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Rent roll Market Update- September

By Staff Reporter
09 October 2012 | 10 minute read

As part of a regular series, Real Estate Business talked to some of the country’s most influential real estate business brokers about the state of rent roll activity in their local markets, and where there are opportunities for astute buyers


ROSS HEDDITCH, director at BDH Solutions, said rent roll activity remains strong in Melbourne.

In May, Mr Hedditch, whose firm operates in both Victoria and NSW, reported he had received more enquiries from prospective rent roll buyers in the previous three months – around 10 per week – than in the previous few years. That level of activity was continuing when Real Estate Business spoke to him in mid August.

“It’s emanating from cash flow issues in real estate agency businesses,” he says. “There’s a lack of sales, and the speed of sales is an issue.”

Some agents are still doing well, but properties are taking longer to sell, and there’s more competition, which is putting pressure on fees. This in turn is negatively influencing their cash flow, he continues.

Most of the rent roll business at the moment revolves around principals selling small parcels of their rent roll – around 50 properties under management – in order to lessen any debts they may have.

The portions being sold, however, aren’t the worst parts of the rent roll, he adds: “I’m seeing the opposite – one owner, one property rent rolls with good [tight] geographic locations.”

There has been little change in where interest is focused, Mr Hedditch adds, with inner Melbourne dominant.

Pricing has also remained consistent with levels from earlier this year – from between $3.30 to $3.75 in inner Melbourne, to $2.50 to $2.80 in outer suburban areas, and $2.50 to $2.60 in regional Victoria – although buyers were being more circumspect when assessing the value of each rent roll.

Lenders were continuing to come to the party, he adds, and this now includes rent rolls with fewer than 200 properties under management – the point at which lenders usually become interested in funding a rent roll acquisition – provided they felt the buyer had a viable plan for the business.

The foundation for building a rent roll in Melbourne remains sound, he continues, with leasing demand robust.

“There’s no doom and gloom in terms of rents,” he says, in relation to Melbourne’s residential rental market.


CHRIS GOODWAY, CEO at The Rent Roll Broker, who began his real estate career in 1973, says demand for quality rent rolls across Australia’s capital cities and metro suburbs is still very high.

“Buyers today, however, are looking more closely for portfolios with strong management fee income and above average rent levels,” he says.

“These premium rent rolls enjoy a much quicker sale and a higher multiplier, making fee maximisation a priority for agents contemplating selling in the next six to 12 months. Getting these fundamentals right before going to market is a consideration in systemising business for a profitable sale.

“In comparison, regional and country areas critically depend on a smaller prospective purchaser base and in markets where local agents are often not in a position to make a purchase.”

“In South Australia, like neighbouring WA, there’s very strong demand for rent rolls in the inner metro and CBD areas, with multipliers between $2.70 and up to in excess of $3.00 for quality premium portfolios,” Mr Goodway says.

“Small portfolios are readily selling to cash buyers wanting to top up their existing rent rolls as well as a few buyers looking to start out within the industry. While larger portfolios are being picked up by the more prominent agencies keen to build their business and establish a strong cash flow basis to counteract the downturn in the sale market.

“The outer northern/southern and Hills suburbs continue to trade strongly, and consistently achieve a multiplier of up to $2.80 whilst regional and country areas are limited by the number of qualified buyers within those areas. Multipliers differ between $1.60 through to $2.50 on annual management fee income.”


MATT CIALLELLA, director of mc rent roll broking, is a broker of the sale of rent rolls, real estate agencies and strata agencies throughout the Sydney metropolitan area, central coast, Hunter, mid-north coast, Illawarra region and the ACT. Mr Ciallella, who spent 11 years with Macquarie Bank funding key real estate agency mergers and acquisitions, as well as providing best practice banking solutions for real estate agency businesses, said the winter months have been quieter in terms of new rent rolls and real estate agencies coming onto the market.

However, with the arrival of spring and agencies gearing up for their marketing campaigns, Mr Ciallella says he expects more rent rolls and agencies to be on the market.

“We are seeing more and more real estate businesses being listed as opposed to just the rent roll,” he says. “There is a want to firstly list the business as a going concern, as well as the rent roll. This is becoming more common as principals and business owners realise their exit strategy is contingent upon not just selling the rent roll but also exiting their franchise agreement and lease favourably without incurring penalties and exit fees.

“Selling just the rent roll is no longer the only consideration,” he continues.

“We are also seeing more and more businesses looking to merge with other real estate businesses. A good solid property management business experiencing a drop in sales is looking to partner with a capable sales business, bringing the strengths of two separate businesses into one as a force to reckon with in its region or area.”

Mr Ciallella says market multipliers are holding strong, with demand for rent rolls throughout the Sydney metropolitan area.

