Office building worth purchasing?

[Carl Cheung]

I'm in the PNW and the office building my office is in is up for an estate sale. It was built in the 1980s and there is a lot of deferred maintenance since the landlord was a DIY person, so bare minimal expenses. The selling broker didn't want to give me any rent roll, leases, expense reports, etc. but finally gave me this info. "The current numbers work out approximately to Annual Gross Income of $79,236, Expenses of $27,411, and a NOI of $51,825"

2025 Expenses estimated

Property tax: $13,000
Insurance: $6300
Electricity and Garbage: $1800
Water and sewer: $5000
Other: $1200

2026 county assessed value
$1.30M $845k land / $465k improvements

Asking price: $1.3 million.

Current rents range from $14/sqft to $25/sqft. The other tenants (4) leases expire next year then go month to month, they are under market. I have a couple years left and then options to renew.

Not the best location, most of the newer stuff is being built near the freeway and this location is tucked a bit in the suburbs. Comps is rent ~$35-38 (NNN included) for a better location and newer building. The older buildings across the street seem to have similar rent of ~$25/sqft.

Spoke to a lender who says they can owner occupy (even though I lease 20% of the building), rate @ ~5.6% and @ 200k down, 25 year amortization monthly payment of ~$6800.

Running some rough numbers with expenses not changing at all (which will definitely increase)
@ $25/SF
• Building NOI: ~$83,789
• DSCR: 1.03x
• Real-estate cash after debt: +$2,189

@ $30/SF
• Building NOI: ~$97,629
• DSCR: 1.20x
• Real-estate cash after debt: +$16,029

Seems like thin margins with additional risk of vacancy, landlord obligations, opportunity cost of ~200k down, etc. Am I missing something or is this not worth pursuing?

[Don Konipol]

Quote from @Carl Cheung:

I'm in the PNW and the office building my office is in is up for an estate sale. It was built in the 1980s and there is a lot of deferred maintenance since the landlord was a DIY person, so bare minimal expenses. The selling broker didn't want to give me any rent roll, leases, expense reports, etc. but finally gave me this info. "The current numbers work out approximately to Annual Gross Income of $79,236, Expenses of $27,411, and a NOI of $51,825"

2025 Expenses estimated

Property tax: $13,000
Insurance: $6300
Electricity and Garbage: $1800
Water and sewer: $5000
Other: $1200

2026 county assessed value
$1.30M $845k land / $465k improvements

Asking price: $1.3 million.

Current rents range from $14/sqft to $25/sqft. The other tenants (4) leases expire next year then go month to month, they are under market. I have a couple years left and then options to renew.

Not the best location, most of the newer stuff is being built near the freeway and this location is tucked a bit in the suburbs. Comps is rent ~$35-38 (NNN included) for a better location and newer building. The older buildings across the street seem to have similar rent of ~$25/sqft.

Spoke to a lender who says they can owner occupy (even though I lease 20% of the building), rate @ ~5.6% and @ 200k down, 25 year amortization monthly payment of ~$6800.

Running some rough numbers with expenses not changing at all (which will definitely increase)
@ $25/SF
• Building NOI: ~$83,789
• DSCR: 1.03x
• Real-estate cash after debt: +$2,189

@ $30/SF
• Building NOI: ~$97,629
• DSCR: 1.20x
• Real-estate cash after debt: +$16,029

Seems like thin margins with additional risk of vacancy, landlord obligations, opportunity cost of ~200k down, etc. Am I missing something or is this not worth pursuing?

Office buildings like the one you mentioned are selling for 25% of their peak value.  A guess as to peak value would have been about $1.8.  So a rough guess as to value is $500k. 

Expenses you provided don’t include management fees, labor, repairs, maintenance, depreciation, accounting, legal, vacancy, and a few more.  The real NOI is probably actually less than $30k.  

A purchase of a third tier office building, with leases expiring in one year, at a 4th tier location, is highly speculative at any price.