Case Study: Buying Commercial Property for Gooder Equipment

Property acquisition strategy and acquisition pricing

Buying Commercial Property for Gooder Equipment

 

Need to Relocate your business?

Gooder Equipment is the leading commercial laundry equipment supplier in New Zealand and the Pacific Islands. 

If you have ever used a self-service laundromat or stayed in a campground, motel, or hotel, you are likely to use their equipment.

Gooder Equipment operates in Auckland, Wellington, and Christchurch. Gooder Equipment had been looking to relocate its Wellington Branch over the last 18 months. In November, it came across a suitable commercial property going to tender in December.

The commercial property was partially developed with holding income and partially vacant land. The site was ideal for future development. Ground conditions also influenced what could be built on the vacant land.

Given the commercial property’s mixed investment and development opportunities and a lack of comparable sales data in the locality, arriving at a bid price to submit for tender was a challenge.

Submit a bid price too low, and you miss out on the opportunity. Price too high, and you are paying a premium compared to the next highest bid price.

Proactive Property Group was engaged to advise on buying commercial property, provide strategic acquisition advice, undertake initial due diligence on the property, research recent and comparable sales to determine a market value range and advise on a bid price and bidding strategy.

 

What is due diligence?

When buying commercial property, due diligence typically involves identifying issues that may impact the commercial property’s:

    1.  Lease and rental potential (current and future)
    2.  Use, constraints, and future development potential
    3.  Neighbourhood and access issues
    4.  Current and future value

The objective of due diligence is to identify and factor in the property risks into your purchase price; this minimises the operational and financial risks downstream.

See our commercial property Due Diligence Acquisition Checklist.

 

Why advise on property tender bid price and bid strategy?

When buying commercial property, it’s essential to understand:

    1.  Who the vendor is and their motives and objectives for selling; this directly impacts their price and transaction expectations?

For instance, different objectives will drive the property sale from a listed entity compared to a private individual or family trust.

    1. The type of purchaser impacts demand and competitive tension.

Investors are likely to shy away from a purchase that requires additional investment or effort to realise value.

Developers will be deterred where there is a premium due to the existing investment value on-site or constraints on future use.
Owner-occupiers will only express interest if the property can accommodate their business or activity use.

Background knowledge and comparative sales research combine to provide an informed view of your tender bid price and strategy.

For instance, if the vendor wants to maximise the sale price, they may be willing to accept a conditional offer with a longer settlement. Or, they may be looking for certainty and a faster transaction and be willing to forgo a maximum sale price.

In some commercial property transactions, we have submitted two bids and let the vendor choose their preferred approach:

    1.  A low price and unconditional tender offer
    2.  A higher price and conditional tender offer.

Typically, the purpose of the tender process is to receive all serious offers by a set date. Once tender submissions are received, there is usually a post-tender negotiation phase, especially with multiple offers.

The three levers a purchaser can use to get to the negotiating phase of the tender are:

    1.  Price
    2.  Terms and conditions
    3.  Settlement date

The vendor’s motives and objectives will drive the weighting of price vs conditions vs timing.

The other recommendation when buying commercial property is to buy with an exit plan or value realisation plan in mind. Understanding how you will recover your capital investment when you sell helps you frame your bid price proposal.

Actions Taken:

Proactive Property Group sourced and reviewed the following during the initial due diligence process:

    1.  Tender information memorandum
    2.  Property history
    3.  Vendor details and ownership
    4.  Legal titles
    5.  Lease documentation
    6.  LIM reports
    7.  Building and Code Compliance consents
    8.  Council zoning
    9.  Geotechnical data
    10.  Storm and sewer
    11.  Transport accessibility

Based on the above and the nature of the property, we formed a view on the likely approach for assessing the property’s value.

With a value approach determined, the next step was to research comparable sales data to form a value of historical yields and land rates. We coupled this with an assessment of likely future outcomes and land rates, given forecast changes to OCR rates and market conditions.

The final step was to devise a bid price and bid strategy for the tender. We discussed this over a meeting, reviewed the due diligence findings, analysed the comparable sales data, considered the likely yield and land rate movement, discussed the vendor’s motives and objectives, and unpacked the tender purchase terms.

The Client Outcome:

After the strategy meeting, Gooder Equipment decided on its bid price and bid strategy and submitted its tender bid the next day.

The vendor accepted the tender with minimal negotiation.

The outcome for Gooder Equipment was that it secured the property at a competitive price, now has business certainty, and can begin to plan for its relocation.

Client Testimonial:

We had been looking for a property in Wellington to relocate our Head Office. We were keen to find a site that offered development or investment potential beyond our business needs. We had made offers on two separate properties over the preceding 12 months. Both bids had been unsuccessful. When another suitable property came up, we sought help to evaluate and formulate our offer.

Throughout 2021, the property market was constantly changing, making it difficult for us to estimate where our offer should be and how to structure it. The property in question had three tenants and some vacant land suitable for building to our requirements. It was difficult for us to get a clear idea of what level our offer should be; this was to be a significant purchase for our company. We needed to be successful in our purchase attempt as our existing building must be compulsorily purchased.

We had already viewed the buildings and liked what we saw but did not want to rely solely on the information that we would get from the agents involved in the sale. That’s where Marcus came in. He assisted us by researching the property and comparable sales in the area. This vital information saved us money as our initial value estimates were higher than the price for which we purchased the property. Marcus gathered information that allowed us to formulate our value ideas and consider the next steps with the property after the purchase was complete.

During our meeting, the day before we made our offer, we discussed our ideas for the property and got a better idea of the vendors’ motivations and what they might be looking for in an offer beyond a pure dollar amount. We were also able to bounce around development ideas and troubleshoot potential building issues.

By engaging Marcus, we could get a clear idea of where and how to pitch our offer. It was excellent to know that the information we acquired from him was for our use and not influenced by anyone else’s requirements. We would have no hesitation in dealing with Marcus again on any transactions we may make in the future.”

Simon Gooder

Director

Gooder Equipment Limited

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