Investing in commercial property

G

glwb

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I'm looking at investing in a commercial property but am a complete novice in this area.
There is an existing 30 year lease on the property with 25 years remaining. Does this mean that the tenant is obliged to continue paying rent for this period? And the main risk is that the tenant goes bankrupt and is unable to pay?
Any links to good websites on the subject would be appreciated also.
 
I have been a long-term commercial tenant (several shops) and long-term landlord of commercial premises (retail and offices).

What I am telling you is based on empirical evidence not what is the supposed legal situation:-

Regardless of whatever piece of paper you have (lease agreement, tenancy agreement etc) if the tenant walks out without paying there is almost nothing you can do. Whether the tenant is bankrupt or not makes little difference.

If the tenant stays in the premises and does not pay you it may take several months and some expence before you can legally evict him/her.

Now, websites and lawyers will tell you that you can lawfully sue that tenant for breaking the lease. True, if you have the energy, patience and money to hire lawyers and get court proceedings and the tenant is around and has money then the court will tell him to pay. If he doesn't pay then you have to instigate further proceedings to get the court to enforce the order. And in the meantime he's gone to New Zealand, died or has sudenly got very poor.

And if a lawyer talks about getting personal guarantees from the tenant before renting make sure you check that the tenant has assets other than his personal property.Otherwise forget any guarantees. And anyway, the Revenue has first call -and there'll be other creditors.

What's the gross and net present yield on the proeprty and what type of property -and tenant ?

If it's a shop or warehosue you're after then note the number closing every day. If its offices I hope they are new,modern,good energy rating and in a good location.
 
I concur with oldnicks sentiments.
When the courts resume I'II be chasing a tenant for eviction, and re-possession, as well as unpaid rent, building service charges, rates, and water etc...
My tenant refuses to hand back the keys.
So don't be fooled its a bed of roses, believe me leases are not worth the paper they are written on. Also be guarded with renting out to certain foreign nationals, who will cherry pick what aspects of the lease they want to honour and that Irish law doesn't apply to them,they will have you jumping through hoops in the courts trying to uphold lease agreements and law of the land.
 
glwb.
All of the above is good advice and this is also reflected by the banks who are not providing any finance for Commercial Investment properties based on all of the above reasons.
I would be very cautious investing in commercial property, and if doing so it would be based on a minimum 12.5% yield, depending on location and strength of tenant
 
This is really an aside commentary on the aspect of letting ones retail premises, so forgive slight digression.

I've a shop in secondary street in Dublin city centre (got rid of offices and converted them into apts). This shop ,like many in secondary locations whether in Dublin city or suburbs, or in smaller towns across Ireland is difficult to let. Many of the surrounding shops are shut and those that are let are increasingly let to foreigners - mainly nonEU people.

Some of my fellow landlords refuse to deal with them knowing fullwell that the tenants won't be around for long, will not pay the last few months and as Brumel says be bloody difficult to deal with.

However, in the last four years I've only let to foreigners -not because I particularly want to but because -in my area - few Irish individuals or companies are letting shops,even if offered flexible easy terms.( charity and adult shops seem to be the main exception).

So, rather than staying empty I 've had four different overseas tenants in four years. I know they won't stay -no disappointment or surprise for me.

I insist on a couple of months deposit . I tell them that if they find someone else to take over they'll get their deposit back. No contract -just a letter outlining various rules.

They are free to try their best to make money out of their business .
If they fail, no hard feelings -they'll lose their deposit unless they get a replacement. And,so far, they always do.

Two more points-
I pay the rates/water rates. I'd never trust them to. It's included in my rental calculations.
And I pass by at least once a month and pop in for a quick chat. It's easy for me as I have apts nearby and have no other job.

Naturally, if Abercrombie and Fitch want to open a second shop in Dublin city centre and were willing to take miniscule premises in a crappy secondary street then here I am!

In the meantime I'm facing the new reality that the business of letting/renting retail premises is increasingly a transient one with no certainty at all.

(To a lesser extent much of the above could apply to warehouses or offices but I realsie my points apply to certain sections of the retail sector, so forgive the waffle)
 
Thanks all for the great replies.
The property is coming up for auction and based on the reserve, the gross yield should be somewhere between 14-18%. The existing tenant has been in place for a good number of years. The location is a small country town so finding a replacement tenant could be difficult. So really I need to do a due diligence of the existing business to gauge the risk.
 
Due diligence if properly done needs owners permission ,cooperation, otherwise all you have are the annual accounts ( a year or two behind the times) and word-of-mouth reputation.
If you're from that town you'll know how fully occupied other premises -shops, offices or storage -are. And how busy is the local economy ,assuming the business depends on that.

If that business occupying those premises depends on one guy then if he's old he could suddenly die. Is it family run with people to take over?
 
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Real Estate Investment Trust.

A publicly listed form of investment in commercial property that has been around in the USA since the 1960s.

No problems with liquidity (daily priced) no problems with tenants, collecting rents or any of the usual and numerous problems associated with direct investment in property as that is someone else's problem.

Just sit back and collect the rents. Yields on the global REIT fund I recommend hit 10% back in march 2009 since then the fund is up over 177% including income. We use REITs in our client portfolios to diversify some of the equity risk since although these are listed just like equities they have separate and distinct asset class characterisitics which add to the overall portfolio.
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Goodness me Marc that sounds so much easier than the way I collect rents, why didn't I sign up for that years ago. I'd be a multi millionaire now no doubt.
 
Looking for some guidance, any contributors on here able to give me some advice on how to pursue a foreign national (non-EU) who has run up some bad debts with me commercial unit with (unpaid rent, building service charge, water, rates etc..)

I've scheduled a court hearing to get circuit court to acknowledge his debt, but I also need to engage Dublin City Sheriff for eviction and re-possession order.
Now I don't want to throw good money after bad, any other options left open to me?
and yes I want to stay within the law.

Tenant has openly mentioned he will be back operating in a new premises, I just find this incredible that I can do nothing, and he's giving me the two fingers.
To date I've spoken with social welfare fraud, Revenue, and GIBN Gardai unit that deal with foreign nationals.

Thanks...
 
Brumel, have you read Oldnicks posts? Looks to me like you are wasting your time and money.
 
Commercial seems a lot more risky than I thought.
I can see many properties in great locations in dublin with 10% yield.
The tenants in some of the properties seem like good ones.
e.g. William hill or Sherry Fitz. Who have long leases signed.

Is residential "easier" than commercial?
Is commercial worth the risks with the higher yields?
 
Hi Oldnick,

On recommendation by Bronte I read your posts on commercial property with interest and currently thinking of investing in commercial.

I am currently looking residential and commercial and trying to see if commercial is a better long term investment.

Oldnick do you have a breakdown on how you assess a commercial property purchase as trying to understand all the costs incurred...VAT, rates, lease agreements, letting fees etc.

Any advice would be appreciated.
many thanks
clarecelt
 
I'm also looking into investing in commercial property and it seems by reading the property section in the weekly papers that most purchasers have an agent acting for them would this be the recommended way of going about purchasing a commercial property ie getting the help of an estate agent to negotiate with the sellers agent and what way do they charge for this service is it a percentage of the purchase price?

Any advice much appreciated.
 
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