What's your favorite way to evaluate a commercial property?

Question

Hello BP family!

I am attempting to purchase a commercial property with a shutdown fast food restaurant on it and would like to get everyone's input on the best way to evaluate this property.

I appreciate any feedback! Thank you!

Tanh Truong · Answer

Vacant restaurants are definitely challenging. What I've done is negotiating with the sellers to have marketing authority under due-diligence to help with procuring a tenant. If you get no interest, both you and the seller are in the same position as before.

To answer your question, to me simple is better and I'm assuming you mean evaluating the property as in pro-forma for ROI. If so, then I usually only look at COC returns based off of as-is operations and pro-forma at conservative optimization. In your example, you would have to look at what market rates are for a restaurant to rent and factor in TI (tenant improvement costs) for the space.

John M. · Answer

What kind of restaurant was it? If it's in a good location, there is a good chance you can get it leased, especially if it has a drive through. The key is to get the property at the right price. New construction is so expensive that retrofitting these second generation restaurants might be the cheaper way to go for both you and the new tenant. There are a lot of mom and pops and even chains that are tired brands that need an overall with a new concept.

Ronald Rohde · Answer

a vacant retail is like a time bomb, slowly ticking and draining capital. Don't buy it unless you have a tenant in tow.

Scott E. · Answer

Tanh nailed it. If I were to pursue a property like this, I would first make sure I had a LOT of confidence in the lot and the location. Then from there, I would ask for a long due diligence window where I had approval to market to a new tenant.

There was a similar deal I was looking at a few months ago but it was a vacant gas station. I ended up passing on the deal. It would have been biting off more than I could chew, and I wasn't prepared to stomach the holding costs for an unforeseeable amount of time.

Ronald Rohde · Answer

Maybe I'll clarify, don't CLOSE until you have a high confidence Tenant to sign a long term lease.

John M. · Answer

I"m contradicting myself here, but I a came across a similar opportunity yesterday. It turns out that this building needs to be torn down (wood construction). A retrofit wouldn't make sense, and it's too much money to build a new one so I had to pass on the deal. Make sure you know what your doing here. Constructions costs are very tricky to figure out.

Wale Lawal · Answer

@Seldon Rios

For a retail property that is vacant, you need to do thorough due diligence.

Make sure you understand the risk and expenses, until it will be occupied by a tenant.

Consult with a local Investor-Agent as they can help shorten your learning curve and save you a lot of headaches as they tend to understand the market better.All the best!

What's your favorite way to evaluate a commercial property?

What's your favorite way to evaluate a commercial property?

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