OwnerSide was recently asked by one of its clients to put up for rent a building which he had
purchased a few months earlier through our partner (sister company ?) BuyerSide.
Despite the fact that the building was brand new, there were major challenges to be overcome in
order to avoid it being left unoccupied on the rental market and to ensure the long-term profitability
of the investment. Here#39;s a look back at a challenge full of twists and turns.
A building with high profitability potential, but a high unoccupancy risk
Even though the building was completely stripped and rebuilt from scratch, the lower part of the
of the building, i.e. the ground floor which is intended to be used as commercial premises, was
delivered in its raw carcass work state at the time of the sale by the builder.
Well aware that trying to let the ground floor in that shell condition would pose considerable
difficulties, the BuyerSide team nevertheless decided to advise their client to purchase this building.
In fact, the second fixing of such premises, with no concrete screed on the floor, no water, gas or
electricity supply, with the walls completely bare and literally everything remaining to be done,
represents a substantial investment for the incoming tenant, which inevitably greatly limits the
number of potential tenants, whilst simultaneously increasing the vacancy risk. This explains why it
was crucial for BuyerSide to quantify the risk and profitability of this investment as accurately as
possible before deciding whether or not to the acquisition of this building was worth the effort for
our client.
By capitalising the commercial lease fee at 5% and the residential rent at 4%, the in-depth
analysis of the property carried out by Maximilien, who was in charge of this project, enabled him to
achieve 4.33% profitability, even when estimating the lease for the commercial ground floor at the
low end of the market price.
As such, this left a margin in case the premises remained empty for several months for several
months and/or we had to envisage carrying out some of the work at the owner#39;s expense, whilst
ensuring a return higher than the current market rate.
Weighing up the pros and cons, we felt that this was indeed an opportunity to be seized, despite the
unknown variable of letting the property, and we advised our advised our client to buy, whilst being
entirely transparent about the potential risks.
Once the client was the official owner, he decided to entrust us with the letting of his property.
The challenge of letting a shell commercial ground floor
Thanks to the low rent (€ 1,400 for 135 square metres), many applicants were curious enough to
visiting the ground floor.
Unfortunately, and as expected, most of them did not have the budget nor the energy to manage a
site of this scale to get the premises ready for operational use.
With a good dose of perseverance, we ended up finding some serious candidates with a promising
project, who were prepared to invest in the steps required to finish the site. We finally had a solid
lead!
Sadly, they soon lost heart when they realised how much the work would cost. Once they had
received their contractor#39;s estimate however, they were still prepared to rent the retail space and
invest in carrying out the improvements required, albeit on condition that the owner contributed to
the financial effort.
The project was a major challenge, but we wanted to rise to the challenge of maximising the
profitability expected by the owner, whilst at the same time building a win-win relationship of trust
with the future tenants.
During several meetings at our office with the owner and the prospective tenants, we were able to
discuss, listen to and argue with one another, and came to an agreement on an investment by the
landlord of 2,500 euros for all the works and three months’ free rent for the duration of the works.
In the end, the lease was signed after just two months of searching!
Three new flats to let at the start of the winter season
The flats in this building had been renovated to a standard rarely seen on the Brussels property
market: triple glazing, plenty of natural light, luxury appliances and materials, good location, EPIC A,
etc.
However, bearing in mind that demand for flats to rent is at its highest between April and June, and
then between September and October, trying to let these flats in early November clearly did not do
us any favours.
What’s more, the rental market is always subject to the supply side of the market: the more
properties are available to rent, the more you need to stand out from the competition. After a few
weeks, we had a number of visits and people who expressed an interest, but no concrete
applications.
We conducted a study of the quarter’s rental market, which revealed strong competition at cut-
throat prices. So as to reduce rents, we first decided to raise the standard of the flats by making
improvements.
We suggested that the owner fit them out with a washing machine and curtain rails and the living
room with chandeliers. This would give prospective tenants a nice upgrade as well as adding an
aesthetic touch that would make them fall in love with the property. Once our client had agreed, we
embarked on a search for the best value for money equipment and got in touch with our contractor
for a quote.
Unfortunately, the fact that he was unavailable for the next few weeks as well as the cost of this
investment, led us to reconsider our strategy.
In fact, the cost of the investment per flat represented almost a month#39;s rent (so three rents in total for the three flats), not to mention the fact that we had to allow an extra month for our contractor to be available and for the appliances and other goods to come in. This would have meant having to find a tenant in the middle of winter, something we absolutely wanted to avoid as it would have made things even more complicated.
In practical terms, this meant that for each flat, we would need to reckon with one month#39;s rent as an investment and one month with each flat standing empty while the work was being carried out,
as well as
the extra time needed to find tenants in the middle of winter, i.e. a loss of at least two
month’s; rent for the landlord, which could end up being much more.
So we were keen to drive down the element of uncertainty as much as possible. We estimated that
it would be much less risky and, above all, more profitable to reduce the rent by a hundred euros
and to redouble our efforts to let the flats within the next two weeks.
In the end, as soon as we received the landlord#39;s consent to adjust the rent, we found three tenants
within a week!
This enabled the owner to limit his expenses to one month’s rent per flat. In line with our full
transparency policy with clients, he was well aware of the market challenges which were beyond our
control. We worked in tandem on this project and were keen to come up with the right ideas to
make sure his investment turned out to be profitable. That is how our services gave him complete
satisfaction.
He himself has this to say:
“I was duly aware of the vacancy risk when I decided to put in an offer on this building. I
put my trust in the BuyerSide team and I haven’t regretted it for a second. I really enjoyed
working hand in hand with the OwnerSide team, who understood the issues faced by
landlord-investors and were able to defend my interests in an intelligent manner.
I appreciated the open communication and the solutions they came up with in light of the
difficulties encountered. I found them to be very responsive and I was pleasantly
surprised by the swiftness with which the building was fully let. The whole thing was a
real success.”