Getting a Start in Commercial

Discussion in 'Commercial Property' started by Tyson, 2nd Nov, 2021.

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  1. Tyson

    Tyson Member

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    Firstly, a quick hello to those on the forum who are often active and provide a great deal of insight (looking particularly @Beano @Scott No Mates and @Bris developer), it is appreciated.

    The point of starting this thread was to try and establish the best way to go about starting a journey into commercial property. I have been lurking through the forums for the past few months trying to absorb as much as possible, however, the world of commercial investing still seems very foreign. As I am sure most of you are aware, the commercial world appears particularly complex and specialised from the outside looking in (and perhaps that is the rub of the green, it is complex and requires a great deal of time, research and effort).

    From that point of view, however, I would be greatly interested to hear posters' thoughts as to how to go about getting oneself into a position to take the step into commercial property. For example, for a first time commercial buyer:

    1. Are there any books or publications you would recommend reading?
    2. Is it beneficial to use a buyers agent on a first purchase basis to leverage their knowledge moving into those that follow?
    3. Are there any recommendations that can be made in relation to finance and, as a corollary commercial mortgage brokers?
    4. Is there a threshold purchase price that should be considered as the 'bare minimum'?
    5. Are there any criteria that should be ticked off as a absolute before considering purchase?
    To give some context, my wife and I currently own 3 residential properties and are in the process of undertaking a development on one as well as purchasing a fourth. We earn a reasonable income, circa $700k (with potential for increased earnings over the next few years) and feel reasonably comfortable with residential property. We are considering a move into commercial property next year, however, the fear factor remains the dark arts of commercial investing and the unknown.

    I have read a couple of commercial books, including the due diligence handbook by Brian Hennessy, Commercial Property Investing Explained by Steve Palise and Rethink Property by Scott O'Neil which have been insightful to varying degrees, however, again there seems to be limited information material available.

    I would be grateful for any insight that could be provided as our contact with commercial investors is limited and, as a result, the opportunity for any mentoring insight also absent.

    Thanks in advance.
     
  2. GreenTreeFrog

    GreenTreeFrog Well-Known Member

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    I’ll be following this with interest
     
  3. Scott No Mates

    Scott No Mates Well-Known Member

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  4. Bris developer

    Bris developer Well-Known Member

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    Comm RE is a huge topic and similar to being a developer - is a journey and takes mistakes, experience, good people to learn over decades.

    I would start by educating yourself on
    - WALE
    - ICR/debt cover
    - Cash on Cash
    - Incentives
    - market reviews, ratchet, tenant security
    - types of CRE - industrial retail office medical childcare etc

    funnily enough for me - being good mates with a comm mortgage broker helps. They are a source of wisdom and they come across transactions/deals every day.

    also just enquire on deals and start talking on the phone to agents from Cushman, Savills, Colliers ,.. they are a hive of knowledge and far more sophisticated than resi agents imo.

    There is very good US centric CRE stuff on YouTube but the basic principles are the same - Bruce J flatt (Brookfield), Jonothan Gray (Blackstone), Milken institute… any Real estate private equity videos etc

    in this market where everyone wants yield - the entry level opportunities are very hard to find.
     
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  5. Scott No Mates

    Scott No Mates Well-Known Member

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    @Bris developer - You must have been channelling my thoughts - linky


    Have a look at "Fundamentals of Real Estate" by Carl Gunther - try online library (it's a few years old now but there are a few useful chapters on investment grade property and RE in general).

    Poke your nose into the Co-op Bookshop in Broadway, there are a few useful commercial RE texts (note what they are then search for an online copy for a read before investing on your library).
     
  6. Tyson

    Tyson Member

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    Hi all

    Thank you for the replies, apologies for the delay in reply I have been unwell.

    @Scott No Mates I have been looking for the Carl Gunther book but haven't had any luck whatsoever, any idea where I might be able to pick it up?
     
  7. Scott No Mates

    Scott No Mates Well-Known Member

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  8. SmileSydney

    SmileSydney Well-Known Member

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  9. Beano

    Beano Well-Known Member

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  10. Indifference

    Indifference Well-Known Member

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    Most things are different between Resi & Comm IPs.

    Finance - typically business not retail lending, so you'll be dealing with a different bank branch/area even if staying with current bank.

    Leverage - lower. Typically 70% or less depending on lender & type of CIP.

    Structures - compared to a Resi, a purchasing structure can be a bit more complex (ie. Purchasing a going concern etc.) This can create more complex accounting & taxation requirements.

    Legal - CIP leases more complex than Resi. Multiple tenancy, apportioned outgoings, common areas, insurance etc...

    Management - depending on CIP type & size, this can be simple or a bit of a PITA.

    Lease terms - Typically longer, with options, fit out provisions etc. Overlaps heavily with Legal issues.

    Valuation - very different to Resi. Heavily influenced by yield, lease terms, quality of tenancies etc...

    Just a few points to consider from my limited experience over past 15+ yrs in the CIP ownership trenches.
     
    Last edited: 19th Jan, 2022
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  11. Beano

    Beano Well-Known Member

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    Try and avoid properties where growth is limited.
    Like strata and small properties.
    Aim for big buildings big land holdings.
    You will have a job for life improving the rental.
    Shorter leases with no ROR's will give you flexibility but banks like the long leases.
     
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  12. Cousinit

    Cousinit Well-Known Member

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    Yes I have this book and it is quite good for someone starting out in non residential property. He explains quite well how to understand Cap rates for the newby.
     
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  13. jins13

    jins13 Well-Known Member

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    Would love to go for big holdings but very difficult at this stage. All my commercial properties are strata titled but would love to slowly grow and aim big.
     
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  14. Beano

    Beano Well-Known Member

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    I came into the property market at the peak .
    The two years before the market has doubled.

    I really should have started three years earlier at 15.

    The solicitors loaned to almost everyone

    Just needed to pay 12% (banks were about 5.5%)

    Those three years could have meant eight figure rentals today rather than in another eight years .:(

    So learn from my mistakes start early !:D
     
  15. AngelicaS

    AngelicaS Active Member

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    I’m happy to answer any questions you may have. I am a commercial property manager managing retail, industrial and commercial properties and have been in the field for 5 years now. I don’t know much about the lending side of things but I know lots about valuations, market reviews, commercial leases etc
     
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  16. Bowser

    Bowser Well-Known Member

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    Scottnomates (Franc) has been a highly valuable resource for me to bounce questions off and helped me a lot with my recent purchase. A lot of the guys/girls on this forum are actually very helpful such as Beano and post honest informative posts than I secretly learn from:)
     
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  17. HenryC

    HenryC Well-Known Member

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    It depends on the long term plan I guess...also the financial capability...
     
    Last edited by a moderator: 6th Feb, 2022

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