Hi, well when it's commercial property there is never enough information, but not specific to this deal, in general, look to comps on a sq ft basis and see if your price for the comparable property is even in line.
Inspections begin from your initial walk through before you make your offer and specific inspections, roof, mechanical, electrical, plumbing, etc will be done after an offer is accepted and make sure your contract is subject to inspections. After you know you have a solid building, title, easements and other issues around the area are done before the contract offer and again after, during the inspection phase. As far as leases, which you need to look at before the offer or at least know what's going on, it's good to talk to tenants as well and see what their intentions are. As you said one wants less space, one more space, if they are next to each other it might be rather easy to accomadate both. Commercial properties usually have the infill (inside of the building) being the responsibility of the tenant. So if the guy wants a resturant and all is good for that (like zonning) then they will have to have the construction and modifications done under the approval of the owner...easy way out here is require an engineer/ architect who will act as a project manager and be liable for the improvements, The cost of which is one the tenant or you can agree to what ever since it will probably improve the property. Good thing, with the tenant having a leashold interest and capital in your building is that they will stay longer! Don't modify the property into smaller units that won't meet your market either as smaller unit tenants seem to come and go more often and filling them can be a problem, especially in the future.. Check with your insurance person on types of businesses in the building...a resturant will raise a rate due to fire and you need to pass the cost to that tenant if it does.
As to due diligence, I'd suggest you have your attoirney review the deal, inspectors you hire, not just the bank. As for leverage on a deal, Staying below 70% LTV and above 50% will probably be a safe area. It's better to be in a position to pay off a mortgage than have a cash tied up in a property, everytime! Interest is really paid by the tenant and it's expensed by you....yes it could increase your income, but what is that after taxes and few consider the economic impact of lost opportunities of not having cash available, so at some point there is a optimal point of your return, it's not just a financial return but look on an after tax basis with an economic valuation. Look to the potential of your deal, rather than what is today, especially since you said 50% vacancy. How hard/long will it be to get to 80/90%? WHat can go in there in the future and how solid are those industries. Who is the anchor, the best most solid tenant, will a bank fit? LOL Yes, banks do lease properties for branches and deals can be made.
I know I didn't cover it all, but just some thoughts for you...good luck, Bill
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May 25 '10, 05:08 AM
