CASH FLOW IS
What to look for and where to find it
The Asian Executive asks CBRE Director Investments,
Mark Wizel the hard questions
TAE: How realistic is it to find good yields in today’s market?
MW: The definition of a ‘good’ yield will always be relative to what else is on offer in the market place. Yields have firmed across all commercial property markets and in some cases to historical lows but they may nevertheless be delivering a relatively good return. A good yield is also about the real rate of return and on these investors need to do their due diligence. Does the initial or passing yield reflect the true market yield? Is there rental upside or does an incentive clause mean the initial rental is above market rates? Investors should, and astute investors do, note that there is more to property investment than initial yields. It is about the tenant, the length of the lease, the location, the type of property, the age of the property, positive economic growth forecasts, among other things, and it is also about capital growth.
TAE: Can you further describe strong cashflow properties?
MW: Strong cashflow properties put simply are higher yielding properties and more often than not such properties have been found in outer lying areas, but higher yields may well mean lower capital growth and the two need to be part of the overall equation with regard to investment returns. Sound cashflow is what an investor should be looking for based on strong property fundamentals including market-based valuations and rents.
TAE: What types of properties will generate healthy cashflow?
MW: Healthy cashflow again is related to strong property fundamentals. Rather than any particular type of property it is generally more about the strength of the leasing covenant including the tenant, the length of the lease, modern buildings which require limited maintenance, and depreciation benefits. These are all elements which will affect returns on the property and ultimately cashflow.
TAE: Describe a case study of a recent deal that achieved strong cashflow.
MW: CBRE has sold several sub $10 million properties recently which have offered genuinely good cashflow prospects and they have been the type of retail properties which have hitherto been described by commentators as recession proof. These are leased to non-discretionary spend tenants and include a Woolworths Metro store at Abbotsford. The store was a new build, located at the foot of a new apartment complex with frontage to a busy inner-city street. It was sold for $4.68 million on an initial yield of 4.94 per cent. We have also sold two 7/11 stores. The fuel and convenience store properties at Werribee and Armstrong Creek offered new 15-year leases and sold on 5.04 and 5.42 per cent initial yields respectively. These three properties all offered new builds, depreciation benefits, and strong lease covenants in locations likely to provide good capital growth prospects.
TAE: How do our clients contact you to ask further questions?
MW: Call me on mob: 0411 694 756 or email me at email@example.com