July 2015 - Exceptional returns are still available on low risk assets
We have recently sourced a B-grade commercial property investment on behalf of one of our clients.
The property is a multi-tenanted, fully occupied building in one of Sydney’s strongest metropolitan markets. The weighted average lease of the building by both income and space is more than 3 years with the majority of current leases including options to further extend. The major tenant can be considered government risk.
The property was purchased on a net yield of 8%.
We were also mandated to run a debt tender on behalf of the purchaser.
The key requirement of the tender was to obtain non-recourse funding for either a 3 or 5 year term. We obtained term sheets from all six lenders invited offering up to 65% funding, with interest only terms on a non-recourse basis.
As expected interest margins, and upfront fees varied, however, three of the four major Australian banks provided the lowest indication and most acceptable terms. The pricing spread between these 3 was just 5bp.
The terms of the final deal are confidential to our client, however, we can confidently claim that we exceeded their expectations. When considering the return on the client’s equity it reaches the ‘teens’ even when amortising the establishment costs (including stamp duty) over a 5 year period.
Overall an outcome, that delivered great returns on a sound risk profile. If you would like to talk to us about how we can deliver similar outcomes for your business please contact either Alistair Wood (Alistair@carringtonforsyth.com) or Angelo Barbati