Commercial Warehouse - is this decent?

Discussion in 'Commercial Property' started by willister, 28th Aug, 2019.

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  1. willister

    willister Well-Known Member

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    So a long story cut short, I've been asked by my sister and brother in law to invest in a warehouse place with them (with us going 60% and them 40% in a trust structure). What do you think?

    Details:

    Land Size: 830m2
    Warehouse Size: 660m2 (Office is about 110m2 but detachable within building).
    Location: It's a smaller street off a main artillery but not too deep within the street, it's number 3 so pretty much off a large artillery. It is about a 2 minute drive to I'm not sure what you'd call it...a semi type shopping complex? It has a Coles and lilttle array of shops but also a fast food type area of 5-10 shops about a 3 min drive from it. The town centre though is roughly a 6-7 minute drive away.
    Tenanted: 58K pa. with 5% pa increases circa 61k in Jan 20. Tenant have completed their first option of 3 years (lease was 3x5x5) and have taken up/completed 8 months of the 5 year option. Tenants runs a plumbing and kitchen/bathroom renovations type business and is established (established for 10 years).
    Asking Price: 970K.
    Building: It's a BV but renovated place - new paintwork at front and concrete parking is in decent shape.
    Return is about 6% from my rough calcs.

    Doing my due diligence but it seems like on paper it sits well with me with my goal of having a decent passive income. I can't however work out why the vendor is trying to sell or if there is anything I've missed that is more sinister?

    Thanks
     
  2. Scott No Mates

    Scott No Mates Well-Known Member

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    What are the outgoings? Have you confirmed them?

    What is the condition of the building? Eg roof leaks, box gutter, skylights, roof sheeting, asbestos, switchboard, compliance issues etc?

    Has the new lease been executed? Have you reviewed the lease?

    Is the vendor a related party to the tenant?

    Security - bond or bank guarantee needs to be topped up and transferred.

    What is the vacancy rate in the area?
     
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  3. Trainee

    Trainee Well-Known Member

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    Usual risks about investing with family?
     
  4. willister

    willister Well-Known Member

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    Not confirmed outgoings, but I thought that was the tenant's who pay them?

    Building looks early 80s single brick. Roof is newish with no leaks visible by the naked eye and we did visit the site on a relatively rainy day. No asbestos. I don't know if the electricals need rewiring.

    New lease (option) has been executed, 8 months into the new term.

    Vendor is not a related party to tenant.

    Driving around and doing the good new method of online searches not a hell of a lot of vacancies at the moment.
     
  5. Rolf Latham

    Rolf Latham Inciteful (sic) Staff Member Business Plus Member

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    Finance needed on the security or funding from external ?
     
  6. The Y-man

    The Y-man Moderator Staff Member

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    Killer assumption - as with anything commercial it depends on the lease agreement.
    There is no set "template" as such, so the LL may have promised to cover all outgoings, fitout and 3 years rent holiday!

    The Y-man
     
  7. The Y-man

    The Y-man Moderator Staff Member

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    At 6% return, I'd probably just go and by units in the reit that owns the little shopping block that had the Coles as tenant.

    The Y-man
     
  8. Bris developer

    Bris developer Well-Known Member

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    6.2% on that isn’t really attractive
    It is just a vanilla buy and hold
    If just a stand-alone strata, It would need to be7.5-8%

    Don’t forget to factor in
    - vacancy costs
    - refurb costs
    - What is the replacement value of the building

    Commercial is really only quality assets in the $5-7M space.

    If you don’t have a $1.5M deposit, it often Beter to syndicate or grow your wealth first with resi/developing
     
  9. willister

    willister Well-Known Member

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    Thanks for all the replies.

    To be honest, I don't really expect high yields or have high expectations. I was happy at 5.5%

    Vacancy costs: Call me bullish on it, but I don't reckon it would be too difficult to rent it out if the current tenant for some reason is booted out or can't pay up.
    Building: Looks solid, no sign of asbestos.
    Replacement Value: No idea.
     
    Last edited: 9th Sep, 2019
  10. The Y-man

    The Y-man Moderator Staff Member

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    Just make sure you see @Rolf Latham post above.

    If you have a loan, the bank can call it in on 30 days notice if you have a vacancy.

    The Y-man
     
  11. Beachsnow

    Beachsnow Well-Known Member

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    Is there a method in finding out the vacancy rate in an area? Having trouble with finding sold prices too. Not as easy as resi!
     
  12. Scott No Mates

    Scott No Mates Well-Known Member

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    In NSW you can use the six maps plug-in for Google Earth, some other states have an equivalent tool for sold prices.

    Vacancy rates are much more difficult get out and do a drive by. That'd give you some idea on how many properties are vacant.
     
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