The phrase “mortgagee in possession” or similar is increasingly appearing on commercial property listings. All types of land holdings and properties are becoming subject to forced sales as owners and operators crack under the weight of spiralling rates, building costs and lower revenues. According to Australian Securities and Investments Commission (ASIC) insolvency data over 2500 construction companies have gone into liquidation, administration, or receivership since mid-2021.
While these listings have been on the increase throughout the year there has been a noticeable rise in the last three months said managing director of Ray White Western Sydney Commercial Peter Vines. “The challenge has primarily been the rising cost of construction,” Mr Vines said. “The properties coming on the market are predominantly vacant land because typically the developers and owners of that land are not borrowing from a bank but a non-bank lender charging higher interest rates.
“Land of course doesn’t produce an income - it only costs money - so it can become unbearable to keep going - and any profit can be chewed up from interest while you’re sitting there doing nothing.
“Non-bank lending is fine if you can turn things over quickly. Then on top of that, not only is it harder to buy and deliver a development site, but it’s also becoming harder for average homebuyers to buy.”
Large land holdings and development sites have been highly represented among this year’s distressed property listings. Last month, they were joined by a 360 hectare site in Western Sydney billed as the largest rural amalgamated landholding to come to market in 2023. Located at 690-950 Cawdor Road and 420 Old Razorback Road, the sale is being handled by Colliers acting on behalf of KPMG as the mortgagee in possession. A big drawcard for the “super site” is its proximity to the future M9 Outer-Western Sydney Orbital motorway which is to link the M31 Hume Motorway at Menangle with the Central Coast via Camden, Penrith and Windsor. The property also comes with the possibility for rezoning from the current agricultural and rural industry status to make way for a master-planned community.
Mr Vines said the Ray White Western Sydney office had a mix of mortgagee in possession sales currently on the books. “Some are almost-built apartments, others are blocks of land or industrial buildings,” he said. “They’re all in excellent locations and can certainly be a strong investment for the right buyer.”
Prices are being protected a lack of supply to meet the consistently high demand from buyers, agents said. One sale of a mixed-use project in Blacktown that was already well into the construction phase sold earlier this year for 30% above reserve price. “There is a strong underlying demand for development sites in particular,” Mr Vines said.
The cooling market was also working in favour of buyers looking to purchase from receivers or funders at the right price. “The situation is presenting them with the attractive proposition of dealing with motivated and realistic vendors when there are fewer buyers in the market,” Mr Vines said. “Also, many economic indicators and statistics are suggesting that prices could start to run again when interest rates stabilise and even come back.
“Many investors are looking at their portfolio to see what they keep and what they may need to sell. We believe the biggest opportunities will be in the land space where funding is more difficult and there is likely to be the most stress on owners. There is nothing fundamentally wrong with these properties, it's more just people's ability to hold in the current climate.”
Current properties on the market in Western Sydney via administrators include:
- 1-15 Station Street Wentworthville: a mixed-use building near Wentworthville train station with almost $500,000 net annual return plus the potential for re-development, being sold by Ray White Western Sydney under instruction from the mortgagee in possession;
- “The Showground Collection” at 24-34 Fishburn Crescent & 2-12 Sexton Avenue Castle Hill: a 12,374sqm site with multiple frontages and DA approved for 7 residential buildings containing 295 apartments, marketed by KnightFrank on behalf of KordaMentha as receivers and managers;
- 41-43 Hunter Street Parramatta: a large land holding in single ownership with MU1 Mixed Use Zoning and potential for over 15,000sqm of gross floor area (STCA), benefitted by connectivity to the $2.8 billion Parramatta Square redevelopment comprising six high-end buildings and public areas. The property is being marketed by CBRE as exclusive sales agents under instructions from Newpoint Advisory as receiver and manager.
Due diligence a must
While distressed commercial real estate is viewed as full of opportunity – allowing new investors a chance to break into the commercial market with quality property – agents stress the need for buyers to thoroughly research any potential purchase.
“At Ray White Commercial Western Sydney we strongly recommend our investors and developers do their own due diligence on any property they are purchasing,” Mr Vines said. “One thing to bear in mind is typically receivers or funders are looking for faster settlements meaning that often long term or conditional settlements will generally not be feasible.
“Like any investment, you should be looking for a strong ROI in a high growth area, with good fundamentals, what the rent levels are and what the current market is doing. Do your own research and look for similar properties in the area you want to invest in, how much they sold for, what the rent is and if there are regular tenants.
“Some investors don’t do enough research and can get stuck finding people to rent the property. Find a trusted and knowledgeable real estate agent and do your own research and you can’t go wrong.
“I think now is an ideal time to be taking advantage of a softer office or retail market and getting good incentives.”