General Commercial Property Queries

There doesn't seem to be a thread for general questions or subject property questions so I thought why not start one instead making a new thread every time someone has general query.

I'll kick it off in the following post..

 

Would you deem this an unacceptable level of flood risk? The subject property is elevated from the street level by at least 500mm I would think.




SPECIAL BUILDING OVERLAY Shown on the planning scheme map as SBO with a number (if shown). Purpose To implement the Municipal Planning Strategy and the Planning Policy Framework.
To identify land in urban areas liable to inundation by overland flows from the urban drainage system as determined by, or in consultation with, the floodplain management authority.
To ensure that development maintains the free passage and temporary storage of floodwaters, minimises flood damage, is compatible with the flood hazard and local drainage conditions and will not cause any significant rise in flood level or flow velocity. To protect water quality and waterways as natural resources by managing urban stormwater, protecting water supply catchment areas, and managing saline discharges to minimise the risks to the environmental quality of water and groundwater.

 

The building I'm leasing at the moment for my small business is in a flood zone. Last flood 1991, but it was a good one. I'd have up to a meter through my premises. Far enough back that we can all live in denial. But it could happen 3 times in next summer. I imagine prospective tenants would then need a few years to forget the experience, resulting in vacancies.

Acceptable risk as a tenant for me right now, but it did put me off investing here. I just bought an industrial at Northern Rivers NSW. High flood area, which made my flood free one desirable, to me at least. Also easier to hose out a warehouse than retail premises.

Yours above, I'd probably risk that if everything else added up. Always a bigger flood / fire / drought to come than we have seen though.

 

I used to do a little up Grafton way in previous lives.

Maccas at South Grafton is built as a Queenslander the entire building sits above a ground level carpark.

 

Yeah got to be able to swim if you live south side Grafton

 

With capital growth on a commercial property, my understanding is that it is dependent on many factors such as rental increase, lease length or remaining lease, asset type, market cycle and etc.

In a real life scenario, can you expect to see a big discrepancy of a commercial property due to the above factors at different time interval ie this year the property was valued at $450k but next year it is valued at $350k due the shorter time remaining on the lease.

Secondly, I'm trying to understand if a $200k to $400k commercial property can actually grow in value at all. I know it depends on many factors, but I have seen some commercial properties at this price bracket which the previous owners had owned it for more than 10 years and the sold price was not that much different to the price they paid all those years ago.

 

I can't personally tell you what the properties I purchased in 1997 would sell for today but I can tell you the change in income.
Property purchased for $580k net rental $75k . Today's net rental $280k.

Unless you are a public listed company why are you interested in what it is worth at different time intervals ?

I do not care what it is worth 99% of the time.

Why would you care ?

It's the net rental that counts.

 

l'm still relatively new in this space.

I am interested to know the value at different times to know when to extract the equity to continue on the acquisition process. I think at this stage, l would still be very dependent on my resi portfolio to expand but the commercial properties are helping me with my serviceability.

Also, l think your commercial properties are of a much higher value and are freeholds which can be used for many purposes.

 

@jins13 A relative of mine is very high up in one of the major financial planning groups. I asked him a few weeks back what they suggest if clients want to get into commercial property. I was specifically asking about Charter Halls Direct fund, and if they recommended that. He said no, they generally recommend clients place money into a commercial property “fund if funds” and he mentioned Resolution Capital. Have you looked at something like that? These guys are pro’s, experts actually.

Could be an option worth investigating.

 

One commercial property I purchased in 1994 was $257k , 1995 $410k, 1995 $418k , 1996 $126k , 1997 $585k , few dozen more etc etc to 2021 my most recent purchase
So I am small fish compared to almost everyone on this site .
Many of these were JV (but now 100% ownership)

 

To have an opinion on the market value of a commercial property will generally involve a valuer
The cost of this is anything from $3k to $8k depending on the number of tenants , size , types of tenants etc.
So with ten tenants over say two decades you could be paying $100k just to know your values.
Commercial values are very hard to estimate with any accuracy.
I have a property that the rental is fixed for fourteen years .
After the initial valuation I would not have a clue year on year , decade on decade the value movement.

 

"Pro's" means what ?
Professional in making money primary for themselves in fees?
Resolution Capital is a business that primary makes money to cover their overheads/costs, wages and profit.
The investors are secondary aim (if the investors are primary then in years of investment loss the loss of the investors would be paid funded by shareholders of Resolution capital ).
Of course a person high up would recommend a "fund".
Just look at their overheads.
It will shock you .
I am not a "pro" I am just a mum and dad investors who would prefer a "pro" not clip the ticket at every stop

 

It becomes a wee bit more difficult calculating a reversionary interest in anticipation of the next review opportunity.

 

@Beano I'm with you, I agree with many of your points so please don't think I am trying to get in an argument with you.

That said...in the same way index tracking ETF's are easier and in many cases a better option that stockpicking, there might be a cohort for whom it is simpler and easier to use a fund or managed trust as above. So in that regard, it simply "might be worth investigating."

Nothing more, nothing less.

I am very aware of the fees structure of the finance industry. In a somewhat similar vein, I am very aware that in Australia the amount of fees charged to our super account holders is outrageous and way above world standard. That said, even taking into consideration these fees, I do believe that an SMSF is not for everyone. Many account holders would be better off in the regular Australian Super (or whatever super fund they have) growth/balanced/conservative/whatever option they choose.

That is my point, nothing more, nothing less

 

Hey guys,

Can I ask what people are paying for leasing and management fees?

Leasing I’ve been quoted 15% of the first years rent.

Ongoing management I have been quoted from 2 separate companies, one charges 5% of all monies received (I.e. rent and outgoings,) the other charges 6% of the rental amount only.

I’m thinking about trying to pass these costs onto the tenant, does anyone do this?

Further, the location of this property is pretty prime, surrounded by national companies and very low vacancy rate. Has anyone had success in negotiating the above fees?

TIA, any advice greatly appreciated!

Cheers

 

NSW is generally 11%+ GST & advert/signboard

You have to do your numbers especially if there's strata costs as outgoings it may make 6% sound cheap.

This is negotiated at the leasing stage - gross rent is a higher amount but should be pretty close to a nett lease + collected outgoings

 

@Scott No Mates ok cheers. Yeah I haven’t fully run the numbers at the moment just seeing if this is about market rates.

I know I personally would never cover the management fees, but I only have experience with industrial leases. I’m sure I read/heard somewhere that in retail/commercial leases including management fees is more common, I may have it wrong though.

 

Depends how strong a position you're in and how naive the prospective tenants are. I have encountered it mostly on government tenant leases where they have the capacity to pay.

 

@Scott No Mates and @Beano thank you for all you advice in the commercial space.

My latest question is about a request I made to the tenants to amend the Bank Guarantee which issued by CBA. The tenants stated that any amendments to the Bank Guarantee attract a re-documentation fee of $250 and will also take quite a few hours in admin time for them to action.

The tenants are responsible for all outgoings, however do I see this as a cost of doing business and for my peace of mind to pay the amount to have this Bank Guarantee.