Commercial Property - $4.5m Purchase

The revalue

I had a bank that said it could not proceed one day before settlement because there was not a company secretary appointed to my company. 3 hours of mad scrambling later, I had the problem fixed. Lucky the ASIC website was not down that morning, and was able to update details. I had a 90 day settlement and the Bank waited until day 89 to tell me.

 

I had a client who had:
1. never even been late on a payment
2. was told the valuation on their special use commercial property was just run of the mill
3. had the business and property held in same company
4. was then given a v short time frame (think it was even as low as 7 days) to come up with the millions to payout the loan
5. put into receivership before they could do anything

The bank in question simply wanted to exit that sector, and did so aggressively.

 

The annual revaluation makes the CP financing arrangement akin to a margin loan. If the value moves, you are in trouble absent a very well developed Plan B. In fact, it is arguably worse, as you cannot just sell part of the portfolio to bring the LVR into an acceptable range like a margin loan. If the value has moved because a tenant has vacated, you need time to get another tenant which the bank may not give you. And finally, if the value has moved because of a GFC type event, then it is years before the value recovers. As someone once said, borrowing money to invest works well 99% of the time. The key thing is, can you handle the 1 in a 100 events like the GFC that will effectively shake you from the tree and wipe you out. In residential, there is no revaluing, so you are somewhat protected from these events, but CP is different. The more I learn, the more I am very cautious and wary about this whole CP market.

 

Thanks for sharing that. Many people agree to clauses in contracts thinking the bank will never use it, especially if they have a good relationship with their lender and they somewhat rely on statements like ‘it is just run of the mill, don’t worry...’. But banks change policy, staff move on, and it is the words in the contract that matter.

 

Sorry, these are acronyms I don’t understand : ‘ROM’ product?

 

Ah yes, thanks.

 

I dont disagree
That is why you need to have something you can re purpose
A multi level carpark in a high density area would be very appealing to Kennards/Storage King (they may even pay to convert it).

 

Given CP is generally low capital growth, payoff really comes if you can is repurpose the land in some way. Turn vacant land into warehouse, warehouse into car park, car park into a storage unit, storage unit into high end apartments, etc, etc.

 

Thanks for starting this one up @Harry30 a lot of gold in this thread. Know what it went for in the end?

 

It's still listed for sale.
17-19 Grey Street, St Kilda, VIC 3182 - Shop & Retail for Sale

 

Yep, still for sale I think. Probably fallen 15% from the period when I first posted.

 

What do you do in this scenario?

Get a short term loan from a private lender while selling the asset?

 

Old building
Low rent
HIgh maintannce
Current owners may know of issues coming up
Small land footprint
Heritage/historical?

Very good long term potential.

I'm with Rolf, only for the cashed up.