Industrial property investors must be aware of what is required to maximise all aspects of a property’s value over a period of time before deciding to sell.
Unlike residential properties, industrial properties generally have longer term leases or established businesses in place. This places constraints on large-scale changes and initiatives to add value quickly, says Bales.This is according to Tony Bales of Epping Property, who says that investors often make the mistake of deciding to sell their investments before realizing their true value.
“Unlike residential properties, industrial properties generally have longer term leases or established businesses in place. This places constraints on large-scale changes and initiatives to add value quickly.”
Bales explains that an industrial property’s value is directly related to its capacity to maximise future income flows, in other words, rentals.
What are the major aspects that affect the generation of future cash flows and rentals? Bales gives a few tips:
Do the admin
One needs to start with paperwork, says Bales. “A good, neat, efficient filing system is required for each property.”
Documentation ideally includes up-to-date plans of the property, with correct measurements of actual and rentable space and copies of title deeds and a thorough understanding thereof is always useful.
“The single most important aspect is that of making sure all the leases are 100% complete and include all aspects of one’s agreement with a tenant, in writing.”
The lease must be correctly signed by all signatories. It is also advisable to note on the lease where the deposit will be kept, as after a lease has run for five or ten years, this can be difficult to trace, he says.
“When one sells an industrial property, the leases on the property become the single most important aspect of the property’s value.”
Pay the bills
“Finances need to be up-to-date as well as all payments of municipal charges, even if a tenant pays municipal charges directly to a municipality, it is the ultimate responsibility of the landlord to ensure these payments are up-to-date.”
Rates clearance certificates will not be granted to the seller if there are any payments outstanding and new owners will also not pay a good price for a property where tenants are in any form of arrears, says Bales.
Get the look
Bales says building cosmetics and visual outlook are always important.
“These include painting the parts of the property that have not been attended to for a while as well as renovating central and entrance areas.”
Good landscaping and aesthetics always gives a good impression, as well as making tenants happy occupiers, he says.
Remove all clutter and clean where necessary, first impressions do count in industrial as well as residential property. This will be for both prospective tenants during the course of ownership, as well as one’s purchaser at the end of one’s ownership cycle.
Room for expansion
Additionally, one must maximise the income potential of one’s industrial property, says Bales. Is there additional land on the site that can be built upon? Can one create additional parking? Could anything extra be added?
“In certain circumstances owners have even purchased properties purely to erect a visible signboard, which is then rented out at a huge premium and the property is subsequently sold at a significantly higher price.”
Before selling an industrial property owners need to ensure the above factors have been considered, says Bales.
“Depending on the property, many of these aspects are only able to be implemented over time. If they are left too late one may just be looking at achieving a lower selling price than would ideally have expected.”
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