zoll
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Post by zoll on Mar 7, 2018 14:56:51 GMT
Just looking at this new offering. Initially interesting- but I think the exit will be a problem. - It is currently over tenanted and being bought at a 5 cap rate. If the tenant moves out the property value drops by half. The other thing that doesn't add up- apparently the tenant is 11.5 years into a 25 year lease- ie. the lease supposedly began around 2006 but when I do a simple google streets view the view from May 2015 clearly shows an empty property- no signage and no one in the parking. ? (Attached) Any explanations ? ![]() Attachments:
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hazellend
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Post by hazellend on Mar 7, 2018 16:11:32 GMT
I’m not sure:
- what a 5 cap rate is
- what you mean by over tenanted
- why the property value would drop by half if the tenant moved out (presumably you would rent it out again, and isn’t it a “sublet” by Morrison’s?
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sd
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Post by sd on Mar 7, 2018 16:32:46 GMT
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Post by peerlessperil on Mar 7, 2018 17:18:00 GMT
This is a bit like an index-linked corporate bond issued by Morrisons, with better recovery prospects (i.e. even if Home Bargains & Morrisons both go bust you may still find another tenant or be able to sell the place).
Only catch is that the lease is now quite short by institutional standards. Much of the value is in the lease, so won't be an easy one to sell in 5 years time unless you can get the tenant to extend the lease.
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zoll
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Post by zoll on Mar 7, 2018 19:20:20 GMT
I’m not sure: - what a 5 cap rate is - what you mean by over tenanted - why the property value would drop by half if the tenant moved out (presumably you would rent it out again, and isn’t it a “sublet” by Morrison’s? Cap rate is reached by dividing the net income by the property's purchase price. Its a vital ratio for assesing commercial property value. (I actually think I made a mistake, the cap rate is lower. I was looking at gross income.) Over tenanted is the extraordinary situation where a tenant is paying an above market rent and as such a commercial property is artificially over valued. If tenants need to be replaced its very unlikely the same rental rates would be achieved. Its a trap to be avoided. This is supported in the surveyors report and they asses the value of the property vacant at around half its current value.
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hazellend
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Post by hazellend on Mar 7, 2018 20:19:31 GMT
I’m not sure: - what a 5 cap rate is - what you mean by over tenanted - why the property value would drop by half if the tenant moved out (presumably you would rent it out again, and isn’t it a “sublet” by Morrison’s? Cap rate is reached by dividing the net income by the property's purchase price. Its a vital ratio for assesing commercial property value. (I actually think I made a mistake, the cap rate is lower. I was looking at gross income.) Over tenanted is the extraordinary situation where a tenant is paying an above market rent and as such a commercial property is artificially over valued. If tenants need to be replaced its very unlikely the same rental rates would be achieved. Its a trap to be avoided. This is supported in the surveyors report and they asses the value of the property vacant at around half its current value. Thanks for clarifying. Why would the tenant pay above market rent? Isn't market rent what somebody is willing to pay?
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hazellend
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Post by hazellend on Mar 7, 2018 20:20:09 GMT
Cap rate is reached by dividing the net income by the property's purchase price. Its a vital ratio for assesing commercial property value. (I actually think I made a mistake, the cap rate is lower. I was looking at gross income.) Over tenanted is the extraordinary situation where a tenant is paying an above market rent and as such a commercial property is artificially over valued. If tenants need to be replaced its very unlikely the same rental rates would be achieved. Its a trap to be avoided. This is supported in the surveyors report and they asses the value of the property vacant at around half its current value. Thanks for clarifying. Why would the tenant pay above market rent? Isn't market rent what somebody is willing to pay? Seems there are some more risks attached to commerical property which I haven't considered.
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zoll
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Post by zoll on Mar 7, 2018 20:34:07 GMT
Market rent is what the market is prepared to pay, not what a particular tenant is paying. A particulat tenant may have unusual circumstances leading to a situation where they are overpaying (or alternatively underpaying) for a property. Market rent needs to be assessed by averaging comparable rentals in the area at any given time.
Given this properties low cap rate despite above market income, leads me to believe it is overpriced.
I am taking a rain check on this one.
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Post by sayyestocress on Mar 8, 2018 8:31:44 GMT
Market rent is what the market is prepared to pay, not what a particular tenant is paying. A particulat tenant may have unusual circumstances leading to a situation where they are overpaying (or alternatively underpaying) for a property. Market rent needs to be assessed by averaging comparable rentals in the area at any given time. Given this properties low cap rate despite above market income, leads me to believe it is overpriced. I am taking a rain check on this one. Interesting insight, thanks. What did you make of the Sainsbury's local?
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zoll
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Post by zoll on Mar 8, 2018 8:46:59 GMT
Sorry didn't look into it any further once I decided not to go ahead. BTW- I got the following official response from PP regarding the apparently vacant property in 2015: "I am emailing further to our live chat earlier today.
Having consulted our property team they have advised that WM Morrisons, who were the previous tenant to the lease, closed in early 2015. There would have been a period between WM Morrisons closing and Home Bargains opening for trade (late 2015) where the lease would have been assigned and the property fitted out.
With this picture being taken in May 2015 then this appears to have been prior to the property being fitted out, hence why there would not have been any signs on the front.
You will see from the property detail that WM Morrisons assigned the lease over to Home Bargains.
Please do not hesitate to get in touch should you have any further queries.
Kind Regards,
Marc Page"So sd was spot on above. |
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rick24
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Post by rick24 on Mar 8, 2018 9:55:43 GMT
I was going to invest in the Sainsburys but waited in vain for the surveyor's report to be uploaded in the pre-funding phase.
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beh
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Post by beh on Apr 11, 2018 17:00:09 GMT
What happened to this? Didn't seem likely it'd be funded in the remaining time but seems to have disappeared from the site well before then.
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rzys
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Post by rzys on Apr 11, 2018 18:02:34 GMT
An update has come by email :
We've seen solid demand for commercial property with our first launch - a Sainsbury's Local in Cubbington - funding successfully. However the power in our platform is with investors to define which opportunities complete the funding stage. Home Bargains, Cramlington has amassed nearly £1 million to date but it is not projected to reach its £1.6m funding target, so we have withdrawn the property from funding. This enables us to advance new deals to the platform.
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beh
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Post by beh on Apr 11, 2018 19:21:04 GMT
Oh well, good that they could see it coming.
Guessing this now means the current PBSA will be even more oversubscribed.
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