Recently Sold Commercial Properties?

Question

I realize that sites like LoopNet have data on recently sold commercial properties, but I was wondering if there are other sources out there that are free?

E.G. See http://www.dailycamera.com/business-data/ci_24806206/boulder-broomfield-weld-commercial-deals-dec-30-2013 for Boulder County. They must get this for free somehow. Does anyone know where I can get this same info for areas like Austin, Dallas, and Los Angeles?

Tim Soto · Answer

Hi Leo,

Hope I'm not too late on this subject.

The comps or recently sold properties of a similar type and area should be in the Offering Memorandum, which should be produced by the listing broker/agent. Although that particular data may be available and furnished to you, it’s not an indication of the subject property’s value. You can’t rely on comps due to many different reasons including, different unit mixes, management efficiency, management inefficiencies, etc. I would use that date to evaluate where the market rental rates are compared to the subject property. So, it’ll give you an indication if you can raise rents or if you’re at market rate.

Same thing when it comes to price per unit. Two properties may have the same price per unit, yet have totally different unit mixes, which is a huge deal. It’s always preferred that the ratio be twice more 2/1’s than 1/1’s. It’s more marketable to the masses and less likely to have higher turnover rate.

The Net Operating Income (NOI) is one of the most important variables used for value. The value of commercial real estate is bases on the income it generates. If you have the NOI, figure how much of a return you want on your investment, then that’s the highest you should pay for the property (assuming you payed cash and own the property free and clear). I use it as the fastest way to assess value. You mentioned that the current NOI is $69,836, the purchase price is $980,000, and the cap rate is 7.1%. So this means that you’re ok with 7.1% return if you were to pay all cash for this property? That may be the going rate in that market for that type of property, but if you don’t have significant vacancies, then you’re paying retail. If you want a 10% return then the property is valued at $698,360:

NOI: $69836/Cap rate: .10 = Value: $698,360

What’s your vacancy %? Of the 28 units, how many are vacant? That’s one of the most important numbers needed to assess if this will be a good deal. Vacancies are one of the variables that can be used to determine value. The more vacancies there are, the lower the value. If its 90%-100% occupied, there’s no future value, unless you’re getting it at an insane rock-bottom price. If it's 50%-70% vacant, then there’s tremendous upside and value. The pro forma (potential) income from those vacancies can be used to evaluate the actual value of the property and the future value. I like vacancies, because I don’t pay for them. I can use this data to justify a lower offer based on the vacancies that I have to cure myself. Why would I pay for the work of having to get the units rent ready and going through the tenant leasing process? If I’m going to go through that process, then it’s going to be my forced appreciation. Only use pro forma as an owner, never as a buyer.

It was just a quick assessment so if I wasn't clear on something or additional questions, please feel free to respond or correct me. hope this was helpful.

Jon Klaus · Answer

Are you working with a broker, Leonid?  They should be able to provide comps. Check Marcus and Millichap. They have detailed Multi-family reports for DFW sub-markets.  You might also post your deal here at BP.  We have some members who could give you a good idea on value.

Thomas Blue · Answer

Hey Jon: Thanks. I hope you are well.  The wife and I are now moving to Boulder! Do you know where they get them from?

Joel Owens · Answer

Leonid,

1969 property, 7 cap, 65% expenses = not that great of a deal.

LEONID ORLOV · Answer

Thanks everyone for the feedback

Jon Klaus · Answer

Leonid, would you please start another topic for this?  You can use the same post.

LEONID ORLOV · Answer

Jon,

Yes  I am working with broker, he provided nice graphs comparing different metrics, sq footage, price per unit, etc. However, I would like to correlate this to a specific recently sold properties and thought there are independent sources of such information, like for SFR's on MLS.

I would appreciated a feedback on the proposed deal:

Sale Price $980,00

Price Per Unit $35,00

Price Per Foot $41.26

CAP Rate 7.1%

GRM 4.86x

Building Size 23,750 SF

Lot Size 43,124 s.f.

Year Built 1969

City Desoto TX

Gross Scheduled Income $201,424

Other Income 703

Total Scheduled Income 202,127

Vacancy Cost (28,610)

Gross Income 173,517

Operating Expenses (103,682)

Net Operating Income $69,836

Feedback would be greatly apreciated

LEONID ORLOV · Answer

Finding comparable sales to evaluate a purchase.

I am planning t purchase a 28 unit building in Desoto TX.

How do I find data to compare what are comparable CAP, price per unit, etc for recently sold properties in the area.

How else one determines if one signs up for a fair deal for commercial properties?

Jon Klaus · Answer

I don't know where they get them. I'm guessing brokers report.  I've seen them in The Dallas and Austin Business Journals for many years.   Enjoy Boulder!

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