Commercial Property Education - SS Sticky

Since SS will be closing it's doors shortly, I've gathered a couple of the old sticky threads on SS that I thought would be useful for those who ever wish to refer back or some of our new members. Here goes!

Original post by SS member JIT

Hi,

How does someone go about learning how to invest in commercial property in Australia?

There is clearly a plethora of options to learn about residential property investment, but very, very few avenues to learn about commercial property investment.

Furthermore, there are plenty of resources for commercial property investment in the US and UK, but comparatively very few in Australia.

Does anyone have any ideas or suggestions?

To start off with...

Books

'How to Invest in Commercial Property' by Martin Roth and Chris Lang
'Australia's Top Property Trusts' by John Welch

Websites

www.gal.com.au (Gardner and Lang)
www.propertyoz.com.au (Property Council of Australia)
www.propertyreview.com.au (commercial property news)
www.commercialpriceguide.com.au (commercial property auction results)
www.realcommercial.com.au (property search engine)
www.domain.com.au (property search engine)
www.realestateview.com.au (property search engine)
www.propertylook.com.au (property search engine)
www.propertyweb.com.au (commercial property search engine and news)

Newspapers

The Australian Financial Review
The Australian, Thursday Edition

Courses

www.investcommercialproperty.com.au (Michael McCombie DVD course)

Investment Research Companies

www.pir.com.au
www.aer.com.au
www.lonsec.com.au
www.miaresearch.com

That's not much of a list, but it's a start. I hope that this commercial property forum on Somersoft(thanks Moderators!) can in the future be as good a resource for commercial property investment, as it is now for residential property investment.

I will add to the list as I find more resources.

Any other ideas welcome.

GSJ

Full thread available here.

 

Some of those linkys are outdated Lil.

You may want to add APINSW.org.au, bis.com.au,

 

Thank Scott, will edit later on.

So many good threads on SS, but many of them were too outdated

 

Not much about commercial IPs so great to create a thread.

Here is a very high level look at the commercial lending side of things:

1. Most lenders will offer max loan terms of 15 years instead of the traditional 30 years in Residential Lending
2. Very hard to finance properties that do not have leases or have expired leases
3. Interest rate is not everything - check out the conditions of the loan as well as fees
4. Commercial lending is more pragmatic than residential lending - many parts of the application (LVR, interest rates, fees, etc) will be dependent on the strength of the application as well as the security type (industrial, warehouse, multi units, etc)

Here are some rough guides to LVR's depending on security:

Strata Office - 75% LVR

Mixed Use - 70% LVR

Factory / Warehouse - 75% LVR

Shop - 75% LVR

Residential Blocks >=10 units - 75% LVR

Car Yard - 50% LVR

Shopping / Function Centre - 65% LVR

Caravan Park 50% - LVR

Motels - 55% LVR

 

Problems with Commerical Development Loans

• Lower LVR 50% to 75%. The higher the LVR the higher the interest rate.
• Higher Bank Valuations (2k)
• Higher establishment fees
• Higher ongoing fees
• Length of loan usually <15 years
• 2% higher Interest Rates due to risk
• No offset accounts except Suncorp
• Servicing: They may not allow the forcast “rent” to be used in the servicing. Also need a current lease to be in place.
• May require presales before construction.
• Very hard to finance properties that do not have leases or have expired lease
• Annual reviews
• Tax returns / ATO running statements

Westpac and CBA are bad for commercial loans????

 

Do others agree with Big Daddys 2% higher on interest rates?
I know the commercial loans for sites are work aren't much different to resi, but there are some additional fees.
LVR is very low though. Thoughts?

 

You should also link to Dazzs profile and posts from Somersoft, educating, inspirational, but also entertaining!

 

Westpac and CBA aren't fantastic for either commercial or development finance.

Interest rates are at least 2% more expensive than residential carded rates but this applies to development finance. Commercial loans are cheaper depending on a combination of application, LVR and security.

 

Just get creative with commercial property finance. If possible use commercial bank bills. They have some drawbacks like refinancing every 180 days bu the interest rate is a couple of % above the bank bill rate.

 

Might be a little outdated, but at least people are talking!

 

Thanks Shahin,
Good to know this information for us newbies to commercial.

 

So what are people here investing in commercially?

Examples?

 

I have found Westpac to be the best commercial lender, my broker put my loans out for tender. Westpac made the best offer by far current interest rate is 4.38% it does have about 1.1% in line fees which can vary depending on the loan limit, but it still only adds up to 0.5% more than my RPIL with BOM. They just have crappy Internet Banking with transaction limits so low it is useless, and security tokens that don't work, It not good as a transactional account.

 

What was the details of the transaction? LVR - 65%? Loan Term 15 years? Is it security purely against the commercial property or do you have resi property secured as well? What is the loan amount?

 

Can you take out equity in commercial property in the same way as residential to use as deposits for further investments? If so, do lending policies encourage it?

 

Most lenders will allow it but its an expense process so its a last resort option. You would want to pull out equity from resi property first up.

 

Cash out on a CIP is going to potentially attract solicitors, application and valuation fees - so you'd definitely want it to be for a significant amount to justify the expense.

Certainly possible though - and some lenders are exceptionally easy to release funds with minimal documentation.

 

The LVR and the loan length seem to be the killer with commercial lending!

Although I am glad to hear that interest rates aren't as high as I would have expected (thanks @Corey Batt )

I had better keep saving!

Although others were posting in a different thread that serviceability for commercial loans have been largely unaffected by APRA?

 

Commercial is unaffected by APRA and I believe will continue so - increased commercial lending is generally a good indicator of business confidence/economic health so a lot less exciting for the government organisations to limit.

 

Lease Doc Commercial - Or How I learned to love Lease doc to continue investing another way to finance commercial property