Commercial Property - Very Little For Sale.

[DaveW]

I don't see that reason enough to invest in industrial. Those problems are small that you mention. Having an extra 22% equity to invest is a big difference.

[Davo36]

Just looked at a place which on paper (TradeMe) didn't sound too bad:http://www.trademe.co.nz/Browse/List...ion=&district=

The square meters vs sale price looked quite OK for the position.

Total and utter waste of time.

I must admit as it was only just down the road, I didn't enquire what the rental was until I got there. Well I should have because they are asking a 6.6% return! And this is not entirely net with some outgoings included in this.

It's a panelbeating shop with a rear residential tenancy (converted offices, probably illegally). With around 6 months to go on the lease. Deferred maintenance everywhere with a large part of it needing a reroof.

Quite a large portion of the area quoted in the ad is crappy mezzanine storage/lunchroom area. Worth sweet FA in the scheme of things.

And to top it all off, it's a unit title...

And they want a 6.6% yield? For f**k's sake it's a 10 percenter if ever I saw one.



Also inquired about this one this morning:http://www.trademe.co.nz/a.asp?id=457329946

I asked what rent/lease terms they would take. They said they would pay $2750 per annum, no outgoings. So that is $33k gross. Which give the fantastic yield of 5.07% gross.

What are these people thinking?

[Wayne]

Amazing. What will be more amazing is if they get something near that! Very scary times.

[Davo36]

With the first one I mention above, the real estate agency selling it, are valuers too. So they've given them a valuation at around their asking price...

So the owners have been told it's worth what they're asking. Which means I guess they'll take some convincing (by the market, over like 2 years) that it's not worth that.

[Maccachic]

Was talking to a commercial leasing agent the other day and he said there is a bit of movement in industrial in Tauranga - more smaller business upgrading. He was of the opinion that once industrial picks up the rest tends to follow, he did say he was only quietly optimistic but that it was appearing hopeful.

[Glenn]

I get around and talk to my tenants!
Now that is a radical idea but at least you see what work is coming in off the street.
My industrial tenants ranging from Stainless fabrication through to car repairs and onto paint have very little work on hand.
When that happens they keep sharpening their pencils to just get some work.
These good people have no capacity for rent increases.
Then I wander around the retailers into food, art, and what ever. They are not making much either.

Now sure I know us landlords are not influenced by the sob stories that tenants often make up. But surely anyone can see that if you squeeze to hard they will pop.
When business is like that there is no reason to think that the value of owning a property is a sure thing.
That is why we need to get the net rate of returns back to 10%

[Davo36]

As a commercial property investor I regularly look at businesses and think to myself "How on earth do these people make any money?"

Like how do they come up with enough money each month for wages, rent, outgoings, power, phone, taxes, ACC, vehicle costs and so on. Especially when they're selling low value items. And then have some left over as profit for all their effort?

So many shops, restaurants and what have you seem to be empty almost all the time. How do they survive?

Running small businesses as far as I can see are usually a lot of work for not much return. Of course there are exceptions with some businesses taking off, but in the main it's a lot of work, with the various governmental agencies sitting there waiting to take a portion of any bit you might make!

Which is why I prefer to own the buildings! Lol. Seems like so much less work and hassle and you make just as much (or more) money and the taxation is easier.

Now of course what you're seeing Glenn is in Nelson, where there's a relatively low population and probably not an overly affluent one on the whole. In places like Auckland there's more people and more money around, but also more competitions of course.

But as a building owner in Auckland it's a lot better, there's always plenty of businesses willing to give it a go in your premises as long as the premises are pretty generic (i.e. not limited to a single use) and are well located, have the right stud heights, parking etc.

[Glenn]

Now of course what you're seeing Glenn is in Nelson, where there's a relatively low population and probably not an overly affluent one on the whole. In places like Auckland there's more people and more money around, but also more competitions of course.

But as a building owner in Auckland it's a lot better, there's always plenty of businesses willing to give it a go in your premises as long as the premises are pretty generic (i.e. not limited to a single use) and are well located, have the right stud heights, parking etc.

There are elements of truth in what you say. However the answer is not about population. If that was the case I would not have several floors empty out of 14 in Manners Street Wellington. Wellington is not a small city (compared with Nelson) but that city is in trouble. There is no safety in numbers. Auckland's roller coaster rides make some people sick when they hit the bottom and how many people do you have that fling straight off the top of the peak.
So whilst one learns the language and the pulse of a place one can survive and thrive there is always life in other places.
We laugh at the fat cats who turn up here from Auckland, spend their squillions on developments and retreat a few years later licking their wounds.
The point I make is the ratios of Net ROR need to be right no matter where the building is.
My 12% net in Wellington only worked for three years then the money tap got turned off.
Where did I hear about high returns coming home to roost.

