Expert's Advice on Real Estate and Money

Investing Abroad

A few years back I was shown a property by Craig Donnell, a colleague who consistently ferrets out opportunistic deals, in Melbourne, Australia. The building was located directly opposite the University of Melbourne, and comprised 12 stories of student accommodation (277 rooms) along with ground-floor retail space and a basement. (See Figure 22.1.) There was a new 10-plus-5-plus-5-year lease in place to the university at a starting rental of A$950,000 per annum, with annual reviews in line with the consumer price index (CPI). To an outsider looking at market cap rates, returns, location, strength of lease, and in deference to the fact that the building had been completely renovated, it appeared as though the building was being offered at a price substantially above market. This would also explain why it had not sold.

However, this building also highlights the need to conduct thorough due diligence. It turns out that despite the recent renovations, the building did not comply with the fire code. Before long, the students had to be evacuated and relocated, and the university commenced legal action against the owner. We were informed that an offer would be entertained by the owner, who was eager to extricate himself from the situation.