I recently held a phone conversation with a major Bank property officer. He couldn’t understand why adopting an established yield return per square metre, on a strongly performing and “proven” operator could be transferred to that facility’s next stage.

Whilst the overall unit mix would of course change, including the addition of many more ground level (drive-up) large units, chargeable at a premium, as well as other unit sizes to compliment the facility’s demand-based mix at present, he was in fact insistent that the figure should be much lower.

Not only did he not understand that the addition of more smaller units (at a higher yield per square metre) and the premium-price units would in fact uphold that rate, but he also did not comprehend that (subject to revisiting the valuation 12 months hence) this facility could out-perform this figure given its proactive management, rolling rent-increases through its client base over the year, and subsequent to the introduction of new customers, at higher rates as well.

This intransigence and lack of knowledge eventually led my client to be knocked back by this Bank due to the “risk element” involved. Despite numerous emails and an offer to go through all the figures over the desk, the Bank felt that the established, strong performer no longer fitted its risk analysis, post-GFC. My client was funded by another bank that could accommodate the “risk”.

The situation highlights the necessity for both sides to a transaction to fully understand their business worth. The Banks need to understand that a solid, well performing and established operator with strong management and cashflow essentially leads to minimisation of risk, not an increase.

On the other hand, there is a necessity for the customer (you) to be able to argue and explain the rationale behind the monthly figures you give your Bank, and to use industry-wise, experienced valuers to both produce your valuation reports and, if necessary, to argue your case with your Banker when and as necessary.