants fails, building value arguably drops dramatically.

Overal, this is really a ‘bet’ on the success of the building as a night club in Ballarat. Nightclubs are a fickle businesses, with clubs coming and going based on the latest fads. Experienced operators never any guarantee of success. If nightclub fails, building would have many alternative uses, and development potential, but not valued at $4.2m.

Interested in hearing the views of others.

 

Are you experienced in the bar nightclub industry? How do you assess the business?

 

• Is it a local, state or Federal listing?
• What are the rent reviews?
• How much incentive was paid by the owner to the tenant? Is it recoverable? Who owns the fitout?
• What is the vacancy rate in Bendigo?
• What are the alternative uses?
• Do you require heritage council approval?

 

Scott, great questions.

I just got another email from the agent today, they have just reduced the price from $4.2m to $3.5m. Interesting.

 

I'd be asking what guarantee the company director has listed as part of the lease agreement

 

Seems relatively expensive for a small footprint in a regional area.
Why are you buying? Just as an income stream?

If it's for future development, I would have thought there were better options out there, and you need to do some homework on the planning options for the site.

 

$7-8k per week in rent,
ouchy for the business owner,

must be pumping to be profitable

 

I will not buy this.
It's small and doesn't look appealing.
It also doesn't has much land for expansion or add value to.
Pub business is also risky. It's not like KFC or McDonalds which can be there for decades. What if 5 years down the road, it closes down and pack up? What are you going to do with the property?

And to pay $4m for a commercial property of this size in Ballarat, i do not think its worth it. You can pay this amount and buy a pretty decent heritage building in Perth city centre, possibly larger than this one. And I think 20 years down the road, the Perth building will be worth much more than this Ballarat one.

 

I rent is plus outgoings so the overall cost of the premise will be more than $8k per week

 

In my view, this building on its own (no tenant) would achieve around $1m in a regional town like Ballarat. You would pay a bit more for the fit-out as a night club. And the night club operator has put down a $100k deposit guarantee on the lease, so that has some value. So, you add them up and you probably get to about $1.3-$1.4m. The owner of the building wants in the order of $3.5m. So, is the lease agreement worth in the order of $2m?

 

Can’t help but think of the metro night club in Bourke St in Melbourne. It has been closed now for about 15 years. Many nightclubs come and go. They are not like a bank or MacDonalds as a tenant. Controlling drugs and policing behaviour in the clubs can also be an issue.