Got Mates? Syndicate deal example

Capital city returns are under some pressure at the moment and are feeling the squeeze. Yields are getting smaller in many cases as more competition comes into this market.

Burgess Rawson recently listed a range of capital city buildings, mostly offices, with yields as low as 4%. Now while there may be some upside in these properties at current interest rates they are going to be taking a loss on this property.

That’s just crazy.

If a property is not cashflow positive from the day of settlement, I won’t even bother to look at it and neither should you.

I recently read of a Gold Coast syndicate that bought a block of offices with some mixed retail in Grafton. It was a 7.5 million property with an 11% yield straight out of the box.

Now that’s more like it.

Recently one of my students bought a $3Million property on his own and had to put 493,000 of his own money into the deal but was getting $250,000pa positive cash flow from the deal after all expenses and mortgage repayments.

I was saying to a friend that even though that was a great deal, there were probably 4 or 5 of those deals out there at any one time ready for the picking…

This Grafton deal is one of those.

Screen Shot 2015-11-11 at 12.48.46 PM

Obviously this is a higher priced deal but these guys formed a Syndicate and bought this property that cost them $7.5M but was listed as producing around $1Mpa

If three or four parties got together to buy a deal like this, that’s still an excellent return that could easily replace your income.

Yes there are many smaller properties for sale for much less money, and you could go out and own one on your own, but it may be worth considering joining up with some friends or business partners who are also interested in investing and entering into a market that has so much less competition.

Once you go over the 1M mark, the competition for these properties drops off significantly. Also with more money on the table people tend to be warier, and take their time doing their research. This can give you more time to negotiate the right deal.

This property came fully tenanted with several lessees including government and blue chip tenants and was sold as three integrated offices.

As I said there are properties like this for sale all the time, as there are properties that produce excellent income at lower investment levels, you just need to know what to look for.

The great thing about commercial is that it’s all about the numbers.
Once you understand the numbers and the possibilities, then you can get a much better sense of whether a property is worth looking at or whether you just move on.

What you have to realise is that most of this information is not listed online. Estate agents have no standard by which they list the details of the property and many times they just make stuff up because it sounds good.

I’ve seen properties listed as having upsides that were actually not real. They had thought it was a god possibility but when I went to the council they straight away said no-way.
This kind of research, the agents don’t do… many just write whatever sounds good.

Other times where no mention of upsides appears in a listing, I’ve looked further to find that there were amazing possibilities that no-one realised were there.

In the first instance, you need to ask the agent for an information memorandum about the property, but you also need to do your due diligence.
You need to ask questions of the people who can give you accurate answers. Go to the council. Ask managing agents of other local properties. Hire a private town planner and an independent valuer.

Having, or finding a team of experts is essential to getting the right information and facts about any property you’re looking at. From this information, you will be able to accurately work out the numbers and know what the property is really worth and what you should offer.

This is kind-of backwards compared to residential because prices are dictated by the area but also by what the vendor thinks they can get for it.
In commercial that’s also true, but if the numbers don’t say the same thing, then you’ve got some serious negotiating power to make a lower offer.