Need advice on offer.
We are currently renting a 2500sq feet in a 7500 sq feet building at $16/ft. With NNN we end up paying around $4,200/mo. A private equity group just bought out all the buildings in the area we are in (15+ buildings). I asked our leasing agent to reach out to the private equity group to see if they would be interested in selling the building itself. They responded they are open to offers but do not want to put a price out there.
They have 13 executive offices that occupy 3,000 sq feet and brings in around $7,500/mo or 90k/year. They calculate around $4.1k/mo in expenses or 50k/year. (insurance, admin, repairs, prop tax, utilities, etc). Trying to come up with an offer for the building, It's around 25 years old and in good condition. The exec offices were just newly renovated recently and looks amazing.
What's the most I should be willing to pay for a property like this? We are currently on a 5 year lease with 3 years left and most likely will renew.
Hi Rony,
I am very confused. How does the private equity group play into this?
The main way you value commercial buildings is on the income method. You will need to know the building's net operating income (NOI) and the average cap rate for similar buildings in the area. The value of the building you are interested in is the NOI divided by the cap rate.
The private equity group bought out all the buildings in the area about a year ago. I was interested in just buying the current building we are leasing from them.
Ok, I understand now.
The building's value is NOI/cap rate.
The good news is that the private equity group will not be emotionally attached to the building (it is all just numbers to them). What they should care about is their ROI.
The bad news is that they just recently purchased it and put a decent amount of money into the renovations, which means they would need a good amount of money to hit their ROI. Perhaps even more than what the building is currently worth since it takes time to raise the rents and increase value that way.