14-20 Elizabeth Ave, Clontarf QLD
Building type: Retail
Building area: 1,979m2
Land area: 6,666m2
Asking price: $5 million
Purchase price: $4.6 million
Final cost: $6.0 million
Initial net passing yield: 2.9%
Final fully leased net yield: 8.3%
Initial $/m2 building area: $2,324/m2
Final $/m2 building area:$3,218/m2
Final $/m2 land area: $900/m2
Initial WALE: 1.0 years
How Did Prosper Group Assist Their Client?
Off market advantage
Prosper Group’s reputation and industry contacts provided their client with the opportunity to purchase this property off market before it was presented to any other buyers. This allowed Prosper Group and their client the opportunity to analyse and negotiate this opportunity without the stress of competing with other buyers.
Identifying intrinsic value
Prosper Group immediately identified the intrinsic value of this property with great exposure to two major roads, large land size with excess car parking area, and potential medium to long term residential redevelopment potential.
The property at the time was run down and tired, the local IGA operator had a dated fit out, so overall the property was not a very appealing option for the local customers and passing traffic. Regardless of the initial impression of the building Prosper Group assessed the bones of the property were fundamentally sound, and with some minor refurbishment and cosmetic work the centre would have the potential to attract better quality tenants and consequentially higher rents. An ALDI store had just been completed on the site adjoining this property and Prosper Group advised their client that this was a great advantage as they could attract tenants that would complement ALDI and not see them as competition.
Prosper Group negotiated the price and terms with the vendor which took into consideration the condition of the property and the tenancy risk with only a one year WALE. The negotiation process was not straight forward and involved many rounds of negotiations where both parties would come to an impasse. The main areas of disagreement were;
* The condition of the property and agreeing on a fair compensation for our client to have to reposition and refurbish the centre
* The existing tenancies and their ongoing commitment to the centre.
Throughout the extended negotiation process Prosper Group maintained their aim of achieving the right outcome for their client. Prosper Group wanted to make sure that the numbers made sense and their client would obtain a fair advantage for the risk they were about to take on with this purchase. Prosper Group instructed their client to walk away from the deal on several occasions when it did not make sense, until finally an agreeable outcome with the vendor was reached.
After the extended negotiation period Prosper Group conducted a thorough due diligence analysis of the property and more importantly the ‘add value’ potential. This involved assessing the following;
* Most efficient repositioning and refurbishment works to create the best value for money, keeping in mind the medium to long term redevelopment potential.
* Potential costs of the proposed repositioning and refurbishment works
* The current tenants and their potential to be a part of the new centre, as well as the potential to create new tenancies
* Potential new tenants to lease any vacant areas, and the potential new rents and costs to lease up
* Future redevelopment potential
* Any other areas that may be able to add value, such as outdoor billboards
The due diligence process confirmed the initial assumptions made during the negotiations and with this peace of mind the client was happy to proceed with the purchase of the property.
The purchase of the property involved an extended transaction period of up to 2 years. Prosper Group’s patient and pragmatic approach ensured that the transaction stayed on track over this period of 2 years and was successfully completed.
Value add process
Following the successful purchase of the property Prosper Group managed the ‘value add’ process through to completion which included;
* Looking after the day to day management of the property throughout the ‘value add’ process, as the construction was staged so that the existing IGA tenant could continue to trade through this period.
* Managing the leasing up process with the existing tenants and new tenants
* Managing the design and construction phases of the repositioning and refurbishment works
If you would like to know more about this ‘add value’ transaction or would like to know more about how Prosper Group could potentially assist you with a similar transaction, feel free to contact Damien Holliday on 0402 446 908, [email protected]