Buying a car park with 35yr rental to NCP

[PMC]

Does anybody have any experience with owning a car park that’s rented back to NCP long term?

2.6million asking price.

189,000 rental per year, increased annually 1.5-5%

35yrs left to run on rental to NCP

also 50-60% of asking price would need to be financed.

Does this look a good business investment opportunity or is it not that straight forward and is there some hidden problems that can occur?

kind regards

Patrick

 

[Mark T Jones]

As with pretty much every 'buying a business' post, there is nowhere near enough information to comment.

Obvious initial questions:

- Why are NCP sub-letting rather than running it?
- What is the profit history?

Plenty more to follow...

 

[Mr D]

May be a somewhat niche experience, owning a car park rented to NCP.

However any business where your income is the lease would be something you discuss with your accountant. And like all business contracts, details matter.

Heck, even price is open to question. What the business is listed for sale at and what it does sell at can be quite different.

 

[PMC]

As with pretty much every 'buying a business' post, there is nowhere near enough information to comment.

Obvious initial questions:

- Why are NCP sub-letting rather than running it?
- What is the profit history?

Plenty more to follow...

not sure it seems to be common for them.

I came across an article last year where an investment trust bought 2 in Glasgow and Aberdeen for £14 million then leased them back to NCP for 30+ years with a 4.2% return.

Just wondered if it is as good as it looks.

Thanks for the reply.

 

[Mr D]

not sure it seems to be common for them.

I came across an article last year where an investment trust bought 2 in Glasgow and Aberdeen for £14 million then leased them back to NCP for 30+ years with a 4.2% return.

Just wondered if it is as good as it looks.

Thanks for the reply.

4.2% return - some would say that's not a bad return on capital management.
Depends on the costs - as in who pays what.

 

[PMC]

4.2% return - some would say that's not a bad return on capital management.
Depends on the costs - as in who pays what.

The original post I asked about, that one is 6.4% a year.

just seems to good to be true, but when it’s in a main newspaper and knights Frank where who sorted the deal out, makes me think there’s some legitimacy there.

I don’t have the full asking price but would be in a position to put 30% down for a commercial mortgage.

I don’t know much about it to be fair or commercial mortgages so maybe it’s too big a business to run.

Nice idea though, buying it then sit back and get paid a rental income for the next 35 years. But when I put it that way it sounds far too good to be true doesn’t it.

Thanks

Patrick

 

[Gordon - Commercial Finance]

Getting the mortgage shouldn’t be a big issue if the property valuation stacks up.

Although lenders might want to see a bit of a track record - have you done any level of commercial building management? If this is your first jump into this line of work, then going straight to something of this size would be a big stretch.

I would be asking why the seller is getting rid of it if it is genuinely pulling a consistent return. I would keep asking this question over and over and over until I was satisfied that I had the true response.

 

[PMC]

Getting the mortgage shouldn’t be a big issue if the property valuation stacks up.

Although lenders might want to see a bit of a track record - have you done any level of commercial building management? If this is your first jump into this line of work, then going straight to something of this size would be a big stretch.

I would be asking why the seller is getting rid of it if it is genuinely pulling a consistent return. I would keep asking this question over and over and over until I was satisfied that I had the true response.

Appreciate the reply.

No I have zero experience in commercial building management.

Just in a fortunate position to have a good chunk of capital that I want to invest to start my own business.

I didn’t Actually stop to think of why it was for sale, but if there’s 35yrs left on the contract, would NCP not have to honour it?

Sorry for the newbie and possibly naive questions. Totally new to me. Spent majority of my working life in The military so only really know engineering.

Thanks

 

[PMC]

Also done a bit more reading. There is 17.5yrs left on the NCP contract.

Also the lease runs out 2084 but with an option of extending until 2110

The lease benefits from 50:50 annual rental increases. 50% increases at 3% the remaining 50% increases online with RPI collar and cap of 1.5-5%

 

[Mr D]

Appreciate the reply.

No I have zero experience in commercial building management.

