Hi
If i have a 3000m2 Industrial property on the Gold Coast with a 2000m2 building on it with a national franchise tenant paying $175,000pa rent plus outgoings locked into a 3 year lease… how much could I realistically sell the property for? Is there much interest in a property of this type?
The Gold Coast City Council land value for rates purposes is $1,600,000
It would depend upon several things:
Do they have any options yet to be exercised?
Is there any hardstand & how much?
What sort of construction? How old? What condition?
How much office/warehouse/amenities?
Is that market or above/below market rent?
What are the review conditions? & frequency?
What is the zoning?
Is it floodprone?Is that a net or gross lease?
Net. They are paying $175k + gst + outgoingsDo they have any options yet to be exercised?
Yes. I will be selling the property with a brand new 3 + 3 + 3 leaseIs there any hardstand & how much?
about 40 carparksWhat sort of construction? How old? What condition?
20 year old. BrickHow much office/warehouse/amenities?
small office. 1 toilet blockIs that market or above/below market rent?
Market rent is about $100.m … it is rented at $87.50What are the review conditions? & frequency?
3 yearsWhat is the zoning?
IndustryIs it floodprone?
NoJust a general idea as to what you think it would sell for …
I suppose some kind of clarification …. I have an opportunity to buy this empty building for $1.6mil … and put in a tenant on those terms….
I want to sell the building immediately after the tenant moves in… and make profit.
The tenant is secure, and established in different premises and ready to move.
If I do this I want a quick sale… I want them in… and the building sold within a couple of months. Should I do it? Any opinions as to what I could sell the tenanted building for… and for it to sell reasonably quickly? And the market at the moment? Is there a “downside” i should be considering? Risks i am not seeing? What kind of return will an investor want that will ensure a quick sale? I dont want his to drag out…
mrtender wrote:I suppose some kind of clarification …. I have an opportunity to buy this empty building for $1.6mil … and put in a tenant on those terms…. I want to sell the building immediately after the tenant moves in… and make profit. The tenant is secure, and established in different premises and ready to move. If I do this I want a quick sale… I want them in… and the building sold within a couple of months. Should I do it? Any opinions as to what I could sell the tenanted building for… and for it to sell reasonably quickly? And the market at the moment? Is there a "downside" i should be considering? Risks i am not seeing? What kind of return will an investor want that will ensure a quick sale? I dont want his to drag out…Good luck achieving that on the Gold Coast in present day.
The vacancy rate for offices is circa 23-25 % at present. Industrial may be similar…..give or take
You need to ascertain what is the cap rate of the precinct/locale you are looking at for similar assets. In other words what should be the expected yield (in this market assume high yield reflecting a lower price) then discount the rent as you have done and work out a price capitalising the yield into the rent to achieve a cap value…then you are assuming there will be buyers. The resi market there is a basket case at the moment, so extrapolate that risk into the commercial sector…..caveat emptor.
Tread carefully there in the current climate and do not presume a quick turnaround. If you already have some likely tenant interest lined up then well and good. If not, do extensive due diligence on that market.
Thanks Michael.
I have the tennant lined up. They are willing to sign for $175k pa + gst + outs
Anyone know what this would put the value of that place at fora reasonably quick sale in the current climate?
Depends where it is and the cap rate of the precinct. Burleigh Heads versus Molendinar versus Bundall versus Stapylton versus Nerange versus Yatala ????? …………..all are different. Ask an independaent commercial rea up there what the cap rates should be for what you are entertaining. Use them as a guide.
Ok thanks.
I’ll do that … I’d image that cap rates would be around 8% – 9% … at a a guess.
So that would value if at
9% = $1.94mil
8% = $2.18milAnd at a worst case scenario …
10% = $1.75milAnd best case
7% = $2.5milSeeing i’m buying it for $1.6 … it sounds pretty good.
I suppose the thing that I am not sure about is … are there buyers out there looking for commercial properties with a return of 8% or 9%?
mrtender wrote:I suppose the thing that I am not sure about is … are there buyers out there looking for commercial properties with a return of 8% or 9%?I reckon there are, however strength of lease, nature of bond/guarantee, strength of tenant, amenity, flexibility of the box to attract a variety of future tenants upon vacating, etc, etc are a few of the issues that I would look at.
As long as it has road infrastructure and amongst other established sheds/warehouses/businesses and not out in the boonies, this hedges the future leasability of the asset.
Personally, I would be looking at a CBD location, however the trade off for potential future tenant demand is yield.
If you're buying at that price and can finance it adequately and you secure the tenant even if you cannot sell as quickly as you wish, the arbitrage b/w net return and likely interest rate should leave funds in your pocket.
If you're after a quick flick as you indicate be as certain as you can that you have a tenant. IMO an empty box on the Golden Coast is (in this climate) going to be challenging to let.
Good luck.
I'd hazard 10% -11% is very realistic considering the difficulty in financing ATM. Yield is not the only factor when it comes to the value. If you can lock the tenant in for 5 + 4 it would be preferable ie more certainty for the buyer, yield would drop if a longer term lease was in place.
What is the land value up that way ($/m2) – must be pretty low (const cost of brick factory @ $750/m2 x 2000 m2 = $1.5m – 20/50 = $900k. So land value = $600k or $200/m2).
Below market rents are not an incentive for buyers – what incentives have been given away to lure the occupant?
Are the rent reviews annual or every 3 years?
Is the purchase price inclusive of GST?
What type of reviews cpi? fixed? %? (& how often annual/at option)?
Things to factor in to your equations: cgt, gst on vacant property, stamp duty
Most commercial property on the Gold Coast is listed for sale anywhere from 8-10% but just remember this is the listed price, you would be surprised with the actual sale price on a lot of these properties 11-12% return, which would bring your building in at less than $1.6m,
Don't forget you have a purchase price of $1.6m and also a stamp duty fee which will be about $90,000 on a $1.6m purchase which you will also need to recover
So now your purchase price gets closer to $1.7m and your onsale price may end up being a lot less than this.
Big question, has it been on the market very long??
If someone does a search on the tenant you have lined up, will they fined that this tenant is stable or possibly shakey and may not have much dollars, equity etc??
View it as a buyer would –
If the renew option belongs to the tenant, you can only offer a buyer a definate 3 years, what appears to be the likelihood of the tenant staying longer ? Can you sign a longer initial period to make it more attractive? e.g. 5x3x3 with long periods of notice required to renew or allow to lapse? e.g.6 months ?
Tenants are usually at their most motivated and optimistic level when starting out, best time to capitalise on it.
To speculate on the market with a flip, you need to really know the market, what's on offer, what's being rejected, what's selling for how much with what conditions attached , what's hot n what's not, what the buyers want. Plenty homework.
Hope it's a gold brick for you.
Good luck
Cheers
thecrestthecrest | Tony Neale - Statewide Motel Brokers
http://www.statewidemotelbrokers.com.au
Email Me | Phone Meselling motels in NSW
Hi there,
We specialize in Industrial property on the Gold Coast, without knowing the address or particulars about the property an estimate would be 8.5% return or $2,050,000. Based on the 66% site cover we are assuming that your building is quite old. We believe that the rental rate is fair even though the average rental rate is $100 per square meter.
Regards,
Rebecca Moore
0401 715 175Kris Sonter
0410 082 283
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