Specialty Retail Property Loans Australia

Valuers capitalise the net rent of a leased specialty retail property at a yield drawn from comparable sales, then check the result against a rate per square metre of building and land. Yields are driven by the tenant, the lease term and the site. A vacant or owner occupied building is valued on an estimated market rent, less allowances for letting up time, agent fees and incentives. Fit-out is usually excluded. Where a building is highly specialised, the valuer may lean on land value plus the depreciated value of improvements, which tends to produce a more conservative figure for the lender.

Bulky goods and large format retail is the most widely accepted part of this group. Furniture, bedding, flooring, electrical, hardware and auto accessory tenants occupy simple, flexible buildings. Lenders treat a modern showroom on a metro main road much like other standard commercial security, typically at 60% to 65% LVR. A strata or stratum tenancy inside a homemaker centre adds the same centre level questions that apply to any mall, including anchor tenants, levies and vacancy across the complex. Our page on shopping centre tenancy finance covers those points in more detail.

Car showrooms and single purpose shops sit at the specialised end. A dealership combines a glass fronted showroom, a service workshop, wash bays and large hardstand areas. Workshops can raise contamination questions, so some lenders ask for an environmental report. Garden centres, tile and bathroom showrooms and similar buildings have the same issue of a small pool of replacement tenants. Lenders commonly hold these assets to 50% to 60% LVR unless the land value is strong or the borrower offers additional security. Where the borrower also owns the business inside the building, the lender will assess the business and the property together.

The lease carries most of the credit weight. Lenders check who the lessee is, because a national brand sometimes leases through a franchisee or a subsidiary with limited assets. They look at the remaining term, options, fixed or CPI reviews, make good clauses and what security the tenant has lodged. In several states and territories, shops with a lettable area above 1,000 square metres fall outside the retail leases legislation, so large format leases are often ordinary commercial leases with fewer tenant protections. Have a solicitor confirm which rules apply. A long lease to a strong lessee can also open up lease doc options for investors.

Owner occupiers make up a large share of this market, including furniture retailers, dealerships and trade showrooms buying their own premises. They are assessed on business financials, typically two years of tax returns and statements plus recent BAS, with the rent the business currently pays added back. Banks commonly lend owner occupiers 65% to 70% on a standard showroom and can go higher with residential security. Investors are tested on interest cover, commonly 1.5 times net rent at an assessment rate. Read more about refinancing a commercial property if you already own the site and want to release equity.

Major banks fund standard showrooms with good tenants and usually price them most keenly. Non-bank lenders accept shorter leases, local tenants, regional sites and alt doc income at a higher rate. Private lenders cover vacant buildings, repositioning projects and urgent settlements on short terms with a defined exit. An SMSF can buy specialty retail that meets the business real property test, commonly at 60% to 70% LVR, but a single large vacancy can strain a fund, so licensed advice is essential. GST usually applies unless the sale qualifies as a going concern, and lenders rarely fund GST, so confirm the position with your accountant.