Just in a fortunate position to have a good chunk of capital that I want to invest to start my own business.

I didn’t Actually stop to think of why it was for sale, but if there’s 35yrs left on the contract, would NCP not have to honour it?

Sorry for the newbie and possibly naive questions. Totally new to me. Spent majority of my working life in The military so only really know engineering.

Thanks

Yes NCP would honour it. Until something happens that changes things.

Business relies on contracts - both sides stick to it and neither gets into trouble then no reason things should change.
The details will matter - you will need to have your own hired specialists look things over. Believe nothing from the seller or their agent until you or your people can verify it.
The seller is not on your side and is not responsible for your due diligence. If you make mistakes or assumptions do not expect them to point things out.

 

[PMC]

Yes NCP would honour it. Until something happens that changes things.

Business relies on contracts - both sides stick to it and neither gets into trouble then no reason things should change.
The details will matter - you will need to have your own hired specialists look things over. Believe nothing from the seller or their agent until you or your people can verify it.
The seller is not on your side and is not responsible for your due diligence. If you make mistakes or assumptions do not expect them to point things out.

Thank you.

Iv asked for further details regarding why the current owner is selling when there’s 17.5yrs left to run, and if NCP would be wanting to extend again after the 17.5 years.

I look forward to hearing back from them.

 

[Karimbo]

you seem to have a lot of money and you're investing in some of the most dull investments going.

Why are you investing in a leasehold carpark? You could put all your money on ftse100 and get your 5-6% ROI per annum.

Though if I had 1.3M in cash in the bank and was approaching retirement and needed something to invest in, I'd most likely be a buy to let landlord.

Homes are easy to sell on, if you need to raise some cash fast, you could sell one of the properties in a couple of months. If you want out of your commercial car park it's going to be a lot harder to find a buyer.

 

[Gordon - Commercial Finance]

No I have zero experience in commercial building management.

Just in a fortunate position to have a good chunk of capital that I want to invest to start my own business.

I’m sorry but on that basis you won’t get someone to lend you a few million quid on this. It’s too big a project for your first one. Start smaller, maybe invest your capital in a few smaller units. This one is unfortunately probably a no go.

 

[PMC]

I’m sorry but on that basis you won’t get someone to lend you a few million quid on this. It’s too big a project for your first one. Start smaller, maybe invest your capital in a few smaller units. This one is unfortunately probably a no go.

This was on my mind to be fair.

I did think of an industrial unit, and as a keen golfer and as I live in a popular golf area, I liked the thought of an indoor driving range using the best launch monitors on the market. Maybe putting 10 of them in there.

That one I’d have 100% cash to do it as long as the unit is around £250k. Any higher and that would need additional funds.

Appreciate yours and everyone else feedback.

Im just a youngish family man trying to make the best of my life and make something of myself.

 

[Mark T Jones]

not sure it seems to be common for them.

I came across an article last year where an investment trust bought 2 in Glasgow and Aberdeen for £14 million then leased them back to NCP for 30+ years with a 4.2% return.

Just wondered if it is as good as it looks.

Thanks for the reply.

Apologies, I’d misread the situation

in a @Gordon - Commercial Finance has covered the mortgage point. Whilst I’m not up to speed on current commercial mortgage terms, but I’d guess it would cost about 4-5% if you managed to get one. That would likely be fixed for a period, after which you’d be exposed to rate fluctuations

then you’d have to look at ongoing maintenance costs

Above all, you’d definitely want to spend good money for legal advice on the contract

 

[Mark T Jones]

Just in a fortunate position to have a good chunk of capital that I want to invest to start my own business.


Thanks

Please don't.

We often joke that the best way to make a quick, dishonest buck is to target recently redundant folk with 'business opportunities' - you need to be paid up-front though, as they won't be around for long.

Seriously; somebody - possibly you - has worked for that cash. Unless you got lucky & won the lottery.

If you want to blow it take a month in Vegas and enjoy yourself.

if you want to invest it sensibly, take good solid advice on mixed investment portfolios.

