PDA

View Full Version : good return?



helpme
16-06-2009, 06:53 PM
hi am renting a shop which is attached to 3 other shops.we are all owned by the same landlord.we have recently have our rent increased , probably because our previous landlord wanted to get a good price for when she sold the property. I think our new landlord bought the 4 properties for 1.7 million dollars.

we are paying about on average 40000 each in rent.so in total that is 160000 in rent for all four properties.

all four businesses have been struggling, customer numbers have been quite low since the beginning of the year and we are finding it hard to pay the new rent.the shop i owned increased about 400 dollars a month in rent and this is hard to cope with.we have a ratchet clause saying rent will not go down.

all 4 shops want to write a letter to the landlord asking them to reduce the rent. will it be affordable to the landlord to reduce the rent? i think they are getting 9.4% return for the property (total rent/value of property)

is 9.4% return considered healthy return in the current market for leasing properties?

will our request to lower the rent be considered reasonable or will it be taken seriously?

your help is much appreciated :)

Serpie
16-06-2009, 09:42 PM
Welcome Helpme!

I have no experience as a commercial landlord, but do have some residential rental properties.

Tenant retention is very, very important, and in this climate is even more important in the commercial sector.

The yield that your landlord is enjoying is not relevant (that's their business) but you do need to know whether your rental is fair, so it may be worth engaging someone to assess a fair market rental for the premises. At least then you'll know if you're paying more than you should be.

Arm yourself with relevant data, and speak to your landlord.

You should probably also have a look at how you ended up being exposed to this problem, and what more you could do to protect yourself in the future?

AMR
16-06-2009, 10:48 PM
Agreeing with Serpie, there's masses of empty space around town at the moment.

I only have theoretical knowledge of commercial property valuation but the building is immediately worth a lot less empty...maybe enough to get the bankers nervous.

helpme
17-06-2009, 12:28 AM
lol you noticed i was a newbie, thanks for the welcome Serpie :)

we had a valuation at the end of the year last year. that valuation was what the landlord had based the rent increase on.Business has been going down since then for us and the surrounding shops, on nights like monday and tuesday, we are making a loss.Do you think if we did a market valuation now, would it be likely to show a decrease in the market value of our property?as in, how can we find out wat the current market value of our property is- preferably before we get a valuation done. Because we don't really want to pay for the valuation.Our property is Hibiscus coast and it is part of a small shopping centre in a small town.

other than getting a valuation done, what other relevant information should i arm myself with when i speak to the landlord?

cliff
17-06-2009, 01:12 AM
Hi Helpme, i was in a similar situation late last year with a business i have in Rotorua. I ended up having it independantly accessed with a rent increase of $200 per month and now paying $3800 pm.
Check out shops in your vacinity and that should give you a fair idea on the of the current fair rents. I have watched Fashion Island which is modern development in Papamoa slowly empty shop by shop in the past few months and know the lack of busness combined with high rents driven many out.If you guys are having trouble paying your rents and making ends meet, then maybe its time to move on.

Arbitrage
17-06-2009, 02:07 PM
Commercial property details keep a low profile in the media and indeed on this forum. As a commercial landlord, things have been tough since mid 2007, way before the recession was announced, especially leasing to small businesses. Rental yields on the most recent "valuations" (ie those for council rating purposes) are now virtually irrelevant and many landlords are waking up to this. Look around, there are "for lease" signs everywhere. Many landlords are taking rents at levels their tenants can afford. This is not the same as what the lease says, and what the statistics are showing. I know of landlords dropping rents either temporarily or even giving rent holidays just to hold tenants. Once a tenant is gone, it is very difficult to get another. As any business person will tell you any cashflow is better than none, and remember falling interest rates may have given your landlord room to move on rental income margins.

Therefore as a tenant, you should discuss your situation with the landlord, and if no offers are made, leave. There are a lot of desperate landords with empty properties out there that I am sure they would love to make you an offer to move into their building.

As landlords we know that there are many tenants waiting for leases to expire in the next few months before they will be leaving and creating more vacancies. The present state of the vacancy market won't be improving for awhile yet.

Dr_Who
17-06-2009, 04:22 PM
Have you had a chat with your landlord?

Most landlords are open to discussions and knows how tough the retail market is. If discussion fail, then appoint an independent valuer to reflect current market rental. I have not heard of any reasonable landlord increasing rent in this recessive environment.

Your landlord should be very weary that if they lose you, it will be near impossible to get another good tenant at that rental rate, esp when there are plenty of vacant retail spaces available. Good quality tenants are hard to obtain.

disclosure: had previous owned and managed a number of commercial properties in Auckland.

Billy Boy
22-06-2009, 12:46 PM
Help Me
Put an Add. in your local paper seeking new premises.
All four of you !!! Types of shop etc....
that will spark some reaction, you can be sure.
BB :)
You may even come out better off with a new location.

fungus pudding
22-06-2009, 12:53 PM
hi am renting a shop which is attached to 3 other shops.we are all owned by the same landlord.we have recently have our rent increased , probably because our previous landlord wanted to get a good price for when she sold the property. I think our new landlord bought the 4 properties for 1.7 million dollars.

we are paying about on average 40000 each in rent.so in total that is 160000 in rent for all four properties.

all four businesses have been struggling, customer numbers have been quite low since the beginning of the year and we are finding it hard to pay the new rent.the shop i owned increased about 400 dollars a month in rent and this is hard to cope with.we have a ratchet clause saying rent will not go down.

all 4 shops want to write a letter to the landlord asking them to reduce the rent. will it be affordable to the landlord to reduce the rent? i think they are getting 9.4% return for the property (total rent/value of property)

is 9.4% return considered healthy return in the current market for leasing properties?

will our request to lower the rent be considered reasonable or will it be taken seriously?

your help is much appreciated :)

What is the term of your lease?

whatsup
30-06-2009, 09:54 AM
Hi Fungs----, in this market it is very important for a landlord to 1/ keep the rent coming in 2/ have all the shops full/rented ( so as not to create a image of them not being uneconomic ) 3/ have them leased as once they are vacant the landlord has to pay all out goings.
With this in mind I think that it is important for all the tenants to get together and meet with the landlord, put all cards on the table just to how bad trading is at present.
There are several steps that can be suggested,
1/ Offer to pay a season differential ie more in the summer months than in the winter.
2/ ask for a rent holiday by entending the term of the lease.
3/ ask the landlord to help pay the out goings.
4/ go to the council and ask to have the rates payment spread over 12 months instead of when they fall due, same asa insurance payments.
5/ lodge your GST claim asa soon as is possible at the end of the payment period ie do not wait until the 28-30 days after the 2 monthly period.
5/ Take the GST refund claim personally to the IRD and ask them for a accelorated claim , which they can do in 5 days providing that there are no issues with your return.

9.5% in not unreasonable for a return on a investment depending how long they have owned but any ladnd lord doesnt want any shop vacant in this market, remember that he/she will want to have a good name/ reputation as being fair, in a small country like N Z no one is top dog for ever.
Once a property is vacant the land lord then has to 1/ pay all outgoings 2/ miss out on the rent 3/ pay a leasing agent approx 2 months rent to release the property all of which usually takes him/her 12 months to get back to square one.
hope this helps , let us all know your out come.
Retailing is really tough in this economy and the Red Sheds and malls have not helped.

STRAT
30-06-2009, 10:33 AM
Hi Helpme
Welcome to the boards.
Dont under estimate your negotiating power when approaching your landlord. For all the reasons stated above you are in a very powerful position.
I would go him alone too. If you and other tenants band together then every dollar you ask for/demand will be $4 to him and that much harder to swallow.