[Davo36]

Yes, I take your point Glenn.

So yes you can have empty offices in good buildings in Wellington for instance. Wellington landlords will be suffering right now from all the layoffs. Which is quite unprecedented really. Normally the bureaucrats just increase in number, they very rarely reduce in number. It's normally like a ratchet, they might stay static for a while but then go up again, stay static, then go up again etc.

But this government is to be commended on reducing the numbers of these parasites. It's a really hard and politically unpopular thing to do bu the right thing to do. And the service levels actually go up in some instances. Again, this just normally never happens, it's so much easier to just keep paying them until things come right.

And this will effect many property types in Wellington. Even residential rents, as the leeches lose their jobs and head overseas, to Auckland, what have you.

So my point is, even the safest property investments can come under fire. And this can be through changes that are totally unforseeable.

So all you can do is try to buy quality properties that are in good locations and would suit a variety of uses. I guess??

That and not be too heavily leveraged.

[Maccachic]

I believe WINZ can help out small business owners? I know of one anyway who is getting benefits while trying to get her business up and running. (Magazine store).

[DaveW]

So all you can do is try to buy quality properties that are in good locations and would suit a variety of uses. I guess??

That and not be too heavily leveraged.

If you are looking for long term holds I would recommend multi-tenanted for reduced risk. Even though Glen's property is no longer receiving 12%, at least it is still returning something.

[Glenn]

If you are looking for long term holds I would recommend multi-tenanted for reduced risk. Even though Glen's property is no longer receiving 12%, at least it is still returning something.

Yes true at least we are getting the mortgage paid.
Of course the other important thing for me and others is to have several properties to spread the risk.
The other thing that is not talked about is to not jump too far on any one purchase. Like keep the sizes about the same.

[Toasty]

Yes, I take your point Glenn.

So yes you can have empty offices in good buildings in Wellington for instance. Wellington landlords will be suffering right now from all the layoffs. Which is quite unprecedented really. Normally the bureaucrats just increase in number, they very rarely reduce in number. It's normally like a ratchet, they might stay static for a while but then go up again, stay static, then go up again etc.

But this government is to be commended on reducing the numbers of these parasites. It's a really hard and politically unpopular thing to do bu the right thing to do. And the service levels actually go up in some instances. Again, this just normally never happens, it's so much easier to just keep paying them until things come right.

And this will effect many property types in Wellington. Even residential rents, as the leeches lose their jobs and head overseas, to Auckland, what have you.

So my point is, even the safest property investments can come under fire. And this can be through changes that are totally unforseeable.

So all you can do is try to buy quality properties that are in good locations and would suit a variety of uses. I guess??

That and not be too heavily leveraged.

I just saw these references to Wellington. I have 8 tenancies all recently locked down for another 12 months so no (really) short term worries but I may have to consider voting Labour next time around to ensure that the public service builds up its staff numbers agaiin.

[Glenn]

I just saw these references to Wellington. I have 8 tenancies all recently locked down for another 12 months so no (really) short term worries but I may have to consider voting Labour next time around to ensure that the public service builds up its staff numbers agaiin.

Well actually I had no Goverment tenants. As you know there has been a new massive building come on stream in Wellington CBD that has sucked heaps of civil servants into its vortex leaving a whole sequence of holes looking for some suckers. So regardless of who got into power this was going to make things hard.
I have done a little study of two of residential rental vacancies around the country. Wellington scores really badly with a higher vacancy rate than many other cities.
The place is in trouble and unless the Goverment passess a law saying everyone from overseas coming to live in New Zealand has to serve time in Wellington.
I kid you not. Many years ago in the Post Office we had an allocation of staff we had to send to Wellington on loan.
Our refugee support people had a big fight a few years ago because the Govt wanted all refugees to live in Auckland or Christchurch.
We in Nelson are now allocated close to 10% of all United Nation refugees.
I keep having Indian tenants told they have to move out of Nelson and go to Christchurch or Auckland.
Social engineering for political purposes is alive and well.
What is the bet someone is on the take for doing this.

[Hec]

Hi Glenn,
Question for you please. And you do not have to answer it (could be commercialy sensitive)
You have several out of 14 floors vacant ...
Would you get tenants in for say 50% market rent to get the wheels turning ? Some $ better than no $ so to speak ..
e.g. 1st 2 years at say 50% based on signing up for say a 4 x 2.
Or is it a sizzle, not the sausage scenerio ? By that i mean the viaduct harbour in Auckland at way higher rents sucked many tenants from the CBD some years ago.
As in many corporates were bugger the economies of it, we want the flash stuff.
Be interested to hear your thoughts.

Hec