Commercial finance

[Beano]

How have the PT investors found raising finance on new purchases ?
1 LVR
2 interest rates
3 principal payments
4 loan terms
5 approval time etc
6 looking at the small loans range ..about $5m to $10m

[Davo36]

Dude, pretty much no one on here considers $5m to $10m to be a small loan...

[Nick G]

I look forward to that day!

[Davo36]

Beano,

Can you perhaps tell us how you're finding raising money in these amounts?

I'd be interested to know if the banks are lending for these larger properties, and if so, are they keen to do it, or what?

[Beano]

The finance seems to be a lot harder than eight months ago when I signed up a $16m loan .
Looking in the $5-$10m range at the moment
Can't really tell you about large properties I only do small ones ie under $20m

[Davo36]

The finance seems to be a lot harder than eight months ago when I signed up a $16m loan .
Looking in the $5-$10m range at the moment
Can't really tell you about large properties I only do small ones ie under $20m

Yeah you're just a little guy Only $16m 8 months ago, and just a paltry $5m now... pfft.

There is evidence larger projects are not getting financing like they used to e.g. The St James apartments in Auckland.

[Beano]

Looked at property syndicate in Greenlane earlier this week ...borrowing is about $200m
That is what i call large!
We are not big players we really are small !
You are right finance is difficult. ...i have been talking to one bank ...will be meeting 2 others later
I was told the apartment building at 21 Enfield St Mt Eden has stopped due to finance too.

[Davo36]

Is that the retirement village there? I thought Ryman was building that?

Do you mind if I ask where your capital comes from? Like how did you become quite wealthy to begin with? Do you have a successful business or something like that?

[Beano]

No it is the oyster syndicate Millennuim Centre Greenlane
The presentation was a joint one Colliers and Oyster
The initial capital came from delivering newspapers after school at 11years of age ...i lost 25pc of my earnings to pay board ...that is where i started !
All the rest is constant savings then investment
That is how i built up my portfolio....probably the same as everyone ...except my younger brother who started then too but was 3 years younger than me!
Everything was done one step at a time.
No loans or gifts from relatives ...just good old fashion saving and buying.
Is there another way of building up wealth? ...

[big fella]

congrats Beano sounds like you are very successful .....do you invest in commercial & residential ?

[Beano]

Yes both .
Residential has had big gains (%) but the real cash flow is in the commercial.
Would have done better % wise if I stuck to residential (especially Auckland) but the great cash flow from commercial meant the portfolio could be a lot larger and debt could be retired.
My current pet property investment lessors interest it is too early to say if they are going to be any good (ask me in 2036)
In the commercial property world I am not big as you are competing with big players , corporates , syndicates etc ....I would probably be in the bottom 10pc
Each of the syndicates i saw at the oyster presentation was larger than my whole portfolio.

[big fella]

beano, have you ever participated in Property syndicates ? whats your view on property syndicates ?

[Nick G]

I'd love to get into commercial. It seems to me the quick way to make a start is to get something where the cashflow can be improved because the cap rate effects values so much. That's been my model with higher-end residential recently.

When you started in commercial did you buy smaller things like a shop or single small factory space, or did you move into bigger projects early? How much local business knowledge do you need to effectively evaluate an opportunity? With residential what I look for currently is a simple formula - proximity to central facilities like hospitals and universities. Commercial seems like there would be so much more variability it would be like starting from scratch again.

[Beano]

Yes The Levin Mall syndicate ...it was better than not investing but it was not a good investment
The change to weekend shopping laws , the oil crisis and the dependency on a large anchor tenant (farmers) meant that the syndicate was a failure .
Each syndicate needs to be viewed individually as they are all so different
You do not have the control and flexibility like with a individual properties so a bit like owning strata title each type of title has its own features that suit different investors.

[Beano]

I'd love to get into commercial. It seems to me the quick way to make a start is to get something where the cashflow can be improved because the cap rate effects values so much. That's been my model with higher-end residential recently.

When you started in commercial did you buy smaller things like a shop or single small factory space, or did you move into bigger projects early? How much local business knowledge do you need to effectively evaluate an opportunity? With residential what I look for currently is a simple formula - proximity to central facilities like hospitals and universities. Commercial seems like there would be so much more variability it would be like starting from scratch again.

One commercial property my collegue brought last month was 4343 Great North Road Glendene Auckland had a 10pc Net Cap rate so good yields are still around even in Auckland (I can imagine a residential in Auckland could be as low as 4% Net yield so the difference in cashflow is pretty significant)

Started by buying a $250k leasehold building in Wellington (which was the wrong type of title to buy) ...then small industrial...pretty well all in partnership (but I did buy everyone out and I did freehold the leasehold site)
Anyway due not selling properties the portfolio has turned out to be a bit "higgly piggly ".