Super Small office - Need to fill with tenants before selling or keep it vacant?

Question

Looking for some advice as this is my first time owning a small office. My small office building is (1,700) sq ft with 3 units. Do I need to fill it with tenants before selling or am I able sell it vacant? Is the buyer able to get a loan if it's vacant?

Bill B. · Answer

I don’t know if your hypothetical buyer can get a loan and you might want a tenant or two if thsi takes you 6+ months to find a buyer. But…

Many buyers would like to pick their own tenants AND your ideal buyer might be buying a location for their own business and want a vacant spot. But, some may be afraid of the time and costs to find a tenant. So 1-2 tenants may be the middle ground. Ask your commercial realtor.

Brian Kloft · Answer

You are kind of in a darned if you do darned if you don't. It is a matter of what are the odds of you getting an owner user vs an investor. The investor is going to want 2 or 3 of the spaces leased and if they are vacant then whatever number you claim for rents they will think it is a lot less and they will also not want to pay you as if it was full as they will have to take the risk, do the work and pay the commissions to lease it, so they will want to pay you a much lower vacant rehab building price. Obviously an owner user will want it vacant as they will want to occupy the space. I would suspect the odds are better at that size for an owner user. While I like small multi tenant office buildings as an investment the number of investment buyers for that size is not very big vs the number of owner users is larger. Plus there are owner users that may want to only occupy 1 or 2 of the suites and rent the other part out for income and have it for when they need to expand into more space. If you list it while it is vacant, do not market it to investors, make sure to clearly market it towards owner users. Also, I am assuming that this is not a medical office building. What state and city is your property located?

Evan Polaski · Answer

@Gi'angelo Bautista, similar to Bill's comment, this is something you need to talk to local office brokers about.  1,700 sq ft is very small for most offices, let alone cutting it into 3. But I don't know the market/submarket and overall needs.

Anyone buying it purely for investment would be wanting some tenants, likely with upside to fill the last tenant unit.  But I would imagine, based on layout, the buyer would be an owner/occupant company that needs the full space.

If brokers don't have an answer, personally, I would market it for sale vacant first.  If you are not seeing what you want in terms of offers (volume or value) than I would start filling it and relist.  But once you have tenants in their, unless you get unilateral rights to terminate prior to sale, you will have trouble getting them out if the buyer does want the full space.

Ronald Rohde · Answer

List it as vacant, while finding tenants

Super Small office - Need to fill with tenants before selling or keep it vacant?

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