Auckland CBD Commercial advice

[absoluteproperty]

Hi all,

I have always worked within the residential space and am slowly thinking over what potential may lie in commercial once my residential portfolio builds a little more.

Have a property which interests me and wanted to go over with someone that knows what they are doing on how one might gather an estimated value on the property. I have read a lot however no practical experience with commercial which I realise is a danger - so hoping some advice and learnings from this site may minimise exposure to the downside.

The property is Level 2, 28 Lorne Street (above the Mentatz restaurant for those that know it). Open space, floorboard in a long-standing structure. I understand there is considerable due-diligence required with commercial which is a good part of the work in relation to the purchase. Is there any way to have a fair idea of what the property might go for? It is marked as PBN so the only way I could think of is to get a valuer in to put a price on it, but this only considers current market value.

http://www.trademe.co.nz/Browse/List...?id=1222127179 for anyone interested in a quick glance.

PM's welcome, open discussion welcome, please keep the flames in the fireplace as I am a complete newbie in relation to commercial.

[PTILoveYou]

Talk to agents and look at recent sales

Determine the going rates m2 for rent and sale, also the yield and cap rate based on recent sales.

Biggest thing is look at body Corp minutes and check any problems with the building.

Also vacancy rate of that building and street.

And does the office space include any carparks, and also what type of tenants it attracts in the building.

[PTILoveYou]

Also get the IEP report as this building is pretty old.

Any rating under 34% NBS will very unlikely get bank lending. Above 67% is best but this building might struggle at first glance.

[big fella]

Newland Burling specialize in Commercial Property as well and run a mentoring programme. They obviously will charge you but that cost could be a lot less than doing it yourself and making a big mistake.


I am thinking of learning more about Commercial property as well.

[big fella]

good points you raise Gary.

I am also reading Commercial Real estate investors guide written by Peter Aranyi to learn some basic fundamentals of commercial property investment.

[Wayne]

Also get the IEP report as this building is pretty old.

Any rating under 34% NBS will very unlikely get bank lending. Above 67% is best but this building might struggle at first glance.

IEP is important but my understanding is 100% is best and banks are wary of anything under 67%

[Wayne]

good points you raise Gary.

I am also reading Commercial Real estate investors guide written by Peter Aranyi to learn some basic fundamentals of commercial property investment.

The problem I have found with the books is that they are great for the basics like yield, cap rate etc but not on applying it.
Like residential property returns have decreased significantly, people are happy to accept less.
With residential yields have increased because prices have increased.
In commercial prices have increased because yields have decreased.
My point - residential is driven by price because there are more players in the games than investors.
With commercial yield expectation is king. With interest rates being low people can better afford to buy a building for their business rather than lease.
These people have lower expectation for yield so prices go up.

This can reverse quickly!
When people stop accepting 5-6% cap and go back to 8-10% values can drop quickly.

[Nick G]

Cap rates greatly affect values and you don't want to be on the wrong side of that. A friend moved to commercial and I think he paid a coach to help him analyze his first deals.

[Davo36]

Are you buying this as an investment or as a space to use yourself? I assume investment?

Gary is right on this.

Basically you need to know the $ per square metre tenants will pay and then the cap rate for properties similar to this.

So you can look at TradeMe ads, ask around etc. to find out these things. Look at recent sales in the area for cap rates. Go to auctions if you have the time.

One thing I'd definitely suggest is that you get a valuer to value it. They will do all of the above work. They can look at recent leases to get a per sq metre rate, they also assess recent sales to get a likely sales value for this.

Making any offer conditional on valuation for finance purposes should be totally fine.

And yes, as others have said, IEP is key at the moment. Ideally above 67%.

So is carparking, it's very busy around there. And leasing office space with at least a couple of carparks is way easier than none at all.

[Beano]

Are you buying this as an investment or as a space to use yourself? I assume investment?

Gary is right on this.

Basically you need to know the $ per square metre tenants will pay and then the cap rate for properties similar to this.

So you can look at TradeMe ads, ask around etc. to find out these things. Look at recent sales in the area for cap rates. Go to auctions if you have the time.

One thing I'd definitely suggest is that you get a valuer to value it. They will do all of the above work. They can look at recent leases to get a per sq metre rate, they also assess recent sales to get a likely sales value for this.

Making any offer conditional on valuation for finance purposes should be totally fine.

And yes, as others have said, IEP is key at the moment. Ideally above 67%.

So is carparking, it's very busy around there. And leasing office space with at least a couple of carparks is way easier than none at all.

Retail 5.5parks per 100m2 min
Office 1 park per 30m2 min

[Anthonyacat]

This can reverse quickly!
When people stop accepting 5-6% cap and go back to 8-10% values can drop quickly.

This is a big concern of mine currently preventing me making the jump to commercial. Interest rates will rise, it's a matter of when. When that does happen, if I bought a property providing $30k net at 5.5% cap for $550k, suddenly the market values the property at 8% cap and it's only worth $375,000?

In the current low interest rate environment, the rates aren't going down anytime soon, so there's virtually no chance of a windfall gain, just a massive loss potential.

[Joshua Fong]

Anyone knows what is the interest rate for commercial these days? And it's still up to 65% LVR?

[Beano]

Anyone knows what is the interest rate for commercial these days? And it's still up to 65% LVR?

Yes still 65pc LVR
Floating commercial Interest rates varies
HSBC 3.99pc BNZ 4.34pc Westpac 4.21pc
All monthly floating. ...I suggest you fix although the cost is higher ...on a 2yr fix add .35pc or so

[Joshua Fong]

Thanks for the info Beano.

[d2ba]

I have a question could the same apply to apartments as commerical --are they equally volatile and move in value in exact same timeline?
if I bought a high end 1 bedroom 60 sqm apartment Inner City fringe (Ponsonby/Freemans Bay) with Carpark providing $550 per week rent for $550k, suddenly interest rates rise to say 8% would it only be be worth $375,000?
The only redeeming feature in downturn -great build/architecture and great location to live.