If you want to start a business, treat your cash as any professional investor would - with a hefty slug of caution and cynicism. You are either lending or investing in a business, not gifting money.

 

[Gordon - Commercial Finance]

This was on my mind to be fair.

I did think of an industrial unit, and as a keen golfer and as I live in a popular golf area, I liked the thought of an indoor driving range using the best launch monitors on the market. Maybe putting 10 of them in there.

That one I’d have 100% cash to do it as long as the unit is around £250k. Any higher and that would need additional funds.

Appreciate yours and everyone else feedback.

Im just a youngish family man trying to make the best of my life and make something of myself.

Additional funds is ok - I'm not saying you won't get a commercial mortgage or business funding. Just not something quite as big for your first go!

If you can get a bit of land then and indoor and outdoor driving range would be good. I've seen a lot of the indoor only places come and go over the years and the money they have to charge for the simulator things just makes it not worth it. As a golfer, you'll understand that there's nothing like the real thing, and especially if its just driving range setup, a covered set of bays and a nicely marked out open space in front is all you need. Much cheaper than indoor simulators, and you can spend a bit of money on a few of the bays having the fancy cameras and tech for swing analysis.

 

[Mark T Jones]

I've seen a lot of the indoor only places come and go over the years and the money they have to charge for the simulator things just makes it not worth it. .

Yip; the only ones I've seen survive have been in office-dense areas and operated solely as entertainment venues.

Golf, even here in the affluent south-East is no longer a high-image game (with a small number of noteable exceptions. Before investing in top-of-the range equipment the OP must research to see what clients are prepared to pay for.

 

[Gordon - Commercial Finance]

Yip; the only ones I've seen survive have been in office-dense areas and operated solely as entertainment venues.

Golf, even here in the affluent south-East is no longer a high-image game (with a small number of noteable exceptions. Before investing in top-of-the range equipment the OP must research to see what clients are prepared to pay for.

These places make their money off cheap pub food and drink, not from golf unfortunately. One in Perth I've been meaning to visit also has driving simulators. Could be interesting.

 

[PMC]

Apppreciate all the advice, thank you.

The money was legitimately made by investing (gambling) on cryptocurrencies.

So far then it seems that putting it into the ftse100 and hoping it stays around 4% is the safest option.

I don’t want to end up as a statistic with regards to a fool and his money being easily departed.

 

[Gordon - Commercial Finance]

Apppreciate all the advice, thank you.

The money was legitimately made by investing (gambling) on cryptocurrencies.

So far then it seems that putting it into the ftse100 and hoping it stays around 4% is the safest option.

I don’t want to end up as a statistic with regards to a fool and his money being easily departed.

I wouldn't discount investing in property in some shape - potentially could do a fair bit better than 4%.

Alternatively, if you were willing to do a bit of regulatory work then lending out commercial debt (secured) is very lucrative.

 

[Karimbo]

Keyadvice being diversify your investments. Dont invest everything you have on one thing.

Have you taken care of capital gains tax? you may need to take care of that if you haven't done so. Otherwise the taxman might come knocking.

Leave some money in the bank as a contingency fund.

Go on a property investment course and see if you have a taste for it, it's the best way to invest with the least business know-how IMHO.

 

[Stedurham]

Don't go on a property investment course whatever you do there are legitimate forums like property tribes where proper investors, landlords etc will give you free advice

 

[Mark T Jones]

Apppreciate all the advice, thank you.

The money was legitimately made by investing (gambling) on cryptocurrencies.

So far then it seems that putting it into the ftse100 and hoping it stays around 4% is the safest option.

I don’t want to end up as a statistic with regards to a fool and his money being easily departed.

Ah; so you were one of the few who was clever enough to actually sell rather than assuming the growth would continue for ever? Well Done!

You really want to weigh up your own appetite for risk, and you personal areas of interest.

You also need to consider timescales for investment.

Despite constant predictions of a 'crash', residential property is a fairly decent long-term bet; FTSE and gilts are also 'reasonably' safe over a period.

You might want to be a bit more speculative (or even frivolous) with a portion of your gains.

