Strata and special levy on old buildings

Hi Guys I am new to PropertyChat and Commercial properties. We are looking to buy a small inner city strata office and we have recently put it under contract and just going through due diligence now. After we received the strata report back from the strata inspector, we began to worry:

1. The strata fee is really high. part of it is due to an increased insurance premium. The owners corporation attempted to seek an alternative quote but the insurer they sought a quote from refused to quote due to a previous loss claimed??;

2. the building is fairly old and requires major repairs everywhere. the owner corp has raised 3 special levy in the last 5 years and its likely to raise another one on the annual meeting on 1 July 2021 for major capital works such as fixing the car park and drainage issue.

As we are new to this we are not sure if these are common issues? If we take special levy into account, it will basically wipe out our net income/profits that we gained from this property. Are these issues enough to say that we should pull out of the deal or at least go back to the vendor and renegotiate the price? Also, will this be an issue by the time we have to sell the property? Though we do not have a plan to sell in the next 10 to 20 years.

Any opinion/advice would be highly appreciated. Thank you!!!

 

Not familiar with commercial property. Is this normal?

 

Oh forgot to mention. The rent is gross rent too. That's why I am very concerned

 

Tenants don't pay for the capital works on strata property.

Commercial strata owners will delay paying for anything other than the bearest minimum at the last moment possible.

Go through the strata minutes and see what issues have been identified, if there is a 10 year maintenance plan.

Costs will arise from time to time, if they are known costs use it as a bargaining chip.

 

In modern combined commercial/residential buildings I wouldn't invest unless there is two strata's, the resi V's commercial, with seperate quantity surveyor report that includes (or is structured as ) seperate stata schemes !

No one wants to live on " the ground floor", yet combined strata quantifies ground floor as "valuable" to commercial !!!!!

Also, commercial/office space "waste" is far less than residential by council, yet lumped into the "site" proportion of units.
Mine has a seperate water meter (1 of 2 commercials/V's 17 resi), yet our strata fee's pay for ALL water levy's/supply divided by ALL LOTS.....(aka we are subsidizing the resi)
This also includes garden and all other maintenance (common area cleaning/painting/carpets/lifts & maintenance) that due to seperate entry are not used or affected by main common area lot use
It's all in the fine print

 

Hey Stoffo, do you have a view on how inflated (in %) the OC levies of newer type "mixed use"
commercial strata typically on ground floor vs pure commercial strata like those in the
neighbourhood shopping strip type? Thanks.

 

What's the strategy with this property? If it's to collect a high rental yield, and that isn't going to happen anymore, then isn't the answer obvious?

 

Just wondering did you happen to put in your offer with subject to due diligence?

 

Cindie - the issue is buying an older building - they come with higher maintenance costs, which translates to higher levys and special levys, to deal with the urgent repairs- when compared to newer buildings. Though i suspect you are buying at a lower $/m than new office and getting a higher yield (net or gross) when compared to newer office.

 

Yes we did! I have analysed the body corps financial reports for the last 5 years and all the documents available from strata search. The issue is the building is very old and requires a lot of capital works.

 

Does it mean that the asset value would natural depreciate over time as the buildings only going to get older ? Thanks for your help !

 

If the fees are more than you are willing to pay, walk away from it.

 

All buildings depreciate (houses, units, shops, offices, factories, hospitals, schools, silos etc).

The location appreciates.

 

Stare the vendor in the eye and ask. “Why are you selling?”. See how good a liar they are.

Look, I wouldn’t buy it unless there was a good chance of some really decent capital growth in the near future.

 

Yeah never buy anything someone wants to sell . Only buy something people want to keep