In the city’s east, inner west, north shore, northern beaches and south through to the [Sutherland] Shire, he says he is seeing multiples of between $3.30 and $3.80, with the odd sale above this for internal buy-ins, share buy-ins and succession planning sell downs, where quality is recognised through prior knowledge of the owners.

“Consolidation is apparent in western Sydney, with larger real estate businesses with sizeable rent rolls of 1,000 plus [managements] deciding to get a move on with growth through acquisition. From Parramatta to the northwest and west, we are seeing multiples starting at $3.30,” he says.

“Regionally, there are hotspots for a run of rent rolls and businesses on the market, more notably north of Newcastle to Coffs Harbour, and west of the Blue Mountains. A multiple of $2.50 still dictates the asking price.

“Back in Sydney, buyers are still demanding quality rent roll assets at the $3.50-plus mark.

“The sales market is tougher and some businesses are experiencing anywhere up to a 40 per cent to 50 per cent downturn in sales.”


STAN CROOK is director of Queensland Residential Property Services (QRPS), which operates as brokers and business agency consultants across Brisbane, Gold Coast and the Sunshine Coast, and elsewhere in Queensland when required.

“In this past year or so, we have recorded an extremely high number of agencies going under, with receivers stepping in, taking over the agency and trying to on-sell the business,” Mr Crook says.

“Once this happens, the receivers are only interested in moving the business to a new owner as quickly as possible and with unfavourable contract conditions to a buyer, the final price achieved is nowhere near its true ‘market value’.

“Interestingly, we hear the main reason why an agency is folding is due to unpaid taxes and superannuation. True or not, it shows how much stress many agency owners are under in these current market conditions,” he says.

Mr Crook says there are plenty of agencies looking to sell at present, while demand for rent rolls continues.

“Late last year, we experienced an unexpected increase in demand for rent roll portfolios,” he says. “Who are these buyers? Long-term established businesses, with a rent roll portfolio owned and operated by a principal who is hands on, understands the benefits of having a substantial portfolio and knows the secret of sound business practices.

“They are in an ideal financial position as most have a low LVR on their current business and the banks are willing to work with them for all of those reasons.”

Prices are gradually improving, he adds, although they haven’t as yet reached pre-GFC levels.

Mr Crook reports most activity is in Brisbane, followed by the Gold Coast. In Brisbane, within a 5km radius of the CBD, typical multiples fall within the $2.50 to $2.80 range, while in the city’s outer areas, multiples are in the $2.20 to $2.40 range.

Outside Brisbane, the Gold Coast has witnessed prices of around the $2.30 to $2.35 mark, he adds.

“Prices are all over the place but those sellers who have their authorities up to date, good systems in place, rents meeting the market, low arrears and charging the appropriate fees for service will get the better prices,” he adds.


MARK SINCLAIR, CEO of Real Estimations, says the Perth market continues to see desire for quality portfolios, with demand continuing to outstrip supply, while at the other end of the spectrum, poorly structured and low revenue portfolios fail to attract market interest.

“During the last three months, we’ve transacted either directly or as a management buyout three portfolios of $3.00 per $1.00 of management fees, and another at $2.80,” Mr Sinclair says.

“Two of these portfolios were in our western suburbs, another in the Fremantle area and the third one in Cockburn. These were all high quality portfolios and, in one case, there were multiple offers.”

This supports Mr Sinclair’s previous comments on the robustness of the Perth market across most market segments.

“Conversely, we have been marketing three other portfolios that have come to market in a stressed state,” he continues. “These have proven very difficult to sell. One took six months to find a buyer; there have been no buyers for a second [portfolio]; and the third has been temporarily withdrawn until the portfolio’s administration has been addressed.”

This indicates a maturing of the buyer’s approach in the market, Mr Sinclair says. “They are telling us, ‘bring us quality opportunities and they will be absorbed, but we’re not interested in inferior stock’.”

Through Real Estimations, Mr Sinclair is delivering much more thorough due diligence for rent roll buyers and sellers.

“Our clients’ understanding of the processes for due diligence has increased and their scoping process has become far more business-focused, not just revenue-focused,” he says.

“This demonstrates a better understanding of the long-term issues surrounding rent roll aggregation.

“We continue to feel confident about the WA market” he adds.

Peter Sim of Agency Crossmatch, also in Perth, says there are currently not many rent rolls visibly on the market, and many of the rent roll sales are instigated between friendly local competitors.

“Buyers and sellers find it useful to engage a trustworthy person, experienced in these matters to broker a deal,” he says.

Mr Sim says he recently advised on the sale of an 80-property portfolio.

“Knowing that the best price would be from a firm with excess capacity as outlined above, it was decided to offer the portfolio ‘by expressions of interest’,” he says.

“Reputable businesses that might have excess capacity were approached and through the process, an excellent local agent emerged, happy to pay a premium because the portfolio could be bolted onto their business without major additions to their cost structure.”

Do you have an industry update?


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