Commercial Property Acquisition Advisory

Most buyers begin with a listing. We begin with a written investment brief, because a brief is what makes a decision defensible six months later. The brief fixes the capital available, the debt position, the required return, the risk the investor is willing to hold and the risk they are not.

Without that document, buyers drift. They inspect assets that were never appropriate, anchor to the first price they see, and eventually transact on availability rather than on strategy. The brief is the discipline that prevents this.

Advertised yields in Queensland are frequently gross, frequently calculated on a passing rent that is above market, and occasionally calculated on an incentivised rent that will not persist beyond the current term. We rebuild every yield from the lease and the outgoings schedule.

Net yield is calculated after non-recoverable outgoings, structural reserves, management, vacancy allowance and letting-up costs. On a multi-tenant asset the gap between the advertised gross figure and the defensible net figure is routinely 60 to 120 basis points, enough to change whether an asset is worth buying at all.

We also separate yield on purchase price from yield on total cost. An asset acquired at a 6.25% net yield with $400,000 of deferred capital works and a make-good liability is not a 6.25% asset. It is a 5.6% asset with a capital call attached.

Weighted average lease expiry is the single most misused metric in Australian commercial property. A five-year WALE constructed from one tenant occupying 80% of the lettable area is not a five-year WALE in any risk sense, it is a single-tenant asset with a cliff.

We model the expiry profile year by year, weight it by income rather than by area, and stress it. What is the income if the largest tenant does not renew? What is the re-letting period in that submarket, what incentive is required, and can the investor fund that period from other income or reserves?

Durability also depends on whether the tenant's use is essential to the tenant's business. A medical practice with fitted consulting rooms, a childcare centre with an approved place count, or a manufacturer with fixed plant behaves very differently at expiry to a professional services tenant in a fitted suite.

The lease is a debt instrument. Its value is a function of who is obliged to pay. We assess the counterparty behind every material lease: entity structure, trading history, whether a guarantee exists and from whom, the quality of the bank guarantee or security deposit, and whether the rent is sustainable as a percentage of the tenant's turnover or occupancy cost benchmark.

A national tenant on an unsustainable rent is a worse covenant than a well-run local operator paying market. Occupancy cost ratio is the tell, when rent moves beyond what the use can support, the renewal negotiation is already lost.

Capital preservation in commercial property comes from the land and from replacement cost, not from the lease. The lease produces income; the land sets the floor. We calculate the underlying site value per square metre against comparable land transactions, and the improvement value against current construction cost.

An asset purchased below replacement cost is protected in two directions: new competing supply is uneconomic at that price point, and the investor is not paying a premium for depreciating improvements. An asset purchased well above replacement cost is a bet on rental growth that may take a decade to arrive.

Every acquisition is stressed for vacancy. We model a full re-letting event on the largest tenancy: downtime, agent commission, incentive, fit-out contribution, outgoings borne while vacant, and the drag on net income across the hold period.

Rent review mechanics determine whether income grows in real terms. Fixed annual increases of 3% to 4%, CPI-linked reviews, market reviews at option, and ratchet clauses each behave differently across an inflation cycle. We read every review clause in the chain, including the option structure, because an asset with a market review at a below-market passing rent carries reversionary upside, and one at an above-market passing rent carries reversionary risk that most buyers never price.

Queensland's planning framework frequently permits more than what is standing. We test every commercial acquisition against its planning envelope: zone, neighbourhood plan, height and density provisions, site cover, car parking rates and any overlay constraint such as flood, heritage, bushfire, transport noise or acid sulfate soils.

Where residual land value under a permissible higher use exceeds the value of the improved asset, the acquisition changes character entirely, it becomes a land holding with holding income, and it should be priced, financed and negotiated as one.

Commercial negotiation is not a conversation about price. It is a structured position built from evidence: comparable transactions on a net yield and rate-per-square-metre basis, the defects and liabilities disclosed in due diligence, the reversion profile, and the vendor's actual position and timing.

We set a written ceiling before the first offer and we do not move from it without new evidence. Terms carry as much value as price, due diligence period, rent guarantees on vacancies, retention for outstanding works, apportionment of outgoings arrears, and the treatment of incentives owed to sitting tenants routinely deliver more economic value than the last $50,000 of price.