Posted on Apr 05, 2011
As a professional property investor Expedio is looking at prospective acquisitions in much the same light as other investors. But are we?
Recently we were asked what we looked for in properties. A refreshing change from some of the properties which are promoted to us with no thought as to whether there is any way we would be interested. So, why do we buy some, and not others ?
One of the maxims we go by is "there is no such thing as a bad property - just a bad price" (this is not original -our thanks to the agent who taught us the value of this) As the market becomes more realistic in terms of value for money, this maxim becomes even truer - road frontage is worth more than rear; high stud has more value than low, and tilt slab is worth more than longrun iron. And with industrial space, it is usable space that counts - excess office is not worth more. It is in fact a liability, and mezzanines are only of value if they can be used, which they often cannot !
We view the term "investment" in it's dictionary sense - "the action or process of investing money for profit or material result" - not the typical definition of investment - IF you buy it,IF you find a tenant, and IF the tenant pays the rent, then it MAY produce a return.
So in looking at an investment property (one with cashflow), we are going to look firstly at the rental, and specifically as to whether the property would command the same rental if the current tenant vacated. Only after that stacks up will we look at the usual criteria : quality of property,quality of tenant, length of lease, yield etc. Notice that yield is last on the list. Before we discuss the yield, we need to be satisfied that the property stacks up in other respects. A good yield is only good as long as the tenant is paying rent, and you are not having to constantly spend on maintenance of a poor building!
What do we look for in a vacant building?
Quite simply - the ability to make a margin. And the agents who are most successful in selling to us are those who come to us with a detailed plan as to how and why we can make a profit - by buying right, by changing use, by refurbishing, by tenanting etc. If an agent has put together a plan (and a plan includes numbers !) that makes some sense, then it demonstrates to us that they understand the investor's perspective. The numbers will tell us whether the plan works.
And notional yields are just that - notional. The cost, effort and time to get a tenant in place need to be factored into the equation to produce a figure that is realistic.
In short, Expedio is actively in the market to buy.
But there has to be a reason for us to buy. Agents who think through the reasons we should buy, and make a cogent case, are more likely to be successful in selling to us.