Investing in your own business can be highly productive, but only if approached correctly - definitely NOT as 'I have cash, what business should I start?'

 

[PMC]

I only don’t like property because, any repair work has to be carried out by me as the owner and fees for having it run for me would eat a lot of profit I imagine?

 

[Gordon - Commercial Finance]

I only don’t like property because, any repair work has to be carried out by me as the owner and fees for having it run for me would eat a lot of profit I imagine?

And you were thinking about spending £2.6m on a car park!??
There's still profit in property if you diversify well, as mentioned above. And the fees for having it run don't cause too many issues, and can often be negotiated down when you're doing multiple managed properties.

Even £500k would go a long way on a lending book...that's what I would do, but of course I would say that because I know the industry I work in...

 

[Karimbo]

I only don’t like property because, any repair work has to be carried out by me as the owner and fees for having it run for me would eat a lot of profit I imagine?

Everything requires maintenance, if you have a property portfolio you can ride out the odd months where repairs wipe out the gains.

Having said that once the work is done, it can be many many years before any work is needed.

 

[PMC]

And you were thinking about spending £2.6m on a car park!??
There's still profit in property if you diversify well, as mentioned above. And the fees for having it run don't cause too many issues, and can often be negotiated down when you're doing multiple managed properties.

Even £500k would go a long way on a lending book...that's what I would do, but of course I would say that because I know the industry I work in...

Difference being in property It’s up to me to keep the house in good repair, with the car park NCP are responsible for it’s maintenance and repairs.

It’s under an FRI lease.

 

[Stedurham]

Its small change to ncp they would buy it and make the extra 190k a year. So far gone from 35 years to 17.5 years?? Is there a charge to council yearly aswell for ground rent?
Commercial mortgages aren't as easy to get as btl. Im in double figures for btl but commercial lenders want assets to back it. Also only lending 60% at best and rates are higher

 

[PMC]

Its small change to ncp they would buy it and make the extra 190k a year. So far gone from 35 years to 17.5 years?? Is there a charge to council yearly aswell for ground rent?
Commercial mortgages aren't as easy to get as btl. Im in double figures for btl but commercial lenders want assets to back it. Also only lending 60% at best and rates are higher

The 35 years was my bad, that was the original lease term with 17.5 left to run.

 

[Mark T Jones]

I only don’t like property because, any repair work has to be carried out by me as the owner and fees for having it run for me would eat a lot of profit I imagine?

There are no ways of making money without - in varying degrees- risk and hard work

If you really think that car park was as simple as getting a mortgage and watching money roll in, you really do have a lot to learn about business. Still, far better to learn it now than after you have splashed out huge legal and arrangement fees. (Or worse still, borrowed the cash)

From experience, renting residential property can include long periods of collecting rent With minimal work required. there can also be horrendous periods which can wipe out a year’s rent in a go.

Personally I keep good relations with local handymen and trades rather than paying agents. Also, from hard experience, I pay for landlord’s insurance

 

[PMC]

There are no ways of making money without - in varying degrees- risk and hard work

If you really think that car park was as simple as getting a mortgage and watching money roll in, you really do have a lot to learn about business. Still, far better to learn it now than after you have splashed out huge legal and arrangement fees. (Or worse still, borrowed the cash)

From experience, renting residential property can include long periods of collecting rent With minimal work required. there can also be horrendous periods which can wipe out a year’s rent in a go.

Personally I keep good relations with local handymen and trades rather than paying agents. Also, from hard experience, I pay for landlord’s insurance

Being honest here, yes that’s exactly what I thought would happen.

Put down £800k, mortgage the rest. Watch £189,500 a year come in to me.
It’s FRI leased so I’m not responsible for maintenance or repairs.
The ground rent is peppercorn so as far as I’m aware shouldn’t be too expensive.
Just have to pay the mortgage and tax due.
How wrong or naive obviously of me. Pretty steep learning curve this business stuff.

Thankfully iv found this board before iv made a huge mistake.

Thanks.

these reads like sarcasm reading back, not intentional.

