Brisbane Industrial Property

Free tips, and ideas for investing in the Brisbane industrial property market

Tag: make-good

How You Can Improve an Industrial Property Investment Today

September 24, 2014 / / Comments Off on How You Can Improve an Industrial Property Investment Today

 

 

If you are an industrial property investor your focus is likely to be one of capital gain and rental improvement when it comes to your property asset. To achieve that focus all the normal rules and choices should apply such as:

  • Quality location
  • Well maintained property
  • Good tenant
  • Market rental

Given these basic facts, there are a few other things that you can do and merge into your property performance plan. Most property investors want to hold an asset for a period of years as part of a greater portfolio strategy. That’s how the other factors can also ‘kick in’ and provide growth strategies to the investor.

Here are some other ideas that can help in any industrial property investment:

Tenant Selection

Not all tenants are equal. The corporate profile of the tenant and the business history that they bring to the property can very well help the asset and the financial performance over time. Financiers like to see a tenant in occupancy of good standing and reputation. An established and successful industrial business is more than likely to be able to pay fair and reasonable market rents.

Lease Term

A long lease term will bring stability to tenant occupancy and make financial decisions a lot easier. A long lease term is better than a short lease term and an option. Options are usually at the discretion and selection of the tenant and on that basis the landlord has little control.

Lease Document

If you own your asset for investment purposes, make sure that you have a high quality lease in place that supports tenant occupation and property use. The lease should be designed with the investment targets of the landlord in mind. The lease can support rental choices and types, property maintenance obligations, and outgoings recovery.

Rent Review Structure

The rent review structure for the lease should be designed to help the landlord improve the property net income whilst retaining tenant occupation. That can be a fine balance when times a slow or difficult for local businesses in the economy.

Tenant Covenants

These are the special terms and conditions that apply to tenant occupation; they are the things that the tenant must do to remain in occupancy. Consider factors of property improvement, maintenance, and rental increases.

Make Good Requirements

At the end of a lease there will be improvements to be made, repairs to be undertaken, and tenant fit out factors to be remedied. Many property solicitors have little knowledge of the clients property to be leased, and on that basis are likely to create a generic lease clause relating to ‘make good’. The make good of any property at end of lease can be a very expensive process; make sure that you have a lease that controls the process well and removes any risk from the landlord.

Property Maintenance

How will the property be maintained? Who will pay for the work? Simple questions like these should be merged into the lease structure. In many cases the property maintenance requirements can be the responsibility of the tenant. It is then a matter of how and when that will be enforced. Design your lease to suit your investment targets and tenant use.

Bank Guarantee

In many cases you will find that the bond or bank guarantee is of primary use in times of lease default. The amount of money secured in that way should be sufficient to protect and reimburse the landlord for costs and losses if they have to find another tenant.   In most cases the bond or bank guarantee will be an amount equivalent to at least 3 or 6 months’ rent, taxes, and outgoings recovery.

Outgoings Recovery

With industrial properties in Brisbane today, it is normal for outgoings recovery to be a tenant responsibility. The mechanism for that recovery will be in the lease. The categories for outgoings will be important as they will support the recovery process from the tenant.

 

You can add to this list of strategies for your industrial property by considering the location and the tenant type. Use an experienced property solicitor to help you with lease documentation. Do not use a generic lease.

 

 

Special-Purpose Industrial Buildings Can Be Difficult In Many Ways

September 3, 2014 / / Comments Off on Special-Purpose Industrial Buildings Can Be Difficult In Many Ways

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If you are looking to invest in industrial buildings in Brisbane, be careful and cautious when considering the potential purchase of buildings that may be highly specialised or overly unique. The uniqueness of the asset can make the property quite difficult as an investment when it comes to resolving vacancy issues and finding other tenants into the future.

You will sometimes see these highly specialised buildings sold as a sale and leaseback by the occupying business as they seek to release invested funds. Whilst that process is understandable to release capital into the business, the lease offered by the tenant should be long and the rent reviews should be structured to give an improved return on investment when compared to other properties in the area with less risk.

The fact of the matter is that any industrial properties that are overly unique are riskier from an investment point of view. Financiers are likely to loan less money on mortgages for that very reason. Other collateral and property assets may be required by the financier to offset the risk factor of the main investment under consideration.

Highly specialised and unique industrial buildings could be best described in the following ways:

  • Unique location to support specialised property use for the particular business. A good example may be a property located at the end of a rail line. The business may receive raw materials through the rail network, or conversely may send out manufactured goods via railway carriages or railway containers.
  • Specialised warehouse design to suit a particular method of manufacturing or business activity. Some businesses require specific points of access, loading docks, cold rooms, power supplies, and storage racking. If the improvements in the property are too unique, they are likely to be overcapitalised or irrelevant to another occupant.
  • Specialised installed equipment that may be industry specific. Cold rooms are a case in point. Whilst cold rooms are expensive to build into an asset, they are largely worthless to other occupants at the end of a lease.
  • When a specialised tenant leaves the industrial property at the end of the lease the landlord may be burdened with the existing warehouse improvements and installed office fit out; those improvements could be largely useless to any new incoming tenant or business. It is important that the landlord has suitable make-good provisions structured into the lease. The remedial make good should therefore be specifically at the cost of the tenant at the end of the lease term to bring the building back to a standard configuration and therefore become more marketable to incoming tenants.

Taking all of these factors into account, it is worth noting that any highly specialised industrial building is likely to be somewhat difficult to finance in the ordinary sense. Any purchaser considering such a purchase may need to provide other property as security for the loan to be advanced.

Understand exactly what makes a top industrial property valuable over time. Stay away from investing in riskier specialised industrial assets that are useful to only a small number of businesses.

 

 

 

 

Rental Strategies

June 3, 2014 / / Comments Off on Rental Strategies
Rent is critical for the performance of your investment property.

Rent is critical for the performance of your investment property.

When you own commercial property, the rent that you get from the tenants will be critical to the property’s performance. As a landlord it is important that you consider every lease as a package of rental and cash flow within your tenancy mix. That package can be improved and enhanced to suit your investment plans. Here are some variables that should be considered individually when leasing your property:

  1. The amount of asking rent to be advertised in the media to attract a tenant
  2. The ideal length of lease to suit the property and also the tenant
  3. The expiry of lease given the other tenancies in close proximity
  4. The rent reviews timing and type that will occur within the lease term to strengthen the property income
  5. The availability of an option for the tenant to have a further lease term beyond the initial term
  6. The recovery of the outgoings in the property and when that recovery is to occur
  7. The required make good works to be done by the tenant at the end of the lease
  8. Renovation and refurbishment works to be undertaken by the tenant during the lease period
  9. The type and availability of an incentive to attract a tenant in a new lease

All of these factors should be considered and discussed with your agent or solicitor with due regard to the existing property market in your area.

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Ray White Industrial Milton

Ray White Industrial Milton

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