Buying/Renting to U.S. Postal Office ... Anyone tried it?

Question

I have found that there are several of these buildings for sale. Does anyone have experience in this? A big concern would be that the USPS is so far in debt now. Could alot of these be closing in the  ear future? If they sign a lease..... would they be able to get out of it? Any help is appreciated.

Manley Peterson · Answer

So, did you decide to buy a post office building or learn any more about the possibilities?

Chris H. · Answer

Thanks for all the info @Joel Owens & everyone else. You have brought up some points that I wasn't aware of. I think the hardest part would be to rent the building out if the they did close. Would be alot of expenditures in remodeling to fit someone elses needs I would think.

Rob K. · Answer

In my area, there are many post offices in strip malls. The feds might find it cheaper to go that route instead of a freestanding building.

In the 1960's, my dad used to go hunting in some small town in the upper penninsula of Michigan. He would stay in an old lady's house who rented out rooms to hunters. The town's post office was in the living room of her house. Not sure we will see those days again, but you never know.....

Bill B. · Answer

Our local, small, Post Office closed last month.  Many were up in arms.  It is at least seven miles to the nearest "official" Post Office location now.  So, yes, the USPS is closing locations and will probably accelerate this activity going forward.

Rob K. · Answer

I looked at a Post Office for sale years ago. The price and rent were appealing. My concern was that the building was very old. What if they decided to build a brand new post office and not renew the lease? There wouldn't be many uses for the old building.

When I went to look at it, I asked the postmaster some questions. He was clueless and thought the Postal Service owned the building.

Now that the city of Detroit has filed bankruptcy, I think you will see a chain of bankruptcies at the municipal level. I don't know if the Postal Service can file bankruptcy, but they are losing money at a rapid rate.

David Krulac · Answer

Chris Hensley

You need to check the existing leases.  What does the lease say if the PO goes "dark."

Some leases are mute on the subject.
Some leases provide that the lessee continues to pay even after "dark".
Some leases provide that closure terminates the lessee's obligations.

You can not make a decision without studying the lease for these and other terms.

Joel Owens · Answer

Hi Chris,

Your obligations as a landlord are spelled out in the lease agreement.

Maintenance free refers to a triple net lease or what we call them NNN for short.

All I do is specialize in these triple net leases and also apartment buildings for my clients.

In the absolute NNN you are correct that the tenant pays all costs associated with taxes, insurance, etc. The lender sometimes requires an administrator to take payment from the corporate tenant and then distribute any leftover proceeds to the investor who owns the property.

The corporation also sometimes makes payments directly to lender on a loan you would be assuming for structure so that the tenant protects their credit rating and borrowing power.

A NN lease is where usually there is some expense to be born by the landlord either the roof, structure, parking lot, maintaining utilities for access and repairs, etc.

The caps tend to be higher but you have costs as a landlord.

GSA leases (government sponsored agencies) typically are not pure NNN but have a NN component. Investing in these properties is appealing to have corporate backed tenants and getting much more than1 percent sitting in a bank account.

My clients that love triple net tend to be busy business owners, high level executives, or REIT's who want turn key yield but do not have time to put in for the extra work that apartments  have and oversight.

Anymore questions just ask. You really need someone to help as NNN properties do have a lot of things to look out for such as bad leases, bad locations or areas for long term investment, lease set to high compared with store sales ratio, bad debt that must be assumed, etc.

Chris H. · Answer

Thanks Joel
     
        My partner and I are just now exploring the different levels of REI & this was one of the options we came across. We would prefer to pay partial down so we can start with more then one property. I like the idea because from what I have read they are maintnence free. They take care of all maintnence. Feel free to correct me if I am wrong.

Joel Owens · Answer

Hi Chris,

You always review the lease. Some clients of mine sold off a few post offices they own.

They did not like the debt levels the post office is carrying. The buyer is an investor that owns over 100 of them and knows the risk and wants to have that portfolio anyways.

These types of properties fall into the triple net leasing sector. Are you thinking of paying cash or getting a loan??

Whether you are doing either you need to look at what we call in the business the "dark value". The current value is what is et in the lease but if it goes dark what will the value of the property be in the open market and how hard will it be to repurpose the property and rent out due to it's design build and location??

What kind of yield Chris are you searching for??

If you can expand more on what you are trying to do it would help.

Thanks

Tom Goans · Answer

I agree with your concern about the reduction in leased space by the post office. There is an article this morning at finance.yahoo.com telling about the post office plans to reduce delivery to individual locations.

I would also learn about the paying habits of the government prior to running the final numbers.