What Not to Do When Buying a Business Park in Griffith

Buying a business park in Griffith puts you in a position to benefit from the region's agricultural and industrial activity, but the financing structure you choose will determine whether the asset performs or becomes a burden.

Applying for Owner-Occupied Lending When You Need Commercial Finance

A commercial loan is structured around the property's income, not your personal income. Lenders assess the net operating income from tenancies, the quality of those tenancies, and the loan-to-value ratio. If you approach a lender with an owner-occupied mindset or expect approval based on your personal serviceability alone, the application will stall. The property must generate enough rent to service the debt, typically with a debt service coverage ratio of at least 1.2 to 1.3 times the annual loan repayments.

Consider a buyer who approached us after securing a contract on a small business park near the Griffith industrial precinct. The property had three tenants, two of whom were on month-to-month agreements. The buyer assumed his personal income from his agricultural business would carry the application. It did not. The lender required signed leases with defined terms before they would commit, and the settlement timeline had to be extended while the buyer renegotiated tenancy agreements. The lesson is that commercial property finance depends on the asset, not the applicant.

Overlooking Tenancy Risk When Choosing Loan Structure

Your loan structure should reflect the stability of your tenant base. A business park with long-term leases to established tenants can support a higher loan amount and potentially a fixed interest rate. A property with shorter leases, vacancies, or tenants in cyclical industries requires a more flexible structure, such as a variable interest rate with a redraw facility or access to further funds if you need to carry costs during a vacancy.

In Griffith, tenancy risk is often tied to seasonal income cycles in agriculture and food processing. A business park leased to transport operators, cold storage providers, or machinery suppliers may see tenancy churn if commodity prices drop or seasonal work slows. If your loan is structured without contingency and a tenant vacates, you may not have the cash flow to service the debt while you search for a replacement. Lenders will assess this risk through the lease schedule, but it is your responsibility to structure the loan with enough flexibility to manage turnover.

Ignoring Valuation Methods That Affect Loan Amount

Commercial property valuation is based on capitalisation of net income, not comparable sales. The valuer will calculate the property's net operating income, apply a capitalisation rate based on the asset class and location, and arrive at a value. If the tenancies are weak, the lease terms are short, or the property requires capital expenditure, the valuation will reflect that. The loan amount is then calculated as a percentage of that value, typically between 60% and 70% depending on the lender and the asset quality.

A valuation that comes in below the purchase price will reduce your loan amount and increase the deposit you need to settle. This happens more often with business parks that have deferred maintenance, outdated fit-outs, or tenants on below-market rent. If you are buying a business park in Griffith that has been owner-occupied or under-utilised, the valuer may apply a higher capitalisation rate, which lowers the value. You cannot change the valuation, but you can prepare for it by obtaining an independent assessment before you sign the contract.

Using All Available Equity Without a Contingency Buffer

Borrowing at the maximum loan-to-value ratio leaves no room for cost overruns, vacancies, or rent reductions. Commercial lenders typically lend up to 70% of the property value, but just because you can borrow that amount does not mean you should. A business park is a commercial asset with operating costs that can exceed expectations, particularly if tenancies turn over or if you need to make improvements to attract new tenants.

In our experience, buyers who structure their loan with a 10% to 15% equity buffer are better positioned to manage the first 12 months of ownership. That buffer might cover the cost of re-leasing a vacant unit, upgrading lighting or signage, or holding the property through a gap in tenancy. If you use all available equity to minimise your deposit, you will need to source additional funds or negotiate further borrowing at a time when the lender may be less willing to extend credit.

Choosing Fixed Rates Without Understanding Break Costs

A fixed interest rate can provide certainty, but it also locks you into the loan structure. If you decide to sell the property, refinance, or pay down the loan during the fixed period, you will likely incur break costs. These costs are calculated based on the difference between the fixed rate you are paying and the current wholesale rate, multiplied by the remaining term. In a falling rate environment, break costs can be substantial.

For a business park, where tenancy changes or market conditions may prompt a sale or refinance within a few years, a variable interest rate or a shorter fixed term may be more appropriate. Some buyers split the loan between fixed and variable portions to balance certainty with flexibility. The decision depends on your hold period, your cash flow, and your tolerance for rate movement. If you are unsure, a loan structure that allows for partial prepayment without penalty is worth considering.

Underestimating Settlement Costs and Holding Costs

Settlement costs for commercial property include legal fees, stamp duty, loan establishment fees, valuation fees, and building and pest inspections. Stamp duty on commercial property in New South Wales is calculated on the full purchase price and can be significant. Holding costs begin from settlement and include council rates, insurance, land tax if applicable, and any outgoings that are not recovered from tenants. If the property has a vacancy, you will also carry the cost of that vacant space until it is leased.

A buyer purchasing a business park at the suburb's current median will need to budget for these costs in addition to the deposit. If your deposit calculation does not include settlement and holding costs, you will be short at settlement or forced to draw on other funds. We regularly see this with buyers who focus only on the deposit percentage and forget that commercial transactions carry higher upfront costs than residential purchases.

Failing to Review the Loan Terms Against Your Business Plan

Your loan terms should align with your intentions for the property. If you plan to develop the site, add tenancies, or sell within a few years, the loan needs to support that. A loan with principal and interest repayments may not suit a development timeline. A loan with restrictive prepayment terms may prevent you from exiting when you want to. A loan with a short approval expiry may not give you enough time to complete due diligence or secure tenants.

Before you commit to a loan structure, review the terms against your business plan. If the loan does not support what you are trying to achieve, it will become a constraint rather than a tool. Work with a commercial finance broker who understands the difference between a hold-and-lease strategy and a develop-and-sell strategy, and who can structure the loan accordingly.

If you are looking at a business park in Griffith and want to make sure your finance structure supports the asset, call one of our team or book an appointment at a time that works for you.

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