Yields , market rentals uplifts

The most frequent question I am asked is what yield should I purchase at.

The answer is not a simple answer as there are many factors.

In the attachment an agent has a property for sale (tender 20th of July).

The Gross market rental for the buildings appears to be $135m2 as they have achieved these rates in new leasings.
The yard at $48m2 again a new leasing while some is $15m2.

However a large area is leased a only $49m2 this area is very large almost .7ha potentially be able to be leased at $135m2 with the new configuration and addition of the appropriate services.

This property has the potential to lift the rental by about $1m but will require a bit of thought and $$.

So this could well be a $2m pa property.

My thoughts on the yield range 8-11%

@Scott No Mates @Bris developer Comments ?

 

@Beano, it'll need a back of the envelope calculation

Need a warm and fuzzy on how underutilized the land is ie FSR vs current improvements, how much more income this will generate & at what cost.

 

I use to do the calculation on the back of a cigarette pack then I gave up smoking.
I then did the calculations on the back of a envelope but people send me emails and not letters anymore.
The next was calculation on the back of a boarding pass but covid ruin my travel plans.
I now have to rely on PC readers to do the calculations for me

 

Hi Beano, what happened with this property? What did it sell for?

What would you have done to the older building? Knocked it down and started again? Or try and remodel it (if possible)? What do you think the works cost to get the extra 1m rental pa?

 

The property is still under negotiation but I will tell you more when the sale goes through.
I have not been through the site/buildings so I can't comment on the cost to achieve the $1m rental upilft .
The logic I have is some of the site is already achieving the $1m uplift (pro rata) and my site (2.9ha/1.35ha) which is similar I am working to a similar uplift.
My site initially was $180k pa in 1991 and theoretically I could achieve $2m pa (I am at $1m currently). It does take a lot of hard work, cost and time (but when you take into account the next generation we have plenty of time).
Handling another site like this would be too much for us as we would have more than a gross tenants to manage .

 

South Murwillumbah NSW
Australian Federal Police
Auction: 2 August 12:30pm
Price: $5,075,000
Yield: 8.85
South Murwillumbah NSW 46 Honeyeater Circuit
Commonwealth of Australia Facility

• Secure 15 Year Lease to 2026
• Rare 4.25% annual rent increases
• Attractive net lease structure

Net Income: $448,905* pa + GST
*Approximate

• Secure 15 Year Lease to the Commonwealth of Australia to 2026, plus options through to 2036
• An essential state-of-the-art facility servicing the Gold Coast International Airport and the wider local region
• Rare 4.25% annual rent increases, with a market review at each option and a 10% cap and collar clause
• Attractive net lease structure with the tenant responsible for all usual outgoings including unrestricted land tax and management fees
• Expansive 9,474 sqm corner site situated in a busy industrial precinct
• Constructed in 2011, providing significant depreciation benefits
• Modern single level building incorporating offices, admin and other facilities
• Strategically situated within an emerging industrial precinct, next to Storage King and metres from the Stone & Wood brewery
• Easily managed “set and forget” premium investment with Federal Government guaranteed income
• Total building area of 738 sqm plus a further 233 sqm of awning areas*
• Tweed Shire Council: High growth area with population forecast to grow by 22% to 120,000 people by 2031**

 

I got an email advertising this property, I think it was last week

 

Was it you that brought it ?

 

lol, no. No spare money for the next 12 month after the recent purchase

 

Seems like good value to me.

 

Did you buy the one in Hervey bay at 7.68%. Net yield?

 

Seems cheap, for something with a long lease, nice yearly increases and govt tenant.

 

Are there significant differences to purchasing and holding commercial property in NZ compared to Aus? Pros and Cons? I had residential property in NZ for 16 years. The rules and regulations have changed quite a bit. Especially minimum property standards and tax implications.

 

Stamp duty.
Land tax.
Capital Gains tax.

 

Hi Beano, always enjoy your thought provoking posts.
In this scenario the lease expires in 4 years.
The key risk is if the tenant chooses not exercise their option, the purchaser will need to search for another tenant. And be ready to wear this risk.
Am I thinking right? Thanks

 

Yes vacancy is the killer....plus interest rate rises.

 

Well, with close to 2 million in net income over the next four years I imagine you can do a lot to strengthen your position? The risk of vacancy is always going to be there and I assume you just need to be prepare as best you can with some sort of cash buffer?

 

You negotiate a early renewal...

 

With a clause in the lease and a discussion in the last year of the lease..