 

[Mark T Jones]

Being honest here, yes that’s exactly what I thought would happen.

Put down £800k, mortgage the rest. Watch £189,500 a year come in to me.
It’s FRI leased so I’m not responsible for maintenance or repairs.
The ground rent is peppercorn so as far as I’m aware shouldn’t be too expensive.
Just have to pay the mortgage and tax due.
How wrong or naive obviously of me. Pretty steep learning curve this business stuff.

Thankfully iv found this board before iv made a huge mistake.

Thanks.

these reads like sarcasm reading back, not intentional.

There is a thin (also unclear and variable) line between being sensibly cautious and being cynical. In most cases however, it's a good idea to ask 'why isn't everyone doing it?'

Lots of people can lay their hands on the cash, so that isn't the reason.

There is undoubtedly a deal to be done there, but it's not as obvious as it looks.

 

[PMC]

There is a thin (also unclear and variable) line between being sensibly cautious and being cynical. In most cases however, it's a good idea to ask 'why isn't everyone doing it?'

Lots of people can lay their hands on the cash, so that isn't the reason.

There is undoubtedly a deal to be done there, but it's not as obvious as it looks.

I just got the idea having read that a investment fund had done the exact same thing in Glasgow and Aberdeen, 2 car parks rented back to NCP at 4.2% and 4.75% on 35yr leases. deal was done by knights frank and i assumed if a fund is doing it then it must be legit.

Iv had an email back from Allsop now and it’s currently under offer.

Not under offer from me may I add.

 

[Mark T Jones]

I just got the idea having read that a investment fund had done the exact same thing in Glasgow and Aberdeen, 2 car parks rented back to NCP at 4.2% and 4.75% on 35yr leases. deal was done by knights frank and i assumed if a fund is doing it then it must be legit.

Iv had an email back from Allsop now and it’s currently under offer.

Not under offer from me may I add.

I wouldn't doubt its legitimacy.

That treasury fund will have a team of lawyers, actuaries and other professionals at their disposal.

They also have huge pots of cash that they need to keep moving. (and they will still lose money on some transactions)

 

[PMC]

I wouldn't doubt its legitimacy.

That treasury fund will have a team of lawyers, actuaries and other professionals at their disposal.

They also have huge pots of cash that they need to keep moving. (and they will still lose money on some transactions)

Maybe I’d be best going the property route then.

The car parks seem too big a business venture for a newbie.

Is it best to buy outright or interest only mortgage them?

Other than my own home iv no knowledge of BTL

 

[Gordon - Commercial Finance]

Where are you based @PMC ?

 

[Mark T Jones]

Maybe I’d be best going the property route then.

The car parks seem too big a business venture for a newbie.

Is it best to buy outright or interest only mortgage them?

Other than my own home iv no knowledge of BTL

Start a new thread.

You'll get lots of opnions, but it's important that you sit down and create a cashflow template and research the info!

 

[PMC]

Where are you based @PMC ?

South West.

 

[Financial-Modeller]

A couple of quick thoughts:

All perfectly normal for an investor to be selling a property with a 17-yr lease. Perhaps the biggest question is why the owner is selling now?

As cars move away from ICE to electric (sorry Gordon ), car-parks without charging facilities will be much less desirable to park in than those where a car can be collected fully-charged. This will require Capital Expenditure.

Self-driving cars will mean that shoppers (in this case) don't need to enter the car park. Cars will drive themselves in, park, charge, and drive out. As pedestrian access will not be necessary, cars can be parked more closely together (no space needed to open doors), which will require redesign, but massively increase the density of cars that can be parked on a given space. This could explain the relatively high cost per space for this car park (£8500)

The other big opportunity is redevelopment. To the untrained eye, it looks like extra storey(s) could be added relatively easily, and I suspect that will be driving the value.

@PMC this could be a great investment, but the capital required to fully realise the returns will be significant, and I'll estimate that the successful buyer will have access to a similar amount again to invest in the project. Its less-well-suited to a passive investment for a first